JOINT STRATEGIC ALLIANCE AND SECURITIES PURCHASE AGREEMENT

THIS JOINT STRATEGIC ALLIANCE AND SECURITIES PURCHASE AGREEMENT (this
“Agreement”), dated as of April 15, 2008, is made and entered into by and
between American Oriental Bioengineering Inc., a corporation organized under the
laws of the State of Nevada (“AOBO” or the “Investor”), and China Aoxing
Pharmaceutical Company, Inc., a corporation organized under the laws of the
State of Florida (“CAXG” or the “Issuer”).

WHEREAS, the Investor is a publicly traded corporation listed on the New York
Stock Exchange under the ticker symbol of “AOB” and is a leading marketer,
distributor and manufacturer of pharmaceutical and healthcare products in China;
and

WHEREAS, the Issuer is a publicly traded corporation quoted on the OTC Bulletin
Board under the ticker symbol of “CAXG” and is a China-based pharmaceutical
company specializing in research, development, manufacturing and distribution of
narcotic and pain management products; and

WHEREAS, the Investor and the Issuer seek to enter into a strategic alliance
with respect to the narcotic drug and pain medicine business (“Strategic
Alliance”); and

WHEREAS, the Investor desires to purchase and the Issuer desires to sell, upon
the terms and subject to the conditions set forth in this Agreement, thirty
million (30,000,000) shares of CAXG’s newly issued but unregistered common
stock, $.001 par value (“Common Stock”), for a total of eighteen million U.S.
dollars ($18,000,000) at a purchase price of $0.60 per share (the “Shares”); and

WHEREAS, Issuer and Investor are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the
“Securities Act”); and

WHEREAS, the net proceeds of the sale of the Shares shall be used for Issuer’s
acquisition of Shijiazhuang Lerentang Pharmaceutical Company Limited (“LRT”), a
pharmaceutical company organized under the People’s Republic of China, new
product development, marketing existing products, and for other working capital
requirements; and

WHEREAS, following the Closing, certain of the stockholders of CAXG (“Escrowing
Stockholders”) will place in escrow an aggregate of 3,000,000 shares of CAXG
Common Stock owned by them, accompanied by stock powers duly endorsed in blank,
with such shares to be delivered to Investor in the event that Issuer does not
to satisfy certain financial milestones, to be agreed to by Issuer and Investor.

 

 

 

NOW THEREFORE, the Investor, Issuer and Escrowing Stockholders hereto do each
hereby agree as follows:

1.

Strategic Alliance.

a.

Duties and Participation.  Issuer and Investor agree to enter into the Strategic
Alliance with respect to the development, of the Oxycodone, Tilidine,
Buprenorphine/Naloxone, Tilidine/Naloxone and Pholcodine programs (collectively,
the “Products”), with the allocation of duties and participation of each of
Issuer and Investor as follows:

(i)

CAXG shall be wholly responsible, financial and otherwise, for all clinical
programs with respect to the Products and all required registrations.  CAXG
shall pursue such activities in a timely fashion.

(ii)

CAXG shall be wholly responsible for all research and development expenditures
in connection with the Products.

(iii)

Investor and CAXG will collaborate on sales and marketing activities with
respect to the Products.

b.

Joint Committee.  Investor and CAXG agree to form a joint committee that will
have full authority with respect to research and development activities
(including new chemical drug discovery, formulation, drug delivery and
pre-clinical and clinical activities), product licensing and product branding
with respect to the Products, or otherwise.

2.

Authorization and Purchase and Sale of Shares; Purchase of  Shares; Certain
Definitions; and Covenants of the Parties.

a.

Authorization of Shares.  The Issuer has authorized the issue and sale of the
Shares to Investor.

b.

Purchase of Shares.  Subject to the terms and conditions of this Agreement on
the date of closing of this Agreement (hereinafter, the “Closing”), the Issuer
agrees to sell to Investor, and the Investor agrees to purchase from Issuer the
Shares at a purchase price of $0.60 per share, for a total of eighteen million
U.S. dollars ($18,000,000).  The Closing Date shall be at such time as agreed to
between Investor and Issuer (“Closing Date”).  At the Closing, Investor shall
deliver the Purchase Price to the Issuer, and Issuer shall deliver the Shares to
Investor.

c.

Certain Definitions.

In addition to the other terms defined herein, as used in this Agreement, the
following capitalized terms shall have the meanings set forth below.

(i)

Business Day shall mean any day other than Saturday or Sunday or any other day
when Citibank NA, New York, New York, is not open for business.

(ii)

Material Adverse Effect means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company and the

 

2

 

Subsidiaries, when taken as a consolidated whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith.

(iii)

Person shall mean any individual, corporation, limited liability company,
partnership, association, trust or other entity, government agency or
organization.

(iv)

SEC shall mean the United States Securities and Exchange Commission.

(v)

Securities Act shall mean the United States Securities Act of 1933, as amended.

(vi)

Subsidiary shall mean any “significant subsidiary” or “subsidiary” (as such
terms are defined in the SEC’s Rule 1-02 of Regulation S-X as promulgated under
the Securities Act).

d.

