EXH. 10.8
 
DIRECTOR SHARE PLEDGE AGREEMENT
 
DIRECTOR SHARE PLEDGE AGREEMENT (this "Agreement"), dated as of February 12,
2007, made by Song Zhenghong, an individual with a principal place of residence
at __________________________________ (the "Pledgor"), in favor of S. Michael
Rudolph, in his capacity as collateral agent (in such capacity, the "Collateral
Agent") for the "Buyers" (as defined below) party to the Subscription Agreement,
dated as of even date herewith (as amended, restated or otherwise modified from
time to time, the "Subscription Agreement").
 
WITNESSETH:
 
 
WHEREAS, Lotus Pharmaceuticals, Inc. (the "Company") and each party listed as a
"Buyer" on the Schedule of Buyers attached thereto (collectively, the "Buyers")
are parties to a Subscription Agreement, pursuant to which the Company shall be
required to sell, and the Buyers shall purchase or have the right to purchase
the “Notes” (as defined therein);
 
WHEREAS, the Pledgor has executed and delivered to the Buyers a Letter Agreement
dated the date hereof (the “Letter Agreement”) requiring the Pledgor to deliver
to the Collateral Agent, 6,708,000 (as adjusted for stock splits, stock
dividends, reverse stock splits, reclassifications, recapitalizations and
similar events) shares of the common stock of the Company owned by the Pledgor
in the event of a payment default under the Notes (an “Event of Default”);
 
WHEREAS, it is a condition precedent to the Buyers entering into the
Subscription Agreement that the Pledgor shall have executed and delivered to the
Collateral Agent for the benefit of itself and the Buyers this Agreement to
secure all of the Pledgor’s obligations under the Letter Agreement;
 
NOW, THEREFORE, in consideration of the premises and the agreements herein and
in order to induce the Collateral Agent to perform under the Subscription
Agreement, the Pledgor agrees with the Collateral Agent as follows:
 
SECTION 1. Definitions and Rules of Interpretation.
 
(a) Definitions. Reference is made to the Subscription Agreement, and for a
statement of terms thereof. All terms used in this Agreement which are defined
in the Subscription Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "Code") as in effect from time to time in the State of New
York and which are not otherwise defined herein shall have the same meanings
herein as set forth therein; provided, that terms used herein which are defined
in the Code as in effect in the State of New York on the date hereof shall
continue to have the same meaning notwithstanding any replacement or amendment
of such statute except as the Collateral Agent may otherwise determine. In the
event that any such term is defined in both the Subscription Agreement and the
Code, the definition of such term in the Subscription Agreement shall control.
 

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(b) Rules of Interpretation . Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this Agreement: (i)
the singular includes the plural and the plural includes the singular; (ii) “or”
and “any” are not exclusive and “include” and “including” are not limiting;
(iii) a reference to any agreement or other contract includes permitted
supplements and amendments; (iv) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued thereunder; (v) a
reference to a person includes its permitted successors and assigns; and (vi) a
reference in this Agreement to an Article, Section, Annex, Exhibit or Schedule
is to the Article, Section, Annex, Exhibit or Schedule of this Agreement.
 
SECTION 2. Pledge and Grant of Security Interest. As collateral security for all
of the Obligations (as defined in Section 3 hereof), the Pledgor hereby pledges
and assigns and grants to the Collateral Agent a continuing security interest
in, and Lien on, all of his right, title and interest in and to the following
(collectively, the "Pledged Collateral"):
 
(a) The Pledgor’s shares of common stock of the Company as set forth in Schedule
I, and all future, issued and outstanding shares of capital stock, or other
equity or investment securities of, or partnership, membership, or joint venture
interests in, the Company, whether now owned or hereafter acquired by the
Pledgor and whether or not evidenced or represented by any stock certificate,
certificated security or other instrument, together with the certificates
representing such equity interests, all options and other rights, contractual or
otherwise, in respect thereof and all dividends, distributions, cash,
instruments, investment property and any other property (including, but not
limited to, any stock dividend and any distribution in connection with a stock
split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the foregoing and all cash and
noncash proceeds thereof (collectively, the "Pledged Shares");
 
(b) all present and future increases, profits, combinations, reclassifications,
and substitutes and replacements for all or part of the foregoing Collateral
heretofore described;
 
(c) all investment property, financial assets, securities, capital stock, other
equity interests, stock options and commodity contracts of the Pledgor, all
notes, debentures, bonds, promissory notes or other evidences of indebtedness
payable or owing to the Pledgor, and all other assets now or hereafter received
or receivable with respect to the foregoing;
 
(d) all securities entitlements of the Pledgor in any and all of the foregoing;
and
 
(e) all proceeds (including proceeds of proceeds) of any and all of the
foregoing;
 
in each case, whether now owned or hereafter acquired by the Pledgor and
howsoever his interest therein may arise or appear (whether by ownership,
security interest, Lien, claim or otherwise).
 
