EXHIBIT 10.1
 
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of April 17,
2010, by and among Kun Run Biotechnology, Inc., a Nevada corporation (the
“Company”), each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively, the
“Purchasers”) and Xueyun Cui (the “Key Stockholder”).
 
RECITALS
 
A.           The Company, each Purchaser and the Key Stockholder is executing
and delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the “Securities Act”), and Rule 506 of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the Securities Act.
 
B.           The Company has authorized, upon the terms and conditions stated in
this Agreement, the sale and issuance of up to $8,000,000 of units of the
Company (which units shall be collectively referred to herein as the “Units”),
with each Unit consisting of (A) one share of the Series A Preferred Stock of
the Company, par value $0.001 per share (the “Series A Preferred”) and (B) one
warrant (as amended, modified, restated or supplemented from time to time, each,
a “Net Income Warrant,” and collectively, the “Net Income Warrants”) to purchase
0.30 of a share of Series A Preferred (such fractional amount being referred to
herein as the “Net Income Warrant Ratio”).
 
C.           At the Closing (as hereinafter defined), each Purchaser listed on
Annex A hereto, severally and not jointly, wishes to purchase, and the Company
wishes to sell, upon the terms and conditions stated in this Agreement, the
number of Units as hereafter determined, with each Unit consisting of (i) one
share of Series A Preferred (each a “Unit Share,” collectively, the “Unit
Shares”) and (ii) one Net Income Warrant to purchase 0.30 of a share of Series A
Preferred in substantially the form attached hereto as Exhibit A.   The shares
of Series A Preferred issuable upon exercise of the Net Income Warrants,
including, without limitation, all shares issuable as a result of any
adjustments pursuant to Section 4 of the Net Income Warrants or pursuant to
Section 8 of the Net Income Warrants, are referred to herein as the “Net Income
Warrant Shares.”
 
D.           At the Closing, the parties hereto shall execute and deliver an
Investor Rights Agreement, substantially in the form attached hereto as Exhibit
C (as amended, modified, restated or supplemented from time to time, the
“Investor Rights Agreement”), pursuant to which, among other things, the Company
will agree to provide certain registration rights with respect to the Shares (as
hereinafter defined) under the Securities Act and the rules and regulations
promulgated thereunder and applicable state securities laws and will agree to
provide certain other rights to the Purchasers.
 
E.           Concurrently herewith, the parties shall execute and deliver a
Voting Agreement, substantially in the form attached hereto as Exhibit L (as
amended, modified, restated or supplemented from time to time, the “Voting
Agreement”), pursuant to which, among other things, the Key Stockholder will
agree to vote in favor of the charter amendment and other transactions
contemplated hereby.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers hereby
agree as follows:

 
 

--------------------------------------------------------------------------------

 
 
ARTICLE I.
DEFINITIONS
 
1.1  Definitions.  In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:
 
“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or, to the Company’s Knowledge, threatened in writing against the Company or any
of its Subsidiaries, any of their respective properties or any officer, director
or employee of the Company acting in his or her capacity as an officer, director
or employee before or by any federal, state, county, local or foreign court,
arbitrator, governmental or administrative agency, regulatory authority, stock
market, stock exchange or trading facility.
 
“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 144.  With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.
 
“Agreement” shall have the meaning set forth in the Preamble to this Agreement.
 
“Authorized Officer” means, with respect to any Person, the chief executive
officer, chief financial officer, president, or executive vice president of such
Person.
 
“Bankruptcy Code” has the meaning set forth in Section 3.1(gg).
 
“Board” means the Board of Directors of the Company.
 
“Board Recommendation” has the meaning set forth in Section 4.13(f).
 
“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.
 
“Capital Stock” means (i) with respect to any Person that is a corporation, any
and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, and (ii) with respect
to any Person that is not a corporation, any and all partnership, membership,
member’s or other equity interests of such Person.
 
“Closing” means the closing of the purchase by the Purchasers listed on Annex A
hereto and sale by the Company of Units to such Purchasers pursuant to this
Agreement on the Closing Date as provided in Section 2.1 hereof.
 
“Closing Bid Price” means, for any security as of any date, the last closing
price for such security on the Principal Trading Market, as reported by
Bloomberg, or, if the Principal Trading Market begins to operate on an extended
hours basis and does not designate the closing bid price, then the last bid
price of such security prior to 4:00 p.m., New York City time, as reported by
Bloomberg, or, if the Principal Trading Market is not the principal securities
exchange or trading market for such security, the last closing price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holder. If the Company and the holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 3(b) of the Warrants. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

 
2

--------------------------------------------------------------------------------

 
 
“Closing Date” means the tenth (10th) Business Day after the Execution Date,
unless on such date the conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2
(other than those to be satisfied at the Closing) shall not have been satisfied
or waived, in which case the Closing Date shall be on the third (3rd) Business
Day after the date on which the last to be satisfied or waived of the conditions
set forth in Sections 2.1, 2.2, 5.1 and 5.2 (other than those to be satisfied at
the Closing) shall have been satisfied or waived.
 
“Commission” has the meaning set forth in the Recitals to this Agreement.
 
“Common Stock” has the meaning set forth in the Recitals to this Agreement, and
also includes any securities into which the Common Stock may hereafter be
reclassified or changed.
 
“Common Stock Equivalents” means any securities of the Company which would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.
 
“Company” shall have the meaning ascribed to such term in the Preamble to this
Agreement.
 
“Company Counsel” means Cadwalader, Wickersham & Taft LLP.

“Company PRC Counsel” means DeHeng Law Offices.

“Company Deliverables” means, collectively, the documents deliverable by the
Company pursuant to Section 2.2(a).

“Company Patent Applications” has the meaning set forth in Section 3.1(r).

“Company’s Knowledge” means with respect to any statement made to the knowledge
of the Company, that the statement is based upon the actual knowledge of the
executive officers of the Company having responsibility for the matter or
matters that are the subject of the statement.

“Consultant” means KunHe Investment Management Beijing Co., Ltd.
 
“Consultant Fees” has the meaning set forth in Section 3.1(w).