Other Covenants.  Financial Milestoned; Escrowed Stock.

Following the Closing, pursuant to the terms of an escrow agreement to be
entered into at such time, the shareholders of CAXG annexed hereto (“Escrowing
Stockholders”) and party to this Agreement agree to deliver to an escrow account
to be maintained by an escrow agent to be chosen by Investor (the “Escrow
Agent”), an aggregate of 3 million shares of CAXG Common Stock owned by the
Escrowing Stockholders, with stock powers duly endorsed in blank (the “Escrowed
Shares”).

All or a portion of the Escrowed Shares will be delivered to the Investor in the
event that Issuer does not satisfy certain financial milestones to be agreed to
by Issuer and Investor.

3.

Representations and Warranties of Investor.  Investor represents and warrants to
Issuer that:

a.

Corporation.  The Investor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
or organized, with full power and authority (corporate and other) to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted.

b.

Authorization; Enforcement.  The Investor has all requisite corporate power and
authority to enter into and perform and/or deliver this Agreement and to
consummate the transactions contemplated hereby and thereby.  This Agreement has
been duly executed and delivered by the Investor’s authorized representative,
and such authorized representative is the true and official representative with
authority to sign this Agreement and the Escrow Agreement executed in connection
herewith and bind the Investor accordingly.

c.

Investment Purpose.  As of the date hereof and the Closing Date the Investor is
purchasing the Shares for its own account and not with a present view towards
the public sale or distribution thereof, except pursuant to sales registered or
exempted from registration under the Securities Act.

 

3

 

d.

Accredited Investor Status.  The Investor is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D under the Securities Act (an
“Accredited Investor”).

e.

Reliance on Exemptions.  The Investor understands that the Shares are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Issuer is relying upon the truth and accuracy of, and the Investor’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Shares.

f.

Information.  The Investor and its advisors, if any, have had the opportunity to
ask questions of management of the CAXG and have been furnished with all
information relating to the business, finances and operations of CAXG and
information relating to the offer and sale of the Shares which have been
requested by the Investor or its advisors.  Neither such inquiries nor any other
due diligence investigation conducted by the Investor or any of its advisors or
representatives shall modify, amend or affect the Investor’s right to rely on
the representations and warranties of the Issuer contained in this Agreement.
 The Investor understands that its investment in the Shares involves a
significant degree of risk.  The Investor further represents to the Issuer that
the Investor’s decision to enter into this Agreement has been based solely on
the independent evaluation of the Investor and its representatives.

g.

Governmental Review.  The Investor understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.

h.

Transfer or Re-sale.  The Investor understands that the sale or re-sale of the
Shares has not been and is not being registered under the Securities Act or any
applicable state securities laws, and the Shares may not be transferred unless
(i) the Shares are sold pursuant to an effective registration statement under
the Securities Act, (ii) the Investor shall have delivered to the Company an
opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Shares to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration, which opinion shall be reasonably acceptable to the Issuer,
(iii) the Shares are sold or transferred to an “affiliate” (as defined in Rule
144 promulgated under the Securities Act (or a successor rule) (“Rule 144”) of
the Investor who agrees to sell or otherwise transfer the Shares only in
accordance with this Section and who is an Accredited Investor, (iv) the Shares
are sold pursuant to Rule 144, or (v) the Shares are sold pursuant to Regulation
S under the Securities Act (or a successor rule) (“Regulation S”).

i.

Legends.  The Investor understands that the Shares shall bear a restrictive
legend.  “Neither the offer nor sale of the securities represented by this
certificate has been registered under the Securities Act of 1933, as amended,
(the “Act”).  The securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the Act,
or an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not required under the
Act or unless sold pursuant to Rule 144 or Regulation S under the Act.”

 

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4.

Representations and Warranties of each of the Escrowing Stockholders.  Each the
Escrowing Stockholders on a joint and several basis makes the following
representations and warranties to the Investor:

a.

Ownership.  Each Escrowing Stockholder is the record and beneficial owner of,
and has on the Closing Date valid and marketable title to the number of shares
of the Issuer's Common Stock set forth beside his name on Schedule "A" annexed
hereto, free and clear of all security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances; and upon
delivery of such shares under the terms of Section 2(d) of this Agreement to
Issuer the Investor will acquire valid and marketable title thereto, free and
clear of any security interests, claims, liens, restrictions on transferability,
legends proxies, equities or other encumbrances.

b.

Power and Authority.  Each Escrowing Stockholder has the power and authority to
enter into this Agreement and the Escrow Agreement and to sell, transfer and
deliver the Escrow Shares to Investor.

c.

Valid and Binding Agreement.  This Agreement and the Escrow Agreement (upon the
execution and delivery thereof) each constitute a valid and binding agreement of
each Escrowing Stockholder, enforceable in accordance with its terms, except as
rights to indemnity hereunder or thereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or laws affecting the rights of creditors generally
and subject to general principles of equity.  The execution and delivery of this
Agreement and the Escrow Agreement and the performance of the terms hereof and
thereof and the consummation of the transactions herein and therein contemplated
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any agreement or instrument to which any of the
Escrowing Stockholder's is a party or by which any of the Escrowing
Stockholder's is bound, or any law, regulation, order or decree applicable to
any of the Escrowing Stockholder's; no consent, approval, authorization or order
of, or filing with, any court or governmental agency or body is required for the
execution, delivery and performance of this Agreement and the Escrow Agreement
or for the consummation of the transactions contemplated hereby and thereby.

d.