SECTION 3. Security for Obligations. The security interest created hereby in the
Pledged Collateral constitutes continuing collateral security for the due
performance and observance by the Pledgor of any and all of his obligations
under the Letter Agreement (the "Obligations"):
 
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SECTION 4. Delivery of the Pledged Collateral.
 
(a) All other Pledged Collateral from time to time or required to be pledged to
the Collateral Agent pursuant to the terms of this Agreement or the Subscription
Agreement (the "Additional Collateral") shall be delivered to the Collateral
Agent promptly upon receipt thereof by or on behalf of the Pledgor. All such
certificates and instruments shall be held by the Collateral Agent pursuant
hereto and shall be delivered in suitable form for transfer by delivery or shall
be accompanied by duly executed instruments of transfer or assignment or undated
stock powers executed in blank, all in form and substance reasonably
satisfactory to the Collateral Agent. If any Pledged Collateral consists of
uncertificated securities, unless the immediately following sentence is
applicable thereto, the Pledgor shall cause the Collateral Agent (or its
designated custodian, nominee or other designee) to become the registered holder
thereof, or cause each issuer of such securities to agree that it will comply
with instructions originated by the Collateral Agent (or its designated
custodian, nominee or other designee) with respect to such securities without
further consent by the Pledgor. If any Pledged Collateral consists of securities
entitlements, the Pledgor shall transfer such securities entitlements to the
Collateral Agent (or its designated custodian, nominee or other designee) or
cause the applicable securities intermediary to agree that it will comply with
entitlement orders by the Collateral Agent (or its designated custodian, nominee
or other designee) without further consent by the Pledgor.
 
(b) Promptly upon the receipt by the Pledgor of any Additional Collateral, a
Pledge Amendment, duly executed by the Pledgor, in substantially the form of
Annex I hereto (a "Pledge Amendment"), shall be delivered to the Collateral
Agent, in respect of the Additional Collateral which is or are to be pledged
pursuant to this Agreement and the Subscription Agreement, which Pledge
Amendment shall from and after delivery thereof constitute part of Schedules I
hereto. The Pledgor hereby authorizes the Collateral Agent to attach each Pledge
Amendment to this Agreement and agrees that all certificates listed on any
Pledge Amendment shall for all purposes hereunder constitute Pledged Collateral
and the Pledgor shall be deemed upon delivery thereof to have made the
representations and warranties set forth in Section 5 with respect to such
Additional Collateral.
 
(c) If the Pledgor shall receive, by virtue of the Pledgor’s being or having
been an owner of any Pledged Collateral, any (i) stock certificate (including,
without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7 hereof) or in securities or other property or (iv) dividends,
distributions, cash, instruments, investment property and other property in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, the Pledgor
shall receive such stock certificate, promissory note, instrument, option,
right, payment or distribution in trust for the benefit of the Collateral Agent,
shall segregate it from the Pledgor’s other property and shall deliver it
forthwith to the Collateral Agent in the exact form received, with any necessary
endorsement and/or appropriate stock powers duly executed in blank, to be held
by the Collateral Agent as Pledged Collateral and as further collateral security
for the Obligations.
 
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SECTION 5. Representations and Warranties. The Pledgor represents and warrants
as follows:
 
(a) The Pledged Shares have been duly authorized and validly issued, are fully
paid and nonassessable and the holders thereof are not entitled to any
preemptive first refusal or other similar rights. All other shares of stock
constituting Pledged Collateral will be, when issued, duly authorized and
validly issued, fully paid and nonassessable.
 
(b) The Pledgor is and will be at all times the legal and beneficial owner of
the Pledged Collateral free and clear of any Lien, security interest, option or
other charge or encumbrance except for the security interest and Lien created by
this Agreement or any Permitted Liens.
 