 
3

--------------------------------------------------------------------------------

 

“Continuing Director” means (a) any member of the board of directors of the
Company who was a director (or comparable manager) of the Company on the date
hereof, (b) any individual who becomes a member of the board of the directors of
the Company after the date hereof if such individual was appointed or nominated
for election to the board of the directors of the Company by a majority of the
Continuing Directors then in office, but excluding any such individual
originally proposed for election in opposition to the board of directors in
office at the date hereof in an actual or threatened election contest relating
to the election of the directors (or comparable managers) of the Company and
whose initial assumption of office resulted from such contest or the settlement
thereof, and (c) any individual who becomes a member of the board of directors
pursuant to Section 5.1(k).
 
“Control” (including the terms “controlling,” “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
 
“Disclosure Materials” has the meaning set forth in Section 3.1(h).
 
“Employee Transaction Benefit” has the meaning set forth in Section 3.1(n).
 
“Environmental Laws” has the meaning set forth in Section 3.1(l).
 
“Environmental Permit” means any permit, approval, identification number,
license or other authorization required under any Environmental Law.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute of similar import, and regulations thereunder, in each
case, as in effect from time to time.  References to sections of ERISA shall be
construed also to refer to any successor sections.
 
“ERISA Affiliate” means, with respect to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which such Person
is a member and which would be deemed to be a “controlled group” within the
meaning of Sections 414(b), (c), (m) and (o) of the IRC.
 
“Evaluation Date” has the meaning set forth in Section 3.1(v).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
 
“Execution Date” means the date first set forth above.
 
“FDA” has the meaning set forth in Section 3.1(p).
 
“FDCA” has the meaning set forth in Section 3.1(hh).
 
“Fiscal Year” means the fiscal year of the Company and its Subsidiaries ending
on December 31st of each year.
 
“GAAP” means U.S. generally accepted accounting principles.
 
“Governmental Authority” means any nation or government (foreign or domestic),
any Federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
 
“Grant Date” has the meaning set forth in Section 3.1(g).

 
4

--------------------------------------------------------------------------------

 
 
“Hainan Zhonghe Pharmaceutical Acquisition” mean the acquisition by Kun Run
Biotechnology Limited (“Kun Run HK”) of Hainan Zhonghe Pharmaceutical Co., Ltd.
(“Hainan Zhonghe”) and all transactions related to such acquisition, including
but not limited to Ms. Yang Liqiong’s acquisition of the entire issued share
capital of Kun Run HK in February 2008; Kun Run HK’s acquisition of 60.12% of
the equity interests in Hainan Zhonghe April 2008, and of the remaining 39% of
the equity interests in Hainan Zhonghe in May 2008; Mr. Cui Xueyun’s acquisition
of 99% of the issued share capital of Kun Run HK in August 2008; and the
Company’s acquisition of the entire issued share capital of Kun Run HK in August
2008.
 
“Hazardous Materials” means (a) any element, compound or chemical that is
defined, listed or otherwise classified as a contaminant, pollutant, toxic
pollutant, toxic or hazardous substance, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under Environmental
Laws or that is likely to cause immediately, or at some future time, harm to or
have an adverse effect on, the environment or risk to human health or safety,
including any pollutant, contaminant, waste, hazardous waste, toxic substance or
dangerous good which is defined or identified in any Environmental Law and which
is present in the environment in such quantity or state that it contravenes any
Environmental Law; (b) petroleum and its refined products; (c) polychlorinated
biphenyls; (d) any substance exhibiting a hazardous waste characteristic,
including corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components (including asbestos-containing materials) and manufactured products
containing hazardous substances listed or classified as such under Environmental
Laws.
 
“Intellectual Property” has the meaning set forth in Section 3.1(r).
 
 “Insolvency Proceeding” means any proceeding or case commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, or extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief,
including any proceeding or case seeking to adjudicate such Person a bankrupt or
insolvent, or seeking dissolution, liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for any such Person or
for any substantial part of its property.
 
“Investor Rights Agreement” has the meaning set forth in the Recitals to this
Agreement.
 
“IRC” means the Internal Revenue Code of 1986, as amended (or any successor
statute thereto) and the regulations thereunder.
 
“Irrevocable Transfer Agent Instructions” has the meaning set forth in Section
4.1(d).
 
“Lead Investor” means, collectively, Caduceus Asia Partners, L.P. and any other
Purchasers affiliated with OrbiMed Advisors, LLC.
 
“Legal Restraint” has the meaning set forth in Section 5.1(c).
 
“Lien” means any mortgage, deed of trust, lien, charge, claim, encumbrance,
security interest, right of first refusal, preemptive right or other
restrictions of any kind.

 
5

--------------------------------------------------------------------------------

 

  “Material Adverse Effect” on or with respect to the Company and/or its
Subsidiaries means a material adverse effect on any of (a) the operations,
business, assets, properties, prospects or condition (financial or otherwise) of
the Company and/or its Subsidiaries, (b) the ability of the Company and/or its
Subsidiaries to perform any of its obligations under any Transaction Document to
which it is a party, (c) the legality, validity or enforceability of any
Transaction Document, or (d) the rights and remedies of any of the Purchasers
under any Transaction Document, except that any of the following, either alone
or in combination, shall not be deemed a Material Adverse Effect: (i) effects
caused by changes or circumstances affecting general market conditions in the
U.S. economy, (ii) effects related to regulatory or product development matters
that are generally applicable to the industry in which the Company operate taken
as a whole to the extent that such effects do not disproportionately impact the
Company, (iii) effects resulting from or relating to the announcement or
disclosure of the sale of the Shares or other transactions contemplated by this
Agreement, or (iv) effects caused by any event, occurrence or condition
resulting from or relating to the taking of any action required or contemplated
by this Agreement.
 
“Material Contract” means (i) any contract of the Company that has been filed,
or was required to have been filed, as an exhibit to the SEC Reports pursuant to
Item 601(b)(4) or Item 601(b)(10) of Regulation S-K, (ii) any agreement or
contract to which such Loan Party is a party and involving the receipt or
payment of amounts in the aggregate exceeding $100,000 per year and (iii) any
agreement or contract to which such Loan Party is a party, the termination of
which could reasonably be expected to have a Material Adverse Effect.

“Material Permits” has the meaning set forth in Section 3.1(p).
 
“Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA to which the Company or any of its Subsidiaries or any of
their respective ERISA Affiliates has contributed to, or has been obligated to
contribute, at any time during the preceding six (6) years.
 
“Net Income Warrant” and “Net Income Warrants” have the respective meaning set
forth in the Recitals to this Agreement.
 