Choice of Laws.  The choices of the law of the State of New York as the
governing law of this Agreement and Escrow Agreement are valid choices of law
under the laws of any jurisdiction relating to the Escrowing Stockholders and
will be honored by courts in any such jurisdiction pertaining to the Escrowing
Stockholders.  Each of the Escrowing Stockholders has the power to submit, and
pursuant to Section 12 of this Agreement, has legally, validly, effectively and
irrevocably submitted, to the personal jurisdiction of each United States
federal court and New York state court located in the Borough of Manhattan, in
The City of New York, New York, United States (each, a “New York Court”), and
each of the Escrowing Stockholders has the power to designate, appoint and
authorize, and pursuant to Section 12 of this Agreement, has legally, validly,
effectively and irrevocably designated, appointed an authorized agent for
service of process in any action arising out of or relating to this Agreement or
the Escrow Agreement in any New York Court, and service of process effected on
such authorized agent will be effective to confer valid personal jurisdiction
over the Escrowing Stockholders as provided in Section 12 of this Agreement.

 

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e.

No Right of Immunity.  None of the Escrowing Stockholders nor any of their
respective properties or assets has any right of immunity under any
jurisdiction, including, New York or U.S. federal law, from any legal action,
suit or proceeding, from the giving of any relief in any such legal action, suit
or proceeding, from set-off or counterclaim, from the jurisdiction of
jurisdiction, New York or U.S. federal court, from service of process,
attachment upon or prior to judgment, or attachment in aid of execution of
judgment, or from execution of a judgment, or other legal process or proceeding
for the giving of any relief or for the enforcement of a judgment, in any such
court, with respect to its obligations, liabilities or any other matter under or
arising out of or in connection with this Agreement or the Escrow Agreement;
and, to the extent that any Escrowing Stockholder or any of their respective
properties or assets may have or may hereafter become entitled to any such right
of immunity in any such court in which proceedings may at any time be commenced,
such Escrowing Stockholder waives or will waive such right to the extent
permitted by law and has consented to such relief and enforcement as provided in
Section 12(a) of this Agreement.

f.

Representation.  Each of the Escrowing Stockholders has had full and ample
opportunity to consult with its legal and other advisors in connection with the
execution and delivery of this Agreement and the Escrow Agreement.

5.

Representations and Warranties of the Issuer.  The Issuer on behalf of itself
and each of the Subsidiaries makes the following representations and warranties
on the date hereof and on the Closing Date:

a.

Organization and Qualification.  The Issuer and each of the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated or organized, with full power
and authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted.  The Issuer and each of the Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect.

b.

Authorization; Enforcement.  The Issuer has all requisite corporate power and
authority to enter into and perform and/or deliver this Agreement and to
consummate the transactions contemplated hereby and to issue the Shares, in
accordance with the terms hereof and thereof.  Upon issuance, the Shares will be
duly and validly issued, fully paid and non-assessable with no personal
liability attached thereto.  The Shares, other than as provided in Sections 7
and 8 of this Agreement, are not and will not be subject to the preemptive
rights of any holders of any security arising by operation of law or under the
certificate of corporation or By-laws of Issuer, or similar right that entitle
or will entitle any person to acquire any security from Issuer.  The issuance of
the Shares will not trigger any anti-dilution or other similar rights of any
security holder of Issuer.  The execution and delivery of this Agreement by the
Issuer and the consummation by it of the transactions contemplated hereby
(including without limitation, the issuance of Shares) has been duly authorized
by the Issuer’s Board of Directors and no further consent or authorization of
Issuer, its Subsidiaries, Board of Directors, or its shareholders is required.
 This Agreement has been duly executed and delivered by the Issuer’s authorized

 

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representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and bind the Issuer
accordingly.  This Agreement constitutes, and will constitute, a legal, valid
and binding obligation of the Issuer enforceable against it in accordance with
its terms.

c.

Solvency.  The Issuer (after giving effect to the transactions contemplated by
this Agreement) is solvent (i.e., its assets have a fair market value in excess
of the amount required to pay its probable liabilities on its existing debts as
they become absolute and matured).  The Issuer (after giving effect to the
transactions contemplated by this Agreement) has the ability to pay its debts
from time to time incurred in connection therewith as such debts mature.

d.

No Investment Company.  The Issuer is not, and upon the issuance and sale of the
Securities as contemplated by this Agreement will not be, an “investment
company” as defined under the Investment Company Act of 1940 (an “Investment
Company”).  The Issuer is not controlled by an Investment Company.

e.