(c) The exercise by the Collateral Agent of any of its rights and remedies
hereunder will not contravene any law or any contractual restriction binding on
or affecting the Pledgor or any of the properties of the Pledgor and will not
result in or require the creation of any Lien, security interest or other charge
or encumbrance upon or with respect to any of the properties of the Pledgor
other than pursuant to this Agreement and the other Transaction Documents, as
defined in the Subscription Agreement, the "Transaction Documents").
 
(d) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority is required to be obtained or made by the
Pledgor for (i) the due execution, delivery and performance by the Pledgor of
this Agreement, (ii) the grant by the Pledgor, or the perfection, of the
security interest and Lien purported to be created hereby in the Pledged
Collateral or (iii) the exercise by the Collateral Agent of any of its rights
and remedies hereunder, except as may be required in connection with any sale of
any Pledged Collateral by laws affecting the offering and sale of securities
generally.
 
(e) This Agreement creates a valid security interest and Lien in favor of the
Collateral Agent in the Pledged Collateral, as security for the Obligations. The
Collateral Agent’s having possession of the certificates representing the
Pledged Shares and all other certificates, instruments and cash constituting
Pledged Collateral from time to time results in the perfection of such security
interest and Lien. Such security interest and Lien is, or in the case of Pledged
Collateral in which the Pledgor obtains rights after the date hereof, will be, a
perfected Lien, subject only to the Permitted Liens. All action necessary or
desirable to perfect and protect such security interest and Lien has been duly
taken, except for the Collateral Agent’s having possession of certificates,
instruments and cash constituting Pledged Collateral after the date hereof.
 
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SECTION 6. Covenants as to the Pledged Collateral. So long as any Obligations
shall remain outstanding, the Pledgor will, unless the Collateral Agent shall
otherwise consent in writing:
 
(a) keep adequate records concerning the Pledged Collateral and permit the
Collateral Agent, or any designees or representatives thereof at any time or
from time to time to examine and make copies of and abstracts from such records;
 
(b) at the Pledgor’s expense, promptly deliver to the Collateral Agent a copy of
each material notice or other material communication received by the Pledgor in
respect of the Pledged Collateral;
 
(c) at the Pledgor’s expense, defend the Collateral Agent’s right, title and
security interest in and to the Pledged Collateral against the claims of any
Person;
 
(d) at the Pledgor’s expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all further
action that may be necessary or desirable or that the Collateral Agent may
reasonably request in order to (i) perfect and protect, or maintain the
perfection of, the security interest and Lien purported to be created hereby,
(ii) enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Pledged Collateral or (iii) otherwise effect the
purposes of this Agreement, including, without limitation, delivering to the
Collateral Agent irrevocable proxies in respect of the Pledged Collateral;
 
(e) not sell, assign (by operation of law or otherwise), exchange or otherwise
dispose of any Pledged Collateral or any interest therein except as expressly
permitted by the Subscription Agreement;
 
(f) not create or suffer to exist any Lien, upon or with respect to any Pledged
Collateral except for the Lien created hereby or for any Permitted Lien;
 
(g) not make or consent to any amendment or other modification or waiver with
respect to any Pledged Collateral or enter into any agreement or permit to exist
any restriction with respect to any Pledged Collateral other than pursuant to
the terms hereof;
 
(h) except as expressly permitted by the Subscription Agreement, not permit the
issuance of (i) any additional shares of any class of capital stock, partnership
interests, member interests or other equity of the Company, (ii) any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such shares of capital stock or (iii) any warrants, options, contracts
or other commitments entitling any Person to purchase or otherwise acquire any
such shares of capital stock;
 
(i) not issue any stock certificate, certificated security or other instrument
to evidence or represent any shares of capital stock, any partnership interest
or membership interest described in Schedule I hereto; and
 
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(j) not take or fail to take any action which would in any manner impair the
validity or enforceability of the Collateral Agent’s security interest in and
Lien on any Pledged Collateral.
 
SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged Collateral.
 