“Net Income Warrant Ratio” has the meaning set forth in the Recitals to this
Agreement.
 
“Net Income Warrant Shares” has the meaning set forth in the Recitals to this
Agreement.
 
“NRS” means the Nevada Revised Statutes.
 
“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
 
“Pharmaceutical Product” has the meaning set forth in Section 3.1(hh).
 
“PRC” means the People’s Republic of China.
 
“Press Release” has the meaning set forth in Section 4.7.
 
“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this
Agreement, shall be the OTC Bulletin Board.

 
6

--------------------------------------------------------------------------------

 
 
“Pro Rata Share” means, as to any Purchaser, the percentage equivalent of the
aggregate number of Units such Purchaser has the right to purchase at the
Closing hereunder, divided by the aggregate number of Units to be purchased at
the Closing hereunder.
 
“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
 
“PTO” has the meaning set forth in Section 3.1(r).
 
“Purchase Price” means, with respect to the Units sold at the Closing, $1.53 per
Unit (subject to Section 7.15 hereof).
 
“Purchaser” and “Purchasers” have the respective meaning set forth in the
Preamble to this Agreement.
 
“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).
 
“Purchaser Party” has the meaning set forth in Section 4.9.
 
“Qualified Auditor” means KPMG LLP, Ernst & Young LLP, Deloitte LLP or
PricewaterhouseCoopers LLP.
 
“Registration Statement” means a registration statement meeting the requirements
set forth in the Investor Rights Agreement and covering the resale by the
Purchasers of the Registrable Securities (as defined in the Investor Rights
Agreement).
 
“Regulation D” has the meaning set forth in the Recitals to this Agreement.
 
 “Required Approvals” has the meaning set forth in Section 3.1(e).
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
“SEC Reports” has the meaning set forth in Section 3.1(h).
 
“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(viii).
 
“Securities” means, collectively, the Units, the Warrants and the Shares.
 
“Securities Act” has the meaning set forth in the Recitals to this Agreement.
 
“Shares” means, collectively, the Unit Shares, the Common Stock issuable upon
conversion of the Unit Shares, the Warrant Shares, and the Common Stock issuable
upon conversion of the Warrant Shares.
 
“Short Sales” include, without limitation, (i) all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not
against the box, and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, short sales, swaps, “put equivalent
positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar
arrangements (including on a total return basis), and (ii) sales and other
transactions through non-U.S. broker dealers or foreign regulated brokers.

 
7

--------------------------------------------------------------------------------

 
 
“Solvent” has the meaning set forth in Section 3.1(gg).
 
“Stock Certificates” has the meaning set forth in Section 2.2(a)(iv).
 
“Stockholder Approval” means the approval from the Company’s stockholders of
each of the Transaction Stockholder Approval Matters by the requisite vote of
the Company’s stockholders at the Stockholders’ Meeting.
 
“Stockholder Approval Date” means the date of the Stockholders’ Meeting if at
the date of the Stockholders’ Meeting each of the Transaction Stockholder
Approval Matters have been approved by the requisite vote of the Company’s
stockholders at the Stockholders’ Meeting.
 
 Stockholders’ Meeting” has the meaning set forth in Section 4.13(a).
 
“Subscription Amount” means with respect to each Purchaser, the aggregate amount
to be paid for the Units purchased hereunder at the Closing as indicated on such
Purchaser’s signature page to this Agreement next to the heading “Subscription
Amount.”
 
“Subsidiary” means, with respect to any Person at any date, any corporation,
limited or general partnership, limited liability company, trust, estate,
association, joint venture or other business entity (i) the accounts of which
would be consolidated with those of such Person in such Person’s consolidated
financial statements if such financial statements were prepared in accordance
with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock
having (in the absence of contingencies) ordinary voting power to elect a
majority of the board of directors or other managing body of such Person, (B) in
the case of a partnership or limited liability company, the interest in the
capital or profits of such partnership or limited liability company or (C) in
the case of a trust, estate, association, joint venture or other entity, the
beneficial interest in such trust, estate, association or other entity business
is, at the time of determination, owned or controlled directly or indirectly
through one or more intermediaries, by such Person, and “Subsidiaries” mean,
collectively, each Subsidiary with respect to any Person.
 
“Trading Affiliates” has the meaning set forth in Section 3.2(h).
 
“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its Principal Trading Market (other than the OTC Bulletin Board), or
(ii) if the Common Stock is not listed on a Trading Market (other than the OTC
Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
Common Stock is not quoted on any Trading Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported in the “pink sheets”
by Pink Sheets LLC (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.
 
“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is
listed or quoted for trading on the date in question.

 
8

--------------------------------------------------------------------------------

 
 
“Transaction Documents” means this Agreement and the schedules and exhibits
attached hereto, the  Warrants, the Investor Rights Agreement and the schedules
and exhibits attached thereto, the Irrevocable Transfer Agent Instructions and
any other agreement, instrument, and other document executed and delivered
pursuant hereto or thereto.
 
“Transaction Stockholder Approval Matters” has the meaning set forth in Section
4.13(a).
 
“Transfer Agent” means Securities Transfer Corporation, or any successor
transfer agent for the Company.
 
“Units” has the meaning set forth in the Recitals to this Agreement.  Units will
not be issued or certificated. The Unit Shares and Warrants are immediately
separable and will be issued separately.
 
“Unit Share” and “Unit Shares” have the respective meaning set forth in the
Recitals to this Agreement.
 
“Unrestricted Securities” has the meaning set forth in Section 4.1(c).
 
“Voting Agreement” has the meaning set forth in the Recitals to this Agreement.
 
“Warrants” means the Net Income Warrants.
 
“Warrant Exercise Price” means with respect to the Net Income Warrants sold at
the Closing, $1.53 per each Net Income Warrant Share (subject to Section 7.15
hereof).
 
“Warrant Shares” means the Net Income Warrant Shares.
 
ARTICLE II.
PURCHASE AND SALE
 
2.1 Closing, Delivery and Payment.
 
(a)          Purchase and Sale.  Subject to the terms and conditions set forth
in this Agreement, at the Closing, the Company shall issue and sell to each
Purchaser listed on Annex A hereto, and each Purchaser listed on Annex A hereto
shall, severally and not jointly, purchase from the Company, such number of
Units equal to the quotient resulting from dividing (i) the Subscription Amount
for such Purchaser by (ii) the Purchase Price, rounded down to the nearest whole
Unit.
 