No Conflicts.  The execution, delivery and performance of this Agreement by the
Issuer and the consummation of the transactions contemplated hereby (including,
without limitation, the issuance of the Shares) will not (i) conflict with or
result in a violation of any provision of the certificate of incorporation, or
articles of associate as amended (the “Articles”) of the Issuer or the by-laws,
as amended, (the “By-laws”) of the Issuer, or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement or instrument to which the Issuer is a Party or
is otherwise bound or is a beneficiary, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal, state and
foreign securities laws and regulations and regulations of any self-regulatory
organizations to which any of the Corporations or their its securities are
subject) applicable to the Issuer or by which any property or asset of the
Issuer is bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect).  The Issuer
is not in violation of its Articles, By-laws or other organizational documents
and the Issuer is not in default (and no event has occurred which with notice or
lapse of time or both could put the Issuer in default) under, and the Issuer has
not taken any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Issuer is a Party or by which
any property or assets of any of the Issuer is bound or affected, except for
possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect.  The businesses of the Issuer is not being conducted in
violation of any law, ordinance or regulation of any governmental entity
material to the business of such Corporations.

f.

Absence of Litigation.  There is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of any officer
of any of CAXG or any subsidiary, threatened against or affecting any of the
Issuer or any Subsidiary, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect.  No executive

 

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officer of the Issuer or any Subsidiary has knowledge of any facts or
circumstances which might give rise to any of the foregoing.

g.

Patents, Copyrights, Trademarks.

(i)

The Issuer and each Subsidiary owns or possesses the requisite licenses or
rights to use all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights (“Intellectual Property”) necessary to
enable it to conduct its business as now operated; there is no claim or action
by any Person pertaining to, or proceeding pending, or to the knowledge of any
executive officer of the Issuer or any Subsidiary threatened, which challenges
the right of Issuer or any Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated (and, to the
knowledge of any executive officer of the Issuer, as presently contemplated to
be operated in the future); to the knowledge of any executive officer of the
Issuer or Subsidiary, neither the Issuer’s nor any Subsidiary’s current and
intended products, services and processes infringe on any Intellectual Property
or other rights held by any Person; and no officer of either the Issuer or any
Subsidiary has knowledge of any facts or circumstances which might give rise to
any of the foregoing.

(ii)

“Copyrights” shall mean (i) copyrights, whether registered or unregistered, held
pursuant to the laws of the United States, any State thereof, China or any other
country; (ii) registrations, applications and recordings in the United States
Copyright Office or in any similar office or agency of the United States, any
State thereof or any other country, including China; (iii) any continuations,
renewals or extensions thereof; (iv) any registrations to be issued in any
pending applications; (v) prior versions of works covered by copyright and all
works based upon, derived from or incorporating such works; (vi) income,
royalties, damages, claims and payments now and hereafter due and/or payable
with respect to copyrights, including, without limitation, damages, claims and
recoveries for past, present or future infringement; (vii) rights to sue for
past, present and future infringements of any copyright; (viii) any rights in
any material which is copyrightable or which is protected by common law, United
States copyright laws or similar laws, or any law of any State or country,
including China, and (ix) any other rights corresponding to any of the foregoing
rights throughout the world.

(iii)

“Copyright License” shall mean any agreement, written or oral, granting any
right in or to any Copyright or Copyright registration, including, without
limitation, licenses for the exclusive right to use a copyright owned by a third
Party.

(iv)

“Patents” shall mean (i) letters patent of the United States, China or any other
country, all registrations and recordings thereof and all applications for
letters patent of the United States, China or any other country, including,
without limitation, registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country, including China; (ii)
reissues, divisions, continuations, renewals, continuations in part or
extensions thereof; (iii) petty patents, patents of addition; (iv) patents to
issue in any such applications; (v) income, royalties, damages, claims and
payments now and hereafter due and/or payable with respect to patents,
including, without limitation, damages, claims and recoveries for past, present
or future infringement; and (vi) rights to sue for past, present and future
infringements of any patent.

 

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(v)

“Patent License” shall mean any agreement, whether written or oral, granting any
right with respect to any Patent.

(vi)

“Trademarks” shall mean (i) trademarks, trade-names, corporate names, company
names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature,
registrations and recordings thereof and any applications in connection
therewith, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country,
including China (collectively, the “Marks”); (ii) any reissues, extensions or
renewals thereof, (iii) income, royalties, damages, claims and payments now and
hereafter due and/or payable with respect to the Marks, including, without
limitation, damages, claims and recoveries for past, present or future
infringement and (v) rights to sue for past, present and future infringements of
the Marks.

(vii)

“Trademark License” shall mean any agreement, written or oral, granting any
right in and to any Trademark or Trademark registration.

h.

Tax Status.  Issuer and each Subsidiary has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Issuer has set aside on its Financial Statements provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its Financial Statements
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
 There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and none of the executive officers of the
Issuer or its Subsidiaries know of any basis for any such claim.  None of the
Issuer or any Subsidiary has executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax.  None of the Issuer’s or any Subsidiary’s tax returns is
presently being audited by any taxing authority.

i.

Permits; Compliance.  The Issuer and each Subsidiary is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted (collectively, the “Permits”), and there is no action pending or, to
the knowledge of any officer of either the Issuer or any Subsidiary, threatened
regarding suspension or cancellation of any of the Permits.  None of Issuer or
any Subsidiary is in conflict with, or in default or violation of, any of the
Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.

j.