(a) So long as no Event of Default shall have occurred and be continuing:
 
(i) the Pledgor may exercise any and all voting and other consensual rights
pertaining to any Pledged Collateral for any purpose not inconsistent with the
terms of this Agreement, the Subscription Agreement or the Notes;
 
(ii) the Pledgor may receive and retain any and all dividends, interest or other
distributions paid in respect of the Pledged Collateral to the extent permitted
by the Subscription Agreement; provided, however, that any and all (A) dividends
and interest paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed in respect of
or in exchange for, any Pledged Collateral, (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, and (C) cash
paid, payable or otherwise distributed in redemption of, or in exchange for, any
Pledged Collateral, together with any dividend, distribution, interest or other
payment which at the time of such dividend, distribution, interest or other
payment was not permitted by the Subscription Agreement, shall be, and shall
forthwith be delivered to the Collateral Agent to hold as, Pledged Collateral
and shall, if received by the Pledgor, be received in trust for the benefit of
the Collateral Agent, shall be segregated from the other property or funds of
the Pledgor, and shall be forthwith delivered to the Collateral Agent in the
exact form received with any necessary indorsement and/or appropriate stock
powers duly executed in blank, to be held by the Collateral Agent as Pledged
Collateral and as further collateral security for the Obligations; and
 
(iii) the Collateral Agent will execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to exercise the
voting and other rights which it is entitled to exercise pursuant to paragraph
(i) of this Section 7(a) and to receive the dividends, distributions, interest
and other payments which it is authorized to receive and retain pursuant to
paragraph (ii) of this Section 7(a), in each case, to the extent that the
Collateral Agent has possession of such Pledged Collateral.
 
(b) Upon the occurrence and during the continuance of an Event of Default:
 
(i) all rights of the Pledgor to exercise the voting and other consensual rights
which he would otherwise be entitled to exercise pursuant to paragraph (i) of
subsection (a) of this Section 7, and to receive the dividends, distributions,
interest and other payments which he would otherwise be authorized to receive
and retain pursuant to paragraph (ii) of subsection (a) of this Section 7, shall
cease, and all such rights shall thereupon become vested in the Collateral Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends,
distributions, interest and other payments;
 
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(ii) without limiting the generality of the foregoing, the Collateral Agent may
at his option exercise any and all rights of conversion, exchange, subscription
or any other rights, privileges or options pertaining to any of the Pledged
Collateral as if it were the absolute owner thereof, including, without
limitation, the right to exchange, in its discretion, any and all of the Pledged
Collateral upon the merger, consolidation, reorganization, recapitalization or
other adjustment of any issuer of the Pledged Collateral or upon the exercise by
any issuer of the Pledged Collateral of any right, privilege or option
pertaining to any Pledged Collateral, and, in connection therewith, to deposit
and deliver any and all of the Pledged Collateral with any committee,
depository, transfer Collateral Agent, registrar or other designated Collateral
Agent upon such terms and conditions as it may determine; and
 
(iii) all dividends, distributions, interest and other payments which are
received by the Pledgor contrary to the provisions of paragraph (i) of this
Section 7(b) shall be received in trust for the benefit of the Collateral Agent,
shall be segregated from other funds of the Pledgor, and shall be forthwith paid
over to the Collateral Agent as Pledged Collateral in the exact form received
with any necessary indorsement and/or appropriate stock powers duly executed in
blank, to be held by the Collateral Agent as Pledged Collateral and as further
collateral security for the Obligations.
 
SECTION 8. Additional Provisions Concerning the Pledged Collateral.
 
(a) The Pledgor hereby (i) authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relating to the
Pledged Collateral, without the signature of the Pledgor where permitted by law,
(ii) ratifies such authorization to the extent that the Collateral Agent has
filed any such financing or continuation statements, or amendments thereto,
without the signature of the Pledgor prior to the date hereof and (iii)
authorizes the Collateral Agent to execute any agreements, instruments or other
documents in the Pledgor’s name and to file such agreements, instruments or
other documents that are related to the security interest and Lien of the
Collageral Agent in the Pledged Collateral or as provided under Article 8 or
Article 9 of the UCC in any appropriate filing office.
 
(b) The Pledgor hereby irrevocably appoints the Collateral Agent as his
attorney-in-fact and proxy, with full authority in the place and stead and in
his name or otherwise, from time to time in the Collateral Agent’s discretion to
take any action and to execute any instrument which the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of the Pledgor under Section 7(a) hereof), including,
without limitation, to receive, indorse and collect all instruments made payable
to the Pledgor representing any dividend, interest payment or other distribution
in respect of any Pledged Collateral and to give full discharge for the same.
This power is coupled with an interest and is irrevocable until the termination
of this Agreement in accordance with Section 13(e) hereof.
 