(b)          Closing.  The Closing shall take place at the offices of Cooley
Godward Kronish LLP, 3175 Hanover Street, Palo Alto, California, on the Closing
Date, or at such other locations or remotely by facsimile transmission or other
electronic means as the parties may mutually agree.

 
9

--------------------------------------------------------------------------------

 

(c)          Forms of Payment.  On the Closing Date, (i) each Purchaser listed
on Annex A hereto shall pay to the Company its Subscription Amount, in United
States dollars and in immediately available funds, by wire transfer to the
Company’s account, as set forth in instructions previously provided to the
Purchasers, (ii) the Company shall irrevocably instruct the Transfer Agent to
deliver to each Purchaser listed on Annex A hereto one or more stock
certificates, free and clear of all restrictive and other legends except as
expressly provided in Section 4.1(b) hereof, evidencing the number of Unit
Shares such Purchaser is acquiring at the Closing, within five (5) Business Days
after the Closing and (iii) the Company shall issue to each Purchaser listed on
Annex A hereto a Net Income Warrant pursuant to which such Purchaser shall have
the right to acquire such number of Net Income Warrant Shares determined by
multiplying the number of Unit Shares such Purchaser is acquiring at the Closing
by the Net Income Warrant Ratio and rounding down to the nearest whole
number.  The Net Income Warrants issued and sold at the Closing shall have an
exercise price equal to the applicable Warrant Exercise Price.
 
2.2  Closing Deliveries.
 
(a)          On or prior to the Closing, the Company shall issue, deliver or
cause to be delivered to the Purchasers the following:
 
(i)          this Agreement, duly executed by the Company;
 
(ii)         duly executed Irrevocable Transfer Agent Instructions acceptable to
the Lead Investor acknowledged in writing by the Transfer Agent;
 
(iii)        the Investor Rights Agreement, duly executed by the Company;
 
(iv)        one or more stock certificates, free and clear of all restrictive
and other legends except as provided in Section 4.1(b) hereof, evidencing the
Shares subscribed for by each Purchaser listed on Annex A, registered in the
name of such Purchaser as set forth on the Stock Certificate Questionnaire
included as Exhibit D-2 hereto (the “Stock Certificates”), with the original
Stock Certificates delivered within five (5) Business Days of the Closing;
 
(v)         a Net Income Warrant, executed by the Company and registered in the
name of each such Purchaser as set forth on the Stock Certificate Questionnaire
included as Exhibit D-2 hereto, pursuant to which such Purchaser shall have the
right to acquire such number of Net Income Warrant Shares as determined herein;
 
(vi)        a legal opinion of Company PRC Counsel – Beijing DeHeng Law Office,
dated as of the Closing Date and in the form attached hereto as Exhibit E-1,
which legal opinion shall include without limitation an opinion that based on
the documents and the factual statements listed provided by Zhonghe Group in the
legal opinion, the Company PRC Counsel cannot find evidence that Kun Run HK had
any affiliated relationships with the Company when Kun Run HK acquired
accumulative 99.12% equity interests in the Company in 2008, and thus the
approval by MOFCOM on the basis of an acquisition between affiliates is not
required under the PRC Interim Provisions on the Merger and Acquisition of
Domestic Enterprises by Foreign Investors in effect from September 8, 2006
(“Circular 10 of 2006”) executed by such counsel and addressed to the Company
and a legal opinion of the Company’s special Nevada counsel and/or Company
counsel  in the form attached hereto as Exhibit E-2.
 
(vii)       a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Closing Date, (a) certifying the resolutions
adopted by the Board or a duly authorized committee thereof approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities and that such resolutions remain in full
force and effect, (b) certifying the current versions of the articles of
incorporation, as amended, and by-laws of the Company and (c) certifying as to
the signatures and authority of Persons signing the Transaction Documents and
related documents on behalf of the Company, in the form attached hereto as
Exhibit G;
 
(viii)      the Compliance Certificate referred to in Section 5.1(h);

 
10

--------------------------------------------------------------------------------

 
 
(ix)        a certificate evidencing the formation and good standing of the
Company and issued by the office of the Secretary of State of the State of
Nevada, as of a date within five (5) days of the Closing Date;
 
(x)         a certificate evidencing the Company’s qualification as a foreign
corporation issued by each state where the Company is qualified to do business
as a foreign corporation, as of a date within five (5) days of the Closing Date;
and
 
(xi)        a certified copy of (i) the Company’s current articles of
incorporation, and any amendments thereto, as certified by the Secretary of
State of the State of Nevada, as of a date within ten (10) days of the Closing
Date.
 
(b)          On or prior to Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following, as applicable (the “Purchaser
Deliverables”):
 
(i)          this Agreement, duly executed by such Purchaser;
 
(ii)         such Purchaser’s Subscription Amount in United States dollars and
in immediately available funds by wire transfer to the Company’s account as
previously provided to the Purchasers;
 
(iii)        the Investor Rights Agreement, duly executed by such Purchaser; and
 
(iv)        a fully completed and duly executed Accredited Investor
Questionnaire and Stock Certificate Questionnaire in the forms attached hereto
as Exhibits D-1 and D-2, respectively.
 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
3.1 Representations and Warranties of the Company.  The Company hereby
represents and warrants as of the date hereof and as of the Closing Date, as
applicable (except for the representations and warranties that speak as of a
specific date, which shall be made as of such date), to each of the Purchasers
that, except as set forth in the Schedules delivered herewith:
 
(a)          Subsidiaries.  The Company has no direct or indirect Subsidiaries
other than Kun Run HK and Hainan Zhonghe. The Company owns, directly or
indirectly, all of the equity interests of each Subsidiary free and clear of any
Lien, and all the issued and outstanding equity interests of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights. Except as disclosed on Schedule 3.1(a), there are no outstanding
obligations of any of the Company’s Subsidiaries convertible into or
exchangeable for, or warrants, options or other rights for the purchase or
acquisition from the Company or any of its Subsidiaries, or other obligations of
any Company Subsidiary to issue, directly or indirectly, any shares of capital
stock or other equity interests of any Company Subsidiary.  All issuances and
transfers of equity interests in each Subsidiary since their inception were
properly made in accordance with all applicable laws and regulations of the
jurisdiction(s) in which such Subsidiary is or was incorporated, and all
filings, registrations, permits and approvals required from Government
Authorities were properly made and obtained with respect to such issuance or
transfer of equity securities.  The corporate records of each Subsidiary
accurately reflect all issuances and transfers of equity securities by such
Subsidiary or, where applicable, its predecessor.