Environmental Matters.  There are no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under any environmental laws of

 

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China or other country in which any of the Issuer or any Subsidiary conduct
business, and none of the Issuer or Subsidiary has received any notice with
respect to any of the foregoing, nor is any action pending or, to the knowledge
of any officer of the Issuer or Subsidiary, threatened in connection with any of
the foregoing.  The term “Environmental Laws” means all laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved hereunder. Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by any of the Issuer or any Subsidiary,
and no Hazardous Materials were released on or about any real property
previously owned, leased or used by any of the Issuer or any Subsidiary during
the period the property was owned, leased or used by such companies, except in
the normal course of their businesses.  There are no underground storage tanks
on or under any real property owned, leased or used by any of the Issuer or
Subsidiary that are not in compliance with applicable law.

k.

Title to Property.  The Issuer and each Subsidiary has good and marketable title
to all real property or holds under valid leases or other rights to use all real
property, plants, machinery and equipment necessary for the conduct of the
business as presently conducted and good and marketable title to all personal
property owned by them which is material to the business, in each case free and
clear of all Liens and defects except such as would not have a Material Adverse
Effect.  Any real property and facilities held under lease are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.

l.

Insurance.  The Issuer and each Subsidiary is insured by insurers of recognized
financial responsibility against such losses and risks, including casualty and
liability insurance, and in such amounts as management of CAXG believes to be
prudent and customary in the businesses in which CAXG and each Subsidiary is
engaged.  No officer of CAXG or any Subsidiary has any reason to believe that
its corporation will not be able to renew their existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue such businesses at a cost that would
not have a Material Adverse Effect.

m.

Foreign Corrupt Practices; Foreign Assets Control Regulations.  Neither the sale
of the Shares hereunder nor its use of the proceeds thereof will violate the
Trading with the Enemy Act, as amended, or any foreign assets control
regulations of the United States Treasury Department (31 CFR Subtitle B, Chapter
V, as amended) or any enabling legislation or executive order relating
therefrom.  None of the Issuer or any Subsidiary nor any director or senior
officer of any of the Issuer or any Subsidiary is a Person named on the U.S.
Treasury Department’s Office of Foreign Assets Control (“OFAC”) list, nor is a
Person prohibited under the OFAC programs.

 

10

 

n.

Exchange Act Filings.  CAXG has fully and timely filed all annual, quarterly and
periodic reports required to be filed by it under the Exchange Act of 1934, as
amended (the “Exchange Act”), and is a fully-reporting company under Section
12(g) of the Exchange Act.  The Company Common Stock is listed and trades on the
NASD over-the-counter Bulletin Board (the “OTCBB”) and no stop order or notice
of suspension of trading of its Common Stock on the OTCBB has been received from
or threatened by any Person.

o.

Disclosure.  All information relating to or concerning CAXG set forth in this
Agreement and otherwise provided to the Investors in connection with the
transactions contemplated hereby, including all filings by Issuer under the
Exchange Act, is true and correct in all material respects and has not omitted
to state any material fact necessary in order to make the statements made herein
or therein, in light of the circumstances under which they were made, not
misleading.  No event or circumstance has occurred or exists with respect to
CAXG or its business or that of the Subsidiaries, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement but which has not been so
publicly announced or disclosed.

p.

No Material Adverse Change.  Since the respective dates as of which information
is given in the Issuer's filings under the Exchange Act: (i) there has been no
material adverse change in the condition, financial or otherwise, or business
prospects of the Issuer; (ii) there have been no material transactions entered
into by the Issuer, other than as disclosed in filings under the Exchange Act;
(iii) no member of the Issuer’s board of directors or management has resigned
from any position with the Issuer and (iv) no event or occurrence has taken
place which materially impairs, or would likely materially impair, with the
passage of time, the ability of the members of the Issuer’s board of directors
or management to act in their capacities with the Issuer.

q.

Financial Statements.  The financial statements, including the notes thereto and
supporting schedules included in the Issuer's filings under the Exchange Act
(“Financial Statements”), fairly present the financial position and the results
of operations of the Issuer at the dates and for the periods to which they
apply; and such Financial Statements have been prepared in conformity with
generally accepted accounting principles of the United States, consistently
applied throughout the periods involved; and the supporting schedules included
present fairly the information required to be stated therein.  The Financial
Statements disclose all material off-balance sheet transactions, arrangements,
obligations (including contingent obligations), and other relationships of the
Issuer with unconsolidated entities or other persons that may have a material
current or future effect on the Issuer’s financial condition, changes in
financial condition, results of operations, liquidity, capital expenditures,
capital resources, or significant components of revenues or expenses.

r.

Representation.  Issuer has had full and ample opportunity to consult with its
legal and other advisors in connection with the execution and delivery of this
Agreement.

6.

Conditions to the Obligation of the Investor.  The obligation of the Investor to
consummate the transactions contemplated hereby shall be subject to the
satisfaction or waiver by the Investor on or prior to the Closing Date of each
of the following conditions:

 

11

 

a.