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(c) If the Pledgor fails to perform any agreement or obligation contained
herein, the Collateral Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Collateral Agent incurred in
connection therewith shall be payable by the Pledgor pursuant to Section 10
hereof and shall be secured by the Pledged Collateral.
 
(d) Other than the exercise of reasonable care to assure the safe custody of the
Pledged Collateral while held hereunder, the Collateral Agent shall have no duty
or liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Collateral upon surrendering it or tendering
surrender of it to any of the Pledgor. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property,
it being understood that the Collateral Agent shall not have responsibility for
(i) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Pledged Collateral, whether
or not the Collateral Agent has or is deemed to have knowledge of such matters,
or (ii) taking any necessary steps to preserve rights against any parties with
respect to any Pledged Collateral.
 
(e) The powers conferred on the Collateral Agent hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Pledged Collateral
in its possession and the accounting for monies actually received by it
hereunder, the Collateral Agent shall have no duty as to any Pledged Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Pledged Collateral.
 
(f) Upon the occurrence and during the continuation of any Default or Event of
Default, the Collateral Agent may at any time in its discretion (i) without
notice to the Pledgor, transfer or register in the name of the Collateral Agent
or any of its nominees any or all of the Pledged Collateral, subject only to the
revocable rights of the Pledgor under Section 7(a) hereof, and (ii) exchange
certificates or instruments constituting Pledged Collateral for certificates or
instruments of smaller or larger denominations.
 
SECTION 9. Remedies Upon Default. If any Event of Default shall have occurred
and be continuing:
 
(a) The Collateral Agent may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party on default under the
Code then in effect in the State of New York; and without limiting the
generality of the foregoing and without notice except as specified below, sell
the Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange or broker’s board or elsewhere, at such price or
prices and on such other terms as the Collateral Agent may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days’ notice to any of the Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Collateral Agent shall not
be obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Collateral Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.
 
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(b) The Pledgor recognizes that it may be impracticable to effect a public sale
of all or any part of the Pledged Shares or any other securities constituting
Pledged Collateral and that the Collateral Agent may, therefore, determine to
make one or more private sales of any such securities to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities for its own account, for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges that any such private
sale may be at prices and on terms less favorable to the seller than the prices
and other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sales shall be deemed to
have been made in a commercially reasonable manner and that the Collateral Agent
shall have no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933, as amended (the
"Securities Act"). The Pledgor further acknowledges and agrees that any offer to
sell such securities which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the financial
community of New York, New York (to the extent that such an offer may be so
advertised without prior registration under the Securities Act) or (ii) made
privately in the manner described above to not less than fifteen (15) bona fide
offerees shall be deemed to involve a “public disposition” for the purposes of
Section 9-610 of the Code (or any successor or similar, applicable statutory
provision) as then in effect in the State of New York, notwithstanding that such
sale may not constitute a “public offering” under the Securities Act, and that
the Collateral Agent may, in such event, bid for the purchase of such
securities.
 
(c) Any cash held by the Collateral Agent as Pledged Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of, collection
from, or other realization upon, all or any part of the Pledged Collateral may,
in the discretion of the Collateral Agent, be held by the Collateral Agent as
collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable to the Collateral Agent pursuant to Section 10 hereof) in
whole or in part by the Collateral Agent against, all or any part of the
Obligations in such order as the Collateral Agent shall elect consistent with
the provisions of the Subscription Agreement.
 
(d) In the event that the proceeds of any such sale, collection or realization
are insufficient to pay all amounts to which the Collateral Agent is legally
entitled, the Pledgor shall be jointly and severally liable for the deficiency,
together with interest thereon at the highest rate specified in the Subscription
Agreement for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the
reasonable fees, costs and expenses of any attorneys employed by the Collateral
Agent to collect such deficiency.
 
SECTION 10. Indemnity and Expenses.
 
(a) The Pledgor hereby agrees to indemnify and hold the Collateral Agent (and
all of its officers, directors, employees, attorneys, consultants) harmless from
and against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees and disbursements of counsel) to the extent that they arise out of or
otherwise result from this Agreement (including, without limitation, enforcement
of this Agreement), except claims, losses or liabilities arising or resulting
directly from such Person’s gross negligence or willful misconduct as determined
by a court of competent jurisdiction.
 