 
11

--------------------------------------------------------------------------------

 

(b)          Organization and Qualification. Each of the Company and each
Subsidiary is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation (as
applicable), with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company is not in violation of any of the provisions of its articles of
incorporation or bylaws, and none of the Subsidiaries is in material violation
of any of the provisions of its respective organizational documents.  Each of
the Company and each Subsidiary is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not have a Material Adverse Effect.
 
(c)          Authorization; Enforcement; Validity.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents to which the Company
is a party by the Company, and the consummation by the Company of the
transactions contemplated hereby and thereby (including, but not limited to, the
issuance of, or the reservation for issuance and the subsequent issuance of, as
applicable, the Units, the Warrants and the Shares) have been duly authorized by
all necessary corporate action on the part of the Company, and no further
corporate action is required by the Company, its Boards of Directors or
stockholders in connection therewith other than in connection with the Required
Approvals.  Each of the Transaction Documents to which the Company is a party
has been (or upon delivery will have been) duly executed by the Company, as
applicable, and is, or when delivered in accordance with the terms hereof, will
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application, and insofar as indemnification and contribution provisions may be
limited by applicable law. Except as set forth on Schedule 3.1(c) hereto, there
are no stockholder agreements, voting agreements, or other similar arrangements
with respect to the Company’s capital stock to which the Company is a party or,
to the Company’s Knowledge, between or among any of the Company’s stockholders.
 
(d)          No Conflicts.  The execution, delivery and performance by the
Company of this Agreement and each of the other Transaction Documents to which
it is a party and the consummation by the Company of the transactions
contemplated hereby or thereby (including, but not limited to, the issuance of,
or the reservation for issuance and the subsequent issuance of, as applicable,
the Units, the Warrants and the Shares) do not and will not (i) conflict with or
violate any provisions of the Company’s articles of incorporation or bylaws,
(ii) except as set forth on Schedule 3.1(d), conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company, or give to others any rights of termination, amendment,
adjustment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any Material Contract or warrant or other right to acquire capital
stock of the Company or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or any of its Subsidiaries
is subject or decree (including federal and state securities laws and
regulations and the rules and regulations, assuming the correctness of the
representations and warranties made by the Purchasers herein, of any self
regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company or any of its Subsidiaries is bound or affected), except in the case
of clause (iii) such as would not, individually or in the aggregate, have a
Material Adverse Effect.

 
12

--------------------------------------------------------------------------------

 

(e)          Filings, Consents and Approvals.  Neither the Company nor any of
its Subsidiaries is required to obtain any approval, consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents (including
the issuance of the Securities), other than (i) the filing with the Commission
of one or more Registration Statements in accordance with the requirements of
the Investor Rights Agreement, (ii) filings required by applicable state and
federal securities laws, (iii) the filing of a Notice of Sale of Securities on
Form D with the Commission under Regulation D of the Securities Act, (iv) the
filing of any requisite notices and/or application(s) to the Principal Trading
Market for the issuance and sale of the Securities, and the listing of the
Common Stock for trading or quotation, as the case may be, thereon in the time
and manner required thereby, (v) those that have been made or obtained prior to
the date hereof and (vi) the Stockholder Approval (collectively, the “Required
Approvals”).
 
(f)          Issuance of the Securities.  The Units, the Shares and the Warrants
have been duly authorized and, when issued and paid for in accordance with the
terms of the Transaction Documents, will be duly and validly issued, free and
clear of all Liens, other than restrictions on transfer provided for in the
Transaction Documents or imposed by applicable securities laws, and shall not be
subject to preemptive or similar rights of stockholders. Assuming the accuracy
of the representations and warranties of the Purchasers in this Agreement, the
Securities will be issued in compliance with all applicable federal and state
securities laws.  As of the Closing Date, the Company shall have reserved from
its duly authorized capital stock not less than (i) the aggregate number of
shares of Series A Preferred to be sold and issued hereunder as Unit Shares, and
(ii) the maximum number of shares of Common Stock issuable upon conversion of
such Series A Preferred.  The Company shall, so long as any of the Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued capital stock, solely for the purpose of effecting the
exercise of the Warrants (x) the maximum number of shares of Series A Preferred
issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants) and (y)
the maximum number of shares of Common Stock issuable upon conversion of the
Series A Preferred issuable upon exercise of the Warrants.

 
13

--------------------------------------------------------------------------------

 

(g)          Capitalization.  The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) has been set forth in
the SEC Reports and has changed since the date of such SEC Reports only to
reflect stock option and warrant exercises that do not, individually or in the
aggregate, have a material effect on the issued and outstanding capital stock,
options and other securities.  All of the outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and non-assessable,
have been issued in compliance in all material respects with all applicable
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase any capital stock of the Company.  Except as set forth on Schedule
3.1(g)(i): (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company;
(iii) there are no material outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing indebtedness of the Company or by which the Company is or may become
bound; (iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company; (v) there are no agreements or arrangements under which the Company
is obligated to register the sale of any of their securities under the
Securities Act (except the Investor Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
redeem a security of the Company; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) the Company does not have any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) the Company has no liabilities or obligations required to
be disclosed in the SEC Reports (as defined herein) but not so disclosed in the
SEC Reports, other than those incurred in the ordinary course of the Company's
businesses and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.  Schedule 3.1(g)(ii) sets forth a complete and
accurate list, as of the date hereof, (A) with respect to all outstanding
options and warrants to acquire capital stock of the Company, the number and
type of capital stock subject to each such stock option or warrant, the grant
date, expiration date, exercise price per share and vesting schedule thereof and
the name of the holder thereof and (B) with respect to all outstanding shares of
Common Stock that are subject to outstanding Company restricted stock or
restricted stock units, the grant date and vesting schedule and name of the
holder thereof.  All outstanding stock options, restricted stock or restricted
stock units are evidenced by stock option agreements, restricted stock unit
agreements or other award agreements, in each case substantially in the forms
filed as exhibits to the SEC Reports, except that the forms of such agreements
differ with respect to the number of shares covered thereby, the exercise price
(if applicable), vesting schedule and expiration date applicable thereto and
other similar terms, provided that no stock option agreement, restricted stock
unit agreement or other award agreement contains terms that are inconsistent in
any material respect with, or material terms in addition to, such forms.  With
respect to the outstanding stock options, (A) each was duly authorized no later
than the date on which the grant of such stock option was by its terms to be
effective (the “Grant Date”) by all necessary corporate action, including, as
applicable, approval by the Board of Directors of the Company (or a duly
constituted and authorized committee thereof) and any required stockholder
approval by the necessary number of votes or written consents, and the award
agreement governing such grant (if any) was duly executed and delivered by each
party thereto, (B) each grant was made in accordance with the terms of the
applicable Company equity incentive plan, the Exchange Act and all other
applicable Laws, (C) the per share exercise price was equal to the fair market
value (as defined in the applicable Company equity incentive plan) of a share of
Common Stock on the applicable Grant Date and (D) each grant was properly
accounted for in accordance with GAAP in the financial statements (including the
related notes) of the Company and disclosed in the SEC Reports in accordance
with the Exchange Act and all other applicable laws.  The Company has not
knowingly granted, and there is no and has been no Company policy or practice to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.
 