Representations and Warranties.  Each of the representations and warranties of
the Issuer and Escrowing Stockholders contained in this Agreement shall be true
and correct in all respects (in the case of any representations or warranty
containing any materiality qualification) or in all material respects (in the
case of any representation or warranty without any materiality qualification)
when made and as of the Closing Date, with the same effect as though those
representations and warranties had been made on and as of the Closing Date, and
the Investor shall have received a certificate to that effect dated as of the
Closing Date and executed on behalf of the Issuer by its President, Vice
President or other authorized signatory.

b.

Performance of Obligations of the Issuer; Closing Certificate.  Each of the
covenants and agreements of the Issuer and each Escrowing Stockholder to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects; and the Investor shall have received at the Closing one or
more certificates to that effect dated as of the Closing Date and executed on
behalf of the Issuer by its President, Vice President or other authorized
signatory.

c.

Corporate Proceedings.  All corporate and other proceedings of the Issuer in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident thereto, shall be reasonably satisfactory in
substance and form to the Investor, and the Investor shall have received all
such documents and instruments, or copies thereof, certified if requested, as
may be reasonably requested.

d.

Legal Opinion.  Investor shall have received from counsel to Issuer an opinion,
customary for transactions of the type contemplated by this Agreement, which
opinion shall be in form and substance satisfactory to Investor.

e.

Secretary’s Certificates.

(i)

The  Issuer shall have delivered to the Investor a certificate of the Secretary
of the Issuer (A) certifying and setting forth the names, signatures and
positions of the officers of the Issuer authorized to execute this Agreement,
(B) certifying and attaching a current good standing certificate issued by the
Secretary of State of the State of Florida, and (C) attaching a copy of the
resolutions adopted by the shareholders of the Issuer authorizing and approving
the execution, delivery and performance of this Agreement.

f.

No Material Adverse Effect.  There shall have been no Material Adverse Effect to
the Issuer or any Subsidiary at Closing as compared with the date hereof.

7.

Preemptive Rights.

a.

if the Issuer proposes to issue any shares, interests, participations or other
equivalents (however designated) of capital stock of the Issuer and any rights
to acquire the foregoing, including, without limitation, any rights to acquire
securities exercisable for, convertible into or exchangeable for the foregoing
(“Equity Equivalent”), in each case after the date hereof, then the Issuer will
offer to sell to the Investor a number of such securities (“Offered Securities”)
so that the percentage of outstanding common stock owned by Investor immediately
following for Investor such issuance of Offered Securities would be equal to the
percentage of outstanding common stock owned by Investor immediately prior to
such issuance

 

12

 

of Offered Securities. The Issuer shall give Investor at least thirty (30) days’
prior written notice of any proposed issuance, which notice shall disclose in
reasonable detail the proposed terms (including price per Offered Security) and
conditions of such issuance (the “Issuance Notice”). Investor shall be entitled
to purchase the Offered Securities as determined above at the same price, on the
same terms (including, if more than one type of Offered Security is issued, the
same proportionate mix of such securities), and at the same time as the Offered
Securities are issued, by delivery of irrevocable written notice to the Issuer
of such election within thirty (30) days after delivery of the Issuance Notice
(the “Election Notice”).

8.

Right of First Refusal.

a.

Offer to Sell.  If the Issuer or any officer and/or director of Issuer (other
than one who is designated by Investor) (“Company Management”) receives and is
willing to accept a bona fide written offer (the “Offer”) from an unrelated
third party to sell any Equity Equivalent (the “Offered Interest”) for cash, the
Issuer or Company Management, as the case may be (hereinafter, any such party
being a “Seller”), shall give the Investor at least thirty (30) days’ prior
written notice of its intention to sell the Offered Interest (the “Notice”).
 The Notice shall contain an offer to sell all of all the Offered Interest to
the Investor upon the same terms and conditions as the Offer.  The Notice shall
also set forth the name and address of the proposed transferee, the amount of
the Offered Interest, the consideration and the terms of payment proposed in the
Offer, and shall be accompanied by a copy of the Offer.

b.

Acceptance.  The Investor shall have twenty (20) days after the date of the
Notice within which to accept the offer to purchase any or all of the Offered
Interest by notice to the Seller.  

c.

Closing.  The closing of a sale of the Offered Interest pursuant this Section
shall take place at the principal office of the Issuer at 10:00 a.m. local time
on the (10th) day after the rights to purchase all of the Offered Interest are
exercised, or at such other place, date and time as the parties may agree.  At
the closing, Investor shall pay to the Seller the purchase price, in cash, for
the portion of the Offered Interest being purchased by Investor.  The Seller
shall execute and deliver to the Investor such documents as the Investor may
reasonably request to effect the transfer.  

d.

Limited Sale.  In the event the Investor does not elect to purchase all of the
Offered Interest within such forty-five (45) day period, the Seller shall be
free to sell all (but not less than all) of the Offered Interest, but only upon
terms none of which is more favorable to the purchaser than originally set
forth, and only to the purchaser set forth, in the Notice, provided such sale is
consummated within seventy-five (75) days after the date of the Notice.  Prior
to the closing, the Issuer shall furnish to the Investor such evidence as the
Investor may request to show the conditions of the prior sentence are met.  If
the sale is not consummated within such seventy-five (75) day period, any of the
terms is more favorable to the purchaser or the purchaser changes, the Offered
Interest shall again become subject to the restrictions and procedures set forth
herein.

e.