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(b) The Pledgor shall be obligated for, and will upon demand pay to the
Collateral Agent the reasonable amount of any and all out-of-pocket costs and
expenses, including the reasonable fees and disbursements of the Collateral
Agent’s counsel and of any experts which the Collateral Agent may incur in
connection with (i) the preparation, negotiation, execution, delivery,
recordation, administration, amendment, waiver or other modification or
termination of this Agreement, (ii) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder, or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
 
SECTION 11. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), sent by Federal Express or other
recognized courier service (return receipt requested), telecopied or delivered,
if to the Pledgor, to him at the address specified in the preamble hereto or if
to the Collateral Agent, to it at the address specified in the Subscription
Agreement; or as to either such Person at such other address as shall be
designated by such Person in a written notice to such other Person complying as
to delivery with the terms of this Section 11. All such notices and other
communications shall be effective (i) if sent by certified mail, postage
prepaid, return receipt requested, when received or three (3) Business Days
after mailing, whichever first occurs, (ii) if telecopied, when transmitted and
confirmation is received, provided same is on a Business Day and, if not, on the
next Business Day or (iii) if delivered or sent by Federal Express or other
recognized courier service (return receipt requested), upon delivery, provided
same is on a Business Day and, if not, on the next Business Day.
 
SECTION 12. Security Interest Absolute. All rights of the Collateral Agent, all
Liens and all obligations of the Pledgor hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of the
Letter Agreement, the Securites Purchase Agreement, the Notes or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Letter Agreement, the Subscription Agreement, the Notes or any other
Transaction Document, (iii) any exchange or release of, or non-perfection of any
Lien on any Collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations, or (iv) any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations (other than the payment
in full of the Obligations). All authorizations and agencies contained herein
with respect to any of the Pledged Collateral are irrevocable and powers coupled
with an interest.
 
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SECTION 13. Miscellaneous.
 
(a) No amendment of any provision of this Agreement shall be effective unless it
is in writing and signed by the Pledgor and the Collateral Agent, and no waiver
of any provision of this Agreement, and no consent to any departure by the
Pledgor therefrom, shall be effective unless it is in writing and signed by the
Collateral Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
 
(b) No failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under any other Transaction Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Collateral Agent provided herein and
in the other Transaction Documents are cumulative and are in addition to, and
not exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent under any Transaction Document against any party thereto are
not conditional or contingent on any attempt by the Collateral Agent to exercise
any of its rights under any other Transaction Document against such party or
against any other Person.
 
(c) Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
 
(d) This Agreement shall create a continuing security interest in and Lien on
the Pledged Collateral and shall (i) remain in full force and effect until the
termination of this Agreement in accordance with Section 13 (e) hereof and
(ii) be binding on the Pledgor and his heirs and assigns and shall inure,
together with all rights and remedies of the Collateral Agent, to the benefit of
the Collateral Agent and its successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Collateral Agent may assign or otherwise transfer its rights and obligations
under this Agreement and any other Transaction Document to any other Person
pursuant to the terms of the Subscription Agreement, and such other Person shall
thereupon become vested with all of the benefits in respect thereof granted to
the Collateral Agent herein or otherwise. Upon any such assignment or transfer,
all references in this Agreement to the Collateral Agent shall mean the assignee
of the Collateral Agent. None of the rights or obligations of the Pledgor
hereunder may be assigned or otherwise transferred without the prior written
consent of the Collateral Agent, and any such assignment or transfer shall be
null and void.
 
(e) Notwithstanding anything to the contrary in this Agreement, (i) this
Agreement (along with all powers of attorney granted hereunder) and the security
interests and Lien created hereby shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgor upon the repayment in full and/or
complete conversion to equity securities of the Company of all indebtedness
obligations owed by the Company to the Collateral Agent under the Notes
(including, without limitation, all principal, interest and fees related to the
Notes), and (ii) the Collateral Agent will, upon the Pledgor’s request and at
the Pledgor’s expense, (A) return to the Pledgor such of the Pledged Collateral
(to the extent delivered to the Collateral Agent) as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof, and (B) execute
and deliver to the Pledgor, without recourse, representation or warranty, such
documents as the Pledgor shall reasonably request to evidence such termination.
 