(h)          SEC Reports.  The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for two (2) years
preceding the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports” and together with this
Agreement and the Schedules to this Agreement (if any), the “Disclosure
Materials”), on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension.  As of the date hereof, the Company is not aware of any event
occurring on or prior to the Closing Date (other than the transactions
contemplated by the Transaction Documents) that requires the filing of a Current
Report on Form 8-K after the Closing.  As of their respective filing dates, or
to the extent corrected by a subsequent restatement, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

 
14

--------------------------------------------------------------------------------

 
 
(i)           Financial Statements.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing (or to the extent corrected
by a subsequent restatement).  Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries taken as a
whole as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal, year-end audit adjustments.  Each of the Material Contracts to which
the Company or any of its Subsidiaries is a party or to which the property or
assets of the Company or any of its Subsidiaries is subject has been filed as an
exhibit to the SEC Reports.
 
(j)           Tax Matters.  The Company and each of its Subsidiaries (i) has
prepared and filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) 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 that are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves or other appropriate provisions are maintained on the books of the
Company in accordance with GAAP, and (iii) has set aside on their books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply,
except, in the case of clauses (i) and (ii) above, where the failure to so pay
or file any such tax, assessment, charge or return would not have a Material
Adverse Effect.
 
(k)          Material Changes.  Since the date of the latest financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there have been no events, occurrences or developments that
have had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, (ii) neither the Company nor any of its
Subsidiaries has incurred any material liabilities (contingent or otherwise)
other than (A) trade payables, accrued expenses and other liabilities incurred
in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not materially altered its method of
accounting or the manner in which it keeps its accounting books and records,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (other than in
connection with repurchases of unvested stock issued to employees of the
Company), (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except Common Stock issued in the ordinary course
pursuant to existing Company stock option or stock purchase plans or executive
and director compensation arrangements disclosed in the SEC Reports and (vi)
there has not been any material change or amendment to, or any waiver of any
material right under, any Material Contract under which the Company or any of
its Subsidiaries or their respective assets are bound or subject.  Except for
the issuance of the Securities contemplated by this Agreement, no event,
liability or development has occurred or exists with respect to the Company, its
Subsidiaries or their respective businesses, properties, operations or financial
condition that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made that has not been
publicly disclosed at least one Trading Day prior to the date that this
representation is made.

 
15

--------------------------------------------------------------------------------

 
 
(l)           Environmental Matters.  To the Company’s Knowledge, neither the
Company nor any of its Subsidiaries (i) is in violation of any statute, rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”), (ii) owns or operates any real property contaminated with any substance
that is in violation of any Environmental Laws, (iii) is liable for any off-site
disposal or contamination pursuant to any Environmental Laws, or (iv) is subject
to any claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or would have, individually or in the aggregate, a
Material Adverse Effect; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.
 
(m)         Litigation.  There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities, (ii) involves a claim of material violation of or
material liability under any federal, state, local or foreign laws governing the
Company's or any of its Subsidiaries’ operations, including without limiting the
generality of the foregoing, laws regulating the protection of human health,
including without limiting the generality of the foregoing, laws relating to the
manufacture, processing, packaging, labeling, marketing, distribution, use,
inspection, treatment, storage, disposal, transport or handling of the Company's
product, and regulated or hazardous substances, 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 thereunder, all as may be in effect from time
to time and all successors, replacements and expansions thereof, (iii) involves
material injury to or death of any person arising from or relating to any of the
Company's product, or (iv) could, if there were an unfavorable decision,
individually or in the aggregate, have a Material Adverse Effect.  The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act.
 
(n)          Employment Matters.  No material labor dispute exists or, to the
Knowledge of the Company, is imminent with respect to any of the employees of
the Company or any of its Subsidiaries which could reasonably be expected to
result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relationships with their employees are
good. No executive officer, to the Knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance would not, individually or in the aggregate, have a Material Adverse
Effect.  Except as set forth on Schedule 3.1(n), none of the execution, delivery
and performance by the Company of this Agreement and each of the other
Transaction Documents to which it is a party and the consummation by the Company
of the transactions contemplated hereby or thereby (including, but not limited
to, the issuance of, or the reservation for issuance and the subsequent issuance
of, as applicable, the Units, the Warrants and the Shares) (alone or in
conjunction with any other event, including any termination of employment) will
(A) entitle any of the Company’s or its Subsidiaries’ employees to any
compensation or benefit, except as required by any statute, rule or regulation
of any governmental authority applicable to the Company, (B) accelerate the time
of payment or vesting, or trigger any payment or funding, of any compensation or
benefit, including any stock options, restricted stock, or restricted stock
units, or trigger any other material obligation or (C) result in any material
breach or violation of, or default under, or limit the Company’s right to amend,
modify or terminate, any Company employee compensation or benefit plan, program,
policy, agreement or arrangement (each, an “Employee Transaction
Benefit”).  Each Company benefit plan or arrangement that is a “nonqualified
deferred compensation plan” within the meaning of Section 409A(d)(1) of the IRC
subject to Section 409A of the IRC has been in operational compliance with
Section 409A of the IRC since January 1, 2005, and has been in documentary
compliance with Section 409A of the IRC since January 1, 2009, based upon a good
faith, reasonable interpretation of Section 409A of the IRC and the final
Treasury Regulations and other guidance issued by the Internal Revenue Service
thereunder.  Except as set forth on Schedule 3.1(n) attached hereto, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated by this Agreement will (either alone or upon the
occurrence of termination of employment) constitute an event that may result in
(either alone or in connection with any other circumstance or event) or give
rise directly or indirectly to any “parachute payment” within the meaning of
Section 280G(b)(2) of the IRC.  The Company is not a party to any agreement to
compensate any Person for excise taxes payable pursuant to Section 4999 of the
IRC.