The Issuer shall apply all efforts to ensure that Company Management acts in
accordance with and complies the terms of this Section 8.

 

13

 

9.

Board Representation.

a.

Appointing Investor Nominees to Issuer's Board of Directors.  Effective on the
Closing Date, the Investor shall have the right to designate one member to the
Issuer's Board of Directors, and the Issuer hereby agrees to appoint such person
to its Board of Directors promptly upon request, and take any and all action as
may be necessary for such designees (or their successors, who may be appointed
by Investor) to remain on Issuer's Board of Directors for as long as requested
by Investor. The Issuer agrees to change the Board of Directors composition to
comprise of two dependent directors including the person designated by the
Investor. Issuer also agrees to propose all of Investor's nominees in the slate
of directors to be presented to Issuer's stockholders at any annual meeting of
stockholders.  The Issuer shall provide to such directors the same information
concerning the Issuer and its Subsidiaries, and access thereto, provided to
other members of the Issuer's Board of Directors.  The reasonable travel
expenses incurred by any such director in attending any such meetings shall be
reimbursed by the Issuer to the extent consistent with the Issuer's then
existing policy of reimbursing directors generally for such expenses.  Within
two months following the Closing Date, in the event Issuer does not have
directors' and officers' insurance, the Issuer shall purchase directors' and
officers' insurance upon terms and pricing customary for a company of its size
and operating in its industry; provided, however, the Issuer shall not be
obligated to purchase such insurance in the event that such terms and pricing
are not commercially available.

b.

Information.  In the event that Investor shall not have a designee serving on
the Board of Directors of the Issuer for any reason, the Issuer shall give
notice of (in the same manner as notice is given to directors), and permit one
Person designated by Investor to attend as observer, all meetings of the
Issuer's Board of Directors and all executive and other committee meetings of
the Board of Directors and shall provide to Investor the same information
concerning the Issuer, and access thereto, provided to members of the Issuer's
Board of Directors.  The reasonable travel expenses incurred by any such
designee of Investor in attending any board or committee meetings shall be
reimbursed by Issuer to the extent consistent with the Issuer's then existing
policy of reimbursing directors generally for such expenses.

10.

Information.

a.

Financial Information.  For so long as AOBO still owns more than 20% of the
outstanding Common Stock of CAXG, CAXG shall send the following reports and/or
notices to AOBO:

(i)

(A) within thirty (30) days after the end of each of the fiscal years, a
consolidated audited balance sheet for such fiscal year and the immediately
preceding fiscal year, a consolidated income statement for such fiscal year and
the immediately preceding two fiscal years, a consolidated cash flow statement
for such fiscal year and the immediately preceding two fiscals year and a
consolidated shareholders’ equity statement for such fiscal year and the
immediately preceding two fiscals year, (B) within ten (10) days after the end
of each of the fiscal quarters (other than a fiscal quarter which is also the
end of the Issuer’s fiscal year) a consolidated unaudited balance sheet for such
fiscal quarter, a consolidated income statement for such fiscal quarter and a
consolidated cash flow statement for such fiscal quarter, in each case all in
accordance with GAAP, or generally accepted accounting principles, and each
certified by the

 

14

 

Chief Executive Officer and Chief Financial Officer as fairly presenting, in all
material respects, the financial condition of the companies being reported on
and their results of operations, subject to, in the case of unaudited financial
statements, changes resulting from normal audit adjustments; and,

(ii)

promptly upon their becoming available, one copy of (A) each report, notice or
proxy statement sent by the Issuer or its Subsidiaries to securities holders
generally, and (B) each registration statement, and each prospectus and all
amendments thereto filed by the Issuer or its Subsidiaries with the SEC,
provided, however, if any such document is available on the SEC’s EDGAR Filing
System then the Issuer need not deliver a hard copy of such document to
Investor.

b.

Notice of Default or Event of Default.  Promptly, and in any event within three
(3) Business Days after CAXG becomes aware of the existence of any default or
event of default or that any Person has given any notice or taken any action
with respect to a claimed default hereunder or that any Person has given notice
or taken any action with respect to a claimed default of any type, CAXG shall
deliver to AOBO a written notice specifying the nature and period of existence
thereof and what action CAXG is taking or proposes to take with respect thereto.

c.

Notices from Governmental Authorities.  Promptly, and in any event within three
(3) Business Days of receipt thereof, CAXG shall deliver to AOBO any notice from
any governmental authority alleging a violation of any order, ruling, statute or
other law or regulation that could reasonably be expected to have a Material
Adverse Effect.

11.

Amendment and Waiver.

a.

Requirements.  This Agreement and any other Document may be amended, and the
observance of any term hereof or thereof may be waived (either retroactively or
prospectively), with (and only with) the written consent of Issuer and Investor.

12.

Governing Law; Jury Trial.

a.