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(f) The internal laws, and not the laws of conflicts, of the State of Delaware
shall govern the enforceability and validity of this agreement, the construction
of its terms and the interpretation of the rights and duties of the parties,
except as required by mandatory provisions of law and except to the extent that
the validity and perfection or the perfection and the effect of perfection or
non-perfection of the security interest and Lien created hereby, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
law of a jurisdiction other than the State of New York.
 
(g) Each party to this Agreement hereby irrevocably and unconditionally submits,
for itself and its property, to the exclusive jurisdiction of the United States
District Court for the Southern District of New York sitting in Manhattan or the
commercial division, civil branch of the supreme court of the State of New York
sitting in New York county in connection with any suit, action or proceeding
directly or indirectly arising out of, under or in connection with the Letter
Agreement or the transactions contemplated thereby. No party to this Agreement
may move to (i) transfer any such suit, action or proceeding brought in such New
York court or federal court to another jurisdiction, (ii) consolidate any such
suit, action or proceeding brought in such New York court or federal court with
a suit, action or proceeding in another jurisdiction or (iii) dismiss any such
suit, action or proceeding brought in such New York court or federal court for
the purpose of bringing the same in another jurisdiction. Each party to this
Agreement agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law. Each party to this Agreement
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to the Letter Agreement, the shares or the conversion shares in any New
York court sitting in the county of New York or any federal court sitting in the
southern district of New York. Each party to this agreement hereby consents to
the service of process in any such suit, action or proceeding by notice in the
manner specified in Section 11.
 
(h) The Pledgor irrevocably consents to the service of process of any of the
aforesaid courts in any such action, suit or proceeding by the mailing of copies
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to the Pledgor at his address provided herein, such
service to become effective when received or 10 days after such mailing,
whichever first occurs.
 
(i) Nothing contained herein shall affect the right of the Collateral Agent to
serve process in any other manner permitted by law or commence legal proceedings
or otherwise proceed against the Pledgor or any property of the Pledgor in any
other jurisdiction.
 
(j) The Pledgor irrevocably and unconditionally waives any right he may have to
claim or recover in any legal action, suit or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.
 
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(k) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, THE LETTER AGREEMENT OR OTHER TRANSACTION
DOCUMENTS.
 
(l) The headings herein are for convenience only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof. 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.
 
(m) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together shall constitute one and the
same agreement.
 
[Signature Page Follows]
 
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In Witness Whereof, the Pledgor has executed and delivered this Agreement as of
the date first above written.
 

 
By: /s/ Song Zhenghong                
SONG ZHENGHONG

 

 
ACCEPTED BY:

S. MICHAEL RUDOLPH,
as Collateral Agent

 
/s/ S. Michael Rudolph                     
 

 

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SCHEDULE I TO PLEDGE AGREEMENT
 
Pledged Shares
 
Pledgor
 
Name of Issuer
Number of
Shares
 
% of Shares
 
Class
Certificate
No.(s)
Song Zhenghong
 
Lotus
Pharmaceuticals, Inc.
 
 
6,708,000
 
 
16.25%
 
 
Common
 
 
157

 
 

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ANNEX I
 
TO
 
PLEDGE AGREEMENT
 
 
PLEDGE AMENDMENT
 
This Pledge Amendment, dated ●, 20●, is delivered pursuant to Section 4 of the
Pledge Agreement referred to below. The undersigned hereby agrees that this
Pledge Amendment may be attached to the Pledge Agreement, dated as of January
23, 2007, made by Song Zhenghong in favor of S. Michael Rudolph, as Collateral
Agent for the Buyers, (the "Collateral Agent") as it may heretofore have been or
hereafter may be amended or otherwise modified or supplemented from time to time
and that the promissory notes [and/or] shares or other equity interests listed
on this Pledge Amendment shall be hereby pledged and assigned to the Collateral
Agent and become part of the Pledged Collateral referred to in such Pledge
Agreement and shall secure all of the obligations referred to in such Pledge
Agreement.
 
Pledged Shares
 
Pledgor
Name of Issuer
Number of Shares
or Other Equity Interests
Class
Certificate No(s)
         

 
[PLEDGOR]

By:                                                            
  SONG ZHENGHONG

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