 
16

--------------------------------------------------------------------------------

 
 
(o)          Compliance.  The Company (i) is not in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company), nor
has the Company received written notice of a claim that it is in default under
or that it is in violation of, any Material Contract (whether or not such
default or violation has been waived), (ii) is not in violation of any order of
any court, arbitrator or governmental body having jurisdiction over the Company
or its properties or assets, or (iii) is not or has not been in violation of, or
in receipt of notice that it is in violation of, any statute, rule or regulation
of any governmental authority applicable to the Company, except in each case as
would not, individually or in the aggregate, have a Material Adverse Effect.
 
(p)          Regulatory Permits.  The Company and each of its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, including without
limitation the PRC State Food and Drug Authority (“PRC SFDA”), except where the
failure to possess such permits, individually or in the aggregate, has not and
would not have, individually or in the aggregate, a Material Adverse Effect
(“Material Permits”), and (i) neither the Company nor any of its Subsidiaries
has received any notice of proceedings relating to the revocation or material
adverse modification of any such Material Permits and (ii) the Company is
unaware of any facts or circumstances that the Company would reasonably expect
to give rise to the revocation or material adverse modification of any Material
Permits.
 
(q)          Title to Assets.  Except as set forth on Schedule 3.1(q), the
Company and each of its Subsidiaries have good and marketable title or valid
land use rights granted by relevant Governmental Authorities in the People’s
Republic of China to all real property  used in the conduct of their respective
businesses as now conducted and proposed to be conducted, in each case free and
clear of all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
Subsidiaries..  Except as set forth on Schedule 3.1(q), the Company and each of
its Subsidiaries have good and marketable title to all tangible personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries.  Any real property and facilities held under lease
by the Company or any of its Subsidiaries are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

 
17

--------------------------------------------------------------------------------

 
 
(r)          Patents and Trademarks.  The Company and its Subsidiaries own,
possess, license or have other rights to use all foreign and domestic patents,
patent applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets,
technology and other proprietary rights and processes (collectively, the
“Intellectual Property”) necessary for the conduct of their respective
businesses as now conducted and proposed to be conducted.  Except  where such
violations or infringements would not have, either individually or in the
aggregate, a Material Adverse Effect, to the Company’s Knowledge (a) there are
no rights of third parties to any such Intellectual Property; (b) there is no
infringement by third parties of any such Intellectual Property; (c) there is no
pending or threatened action, suit, proceeding or claim by others challenging
the Company’s rights in or to any such Intellectual Property; (d) there is no
pending or threatened action, suit, proceeding or claim by others challenging
the validity or scope of any such Intellectual Property; and (e) there is no
pending or threatened action, suit, proceeding or claim by others that the
Company or any Company Subsidiary infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of others.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so would not have, either individually or in the
aggregate, a Material Adverse Effect.  The Company has duly and properly filed
or caused to be filed with applicable foreign patent authorities all patent
applications owned by the Company (the “Company Patent Applications”). To the
knowledge of the Company, the Company has made no material misrepresentation in
the Company Patent Applications. The Company is not aware of any information
material to a determination of patentability regarding the Company Patent
Applications not called to the attention of the foreign patent authority. The
Company is not aware of any information not called to the attention of the
foreign patent authority that would preclude the grant of a patent for the
Company Patent Applications. The Company has no knowledge of any information
that would preclude the Company from having clear title to the Company Patent
Applications.
 
(s)          Insurance.  Neither the Company nor any Company Subsidiary has
received any notice of cancellation of any insurance, nor, to the Company’s
Knowledge, will it or any Subsidiary be unable to renew its respective existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue their respective
businesses without a significant increase in cost.
 
(t)          Transactions With Affiliates and Employees.  Except as set forth in
the SEC Reports and other than the grant of stock options or other equity awards
that are not individually or in the aggregate material in amount, none of the
officers or directors of the Company and, to the Company’s Knowledge, none of
the employees of the Company, is presently a party to any transaction with the
Company or to a presently contemplated transaction (other than for services as
employees, officers and directors) that would be required to be disclosed
pursuant to Item 404 of Regulation S-K promulgated under the Securities Act.
 
(u)          Internal Accounting Controls.  The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any differences. Since
the Evaluation Date, there have been no changes in the Company’s internal
control over financial reporting (as such term is defined in the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.

 
18

--------------------------------------------------------------------------------

 
 
(v)         Sarbanes-Oxley; Disclosure Controls.  The Company is in compliance
in all material respects with all of the provisions of the Sarbanes-Oxley Act of
2002 which are applicable to it, except where such noncompliance would not have,
individually or in the aggregate, a Material Adverse Effect.  The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls
and procedures to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying officers have evaluated
the effectiveness of the Company’s disclosure controls and procedures as of the
end of the period covered by the Company’s most recently filed periodic report
under the Exchange Act (such date, the “Evaluation Date”). The Company presented
in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
 
(w)         Certain Fees.  Except for the fees to the Consultant in an amount
equal to 5% of the gross cash proceeds to the Company resulting from the sale of
Units at the Closing pursuant to this Agreement (the “Consultant Fees”) (which
Consultant  Fees are being paid by the Company), no Person will have, as a
result of the transactions contemplated by this Agreement, any valid right,
interest or claim against or upon the Company or a Purchaser for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company. The Company shall
indemnify, pay, and hold each Purchaser harmless against, any liability, loss or
expense (including, without limitation, attorneys’ fees and out-of-pocket
expenses) arising in connection with any such right, interest or claim.
 
(x)          Private Placement.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement and
the accuracy of the information disclosed in the Accredited Investor
Questionnaires, no registration under the Securities Act is required for the
offer and sale of the Securities by the Company to the Purchasers under the
Transaction Documents.
 