Governing Law.  The validity and interpretation of this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York.  Each of the parties hereto and their assigns hereby consents
to the exclusive jurisdiction and venue of the Courts of the State of New York,
located in the City and County of New York and the United States District Court,
Southern District, for the State of New York with respect to any matter relating
to this Agreement and performance of the parties’ obligations hereunder, the
documents and instruments executed and delivered concurrently herewith or
pursuant hereto and performance of the parties’ obligations there under and each
of the parties hereto hereby consents to the personal jurisdiction of such
courts and shall subject itself to such personal jurisdiction.  Any action, suit
or proceeding relating to such matters shall be commenced, pursued, defended and
resolved only in such courts and any appropriate appellate court having
jurisdiction to hear an appeal from any judgment entered in such courts.  The
parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding.  Service of process in any action, suit
or proceeding relating to such matters may be made and served within or outside

 

15

 

the State of New York by registered or certified mail to the parties and their
representatives at their respective addresses specified herein, provided that a
reasonable time, not less than thirty (30) days, is allowed for response.
 Service of process may also be made in such other manner as may be permissible
under the applicable court rules.

In addition to and without limiting the above, each of the Escrowing
Stockholders appoints CT Corporation System, currently of 111 Eighth Avenue, New
York, NY, 10011, as its authorized agent in the Borough of Manhattan in The City
of New York upon which process may be served in any such suit or proceeding, and
agree that service of process upon such agent, and written notice of said
service to the Escrowing Stockholder by the person serving the same to the
address provided in Section 13 hereof, shall be deemed in every respect
effective service of process upon the Escrowing Stockholder in any such suit or
proceeding.  Each of the Escrowing Stockholders further agrees to take any and
all action as may be necessary to maintain such designation and appointment of
such agent in full force and effect for a period of seven years from the date of
this Agreement.

b.

Waiver of Jury Trial.  Each party hereto hereby agrees to waive its respective
rights to a jury trial of any claim or cause of action based upon or arising out
of this Agreement.  The scope of this waiver is intended to be all encompassing
of any disputes that may be filed in any court and that relate to the subject
mater of this Agreement, including without limitation contract claims, tort
claims, breach of duty claims and all other common law and statutory claims.
 Each party hereto acknowledges that this waiver is a material inducement for
each party to enter into a business relationship, that each party has relied on
this waiver in entering into this Agreement and that each party will continue to
rely on this waiver in their related future dealings.  Each party further
warrants and represents that it has reviewed this waiver with its legal counsel,
and that such party knowingly and voluntarily waives its rights to a jury trial
following such consultation.  This waiver is irrevocable, meaning that,
notwithstanding anything herein to the contrary, it may not be modified either
orally or in writing, and this waiver shall apply to any subsequent amendments,
renewals and supplements or modifications to this agreement.  In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.

13.

Miscellaneous.

a.

Headings.  The headings of this Agreement are for convenience of reference only
and shall not form part of, or affect the interpretation of, this Agreement.

b.

Severability.  In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform to such statute or rule of law.  Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.

c.

Entire Agreement; Amendments.  This Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein.  No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the Party to
be charged with enforcement.

 

16

 

d.

Notices.  Any notices required or permitted to be given under the terms of this
Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party.  The
addresses for such communications shall be:

If to the Issuer or the Escrowing Stockholders:

China Aoxing Pharmaceutical Company Inc.

444 Washington Blvd Suite 2424

Jersey City, NJ 07310

ATTN: Hui Shao

with copies to:

Robert Brantl, Esq

Phone: 914-693-3026

Facsimile: 914-693-1807

If to Investor:

American Oriental Bioengineering Inc.

330 Madison Ave Suite 617

New York, New York 10017

Attn:

Hong Zhu

Telephone: (212) 786-7507

Facsimile: (212) 786-7569

with copies to:

Loeb & Loeb LLP

345 Park Ave 18th Floor

New York, New York 10154

Attn: Mitchell Nussbaum, Esq.

Telephone: (212) 407-4000

Each Party shall provide notice to all of the other parties of any change in
address.

e.

Successors and Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns.

f.

Third Party Beneficiaries.  This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
Person.

 

17

 

g.

Further Assurances.  Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

h.

No Strict Construction.  The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

i.

Remedies.  CAXG and each of the Escrowing Stockholders acknowledges that a
breach by any of them of their respective obligations hereunder will cause
irreparable harm to the Investor by vitiating the intent and purpose of the
transaction contemplated hereby.  Accordingly, each of the foregoing parties
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by any of such parties of the provisions of this Agreement, that the
harmed party shall be entitled, in addition to all other available remedies at
law or in equity, to an injunction or injunctions restraining, preventing or
curing any breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.

(Continued on Next Page)

 

18

 

j.

Counterparts; Signatures by Facsimile.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
 This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement and such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.

THE ISSUER:

China Aoxing Pharmaceutical Company Inc.

By:

/s/ Zhenjiang Yue

 

Name:

Zhenjiang Yue

 

Title:

Chairman and CEO

THE INVESTOR:

American Oriental Bioengineering Inc.

By:

/s/ Tony Liu

 

Name:

Tony Liu

 

Title:

Chairman and CEO

 

19