(y)         Registration Rights.  Other than each of the Purchasers or as set
forth in Schedule 3.1(y) hereto, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company other than those securities which are currently registered on an
effective registration statement on file with the Commission.
 
(z)          No Directed Selling Efforts or General Solicitation.  Neither the
Company nor any Person acting on its or its behalf has conducted any “general
solicitation” or “general advertising” (as those terms are used in Regulation D)
in connection with the offer or sale of any of the Securities.
 
(aa)       No Integrated Offering.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement,
neither the Company nor any Person acting on its behalf has, directly or
indirectly, at any time within the past six months, made any offers or sales of
any Company security or solicited any offers to buy any security under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale by the Company of the Securities as contemplated hereby or (ii)
cause the offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
law, regulation or stockholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which any
of the securities of the Company are listed or designated.

 
19

--------------------------------------------------------------------------------

 

(bb)       Listing and Maintenance Requirements.  The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to terminate the registration of the Common
Stock under the Exchange Act nor has the Company received any notification that
the Commission is contemplating terminating such registration.  The Company has
not, in the 12 months preceding the date hereof, received written notice  from
any Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market except as set forth on Schedule
3.1(bb).  The Company is in compliance in all material respects with the listing
and maintenance requirements for continued trading of the Common Stock on the
Principal Trading Market, except as set forth on Schedule 3.1(bb).
 
(cc)       Investment Company.  The Company is not required to be registered as,
and is not an Affiliate of, and immediately following the Closing, will not be
required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
 
(dd)       Application of Takeover Protections; Rights Agreements.  The Company
and the Board have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's charter documents or the laws of the
State of Nevada that is or could reasonably be expected to become applicable to
any of the Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction Documents,
including, without limitation, the Company's issuance of the Securities and the
Purchasers' ownership of the Securities. The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
 
(ee)       Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would have
a Material Adverse Effect.
 
(ff)         Acknowledgment Regarding Purchasers’ Purchase of Securities.  The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby.  The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Purchasers’ purchase of the
Securities.
 
(gg)       Solvency.  As of the Closing Date, each of the Company and its
Subsidiaries is and will be Solvent.  As used herein, “Solvent” means, with
respect to the Company on a particular date, that on such date, in each case
including the fair value of the Company’s Intellectual Property, (a) the fair
value of the property of the Company is greater than the total amount of
liabilities, including contingent liabilities, of the Company; (b) the present
fair salable value of the assets of the Company is not less than the amount that
will be required to pay the probable liability of the Company on its debts as
they become absolute and matured; (c) the Company does not intend to, and does
not believe that it will, incur debts or liabilities beyond the Company’s
ability to pay as such debts and liabilities mature; (d) the Company is not
engaged in a business or transaction, and is not about to engage in a business
or transaction, for which the Company’s property would constitute an
unreasonably small capital; and (e) as of the date hereof, the Company is not
“insolvent” within the meaning of Section 101(32) of the United States
Bankruptcy Code (11 U.S.C. § 101, et. seq), as amended from time to time (the
“Bankruptcy Code”).  The amount of contingent liabilities (such as litigation,
guaranties and pension plan liabilities) at any time shall be computed as the
amount that, in light of all the facts and circumstances existing at the time,
represents the amount that can be reasonably be expected to become an actual or
matured liability.  The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).  The Company has no
Knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date.  The SEC Reports
set forth as of the date thereof all outstanding secured and unsecured
indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments, which are required to be disclosed in such SEC
Reports.

 
20

--------------------------------------------------------------------------------

 
(hh)          PRC SFDA.  As to each product subject to the jurisdiction of the
PRC SFDA and applicable PRC laws and regulations, that is manufactured,
packaged, labeled, tested, distributed, sold, and/or marketed by the Company or
any of its Subsidiaries (each such product, a “Pharmaceutical Product”), such
Pharmaceutical Product is being manufactured, packaged, labeled, tested,
distributed, sold and/or marketed by the Company in compliance with all
applicable requirements applicable PRC laws, rules and regulations relating to
registration, investigational use, premarket clearance, licensure, or
application approval, good manufacturing practices, good laboratory practices,
good clinical practices, product listing, quotas, labeling, advertising, record
keeping and filing of reports, except where the failure to be in compliance
would not, individually or in the aggregate, have a Material Adverse Effect.
There is no pending, completed or, to the Company’s Knowledge, threatened,
action (including any lawsuit, arbitration, or legal or administrative or
regulatory proceeding, charge, complaint, or investigation) against the Company
or any of its Subsidiaries, and none of the Company or any of its Subsidiaries
has received any notice, warning letter or other communication from the PRC SFDA
or any other governmental entity, which (i) contests the premarket clearance,
licensure, registration, or approval of, the uses of, the distribution of, the
manufacturing or packaging of, the testing of, the sale of, or the labeling and
promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
requests the recall, suspension, or seizure of, or withdraws or orders the
withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
investigation by the Company or any of its Subsidiaries, (iv) enjoins production
at any facility of the Company or any of its Subsidiaries, (v) enters or
proposes to enter into a consent decree of permanent injunction with the Company
or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws,
rules or regulations by the Company or any of its Subsidiaries, and which,
either individually or in the aggregate, would have a Material Adverse Effect.
The properties, business and operations of the Company have been and are being
conducted in all material respects in accordance with all applicable laws, rules
and regulations of the PRC SFDA. The Company has not been informed by the PRC
SFDA that it either will prohibit the marketing, sale, license or use in the PRC
of any product proposed to be developed, produced or marketed by the Company nor
has the PRC SFDA expressed any concern as to approving or clearing for marketing
any product being developed or proposed to be developed by the Company.
 
(ii)            No Additional Agreements.  The Company does not have any
agreement or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents. 
 
(jj)            MOC Approval.  Based on the legal opinion of the Company PRC
Counsel, Kun Run HK’s acquisition of accumulative 99.12% equity interests in the
Company in 2008 will not be deemed as a transaction between affiliates under
Circular 10 of 2006, and the aforesaid acquisition did not require approval by
the PRC Ministry of Commerce on the basis of being a transaction between
affiliates.
 
21

--------------------------------------------------------------------------------

 
3.2  Representations and Warranties of the Purchasers.  Each Purchaser hereby,
for itself and for no other Purchaser, represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows:
 
(a)            Organization; Authority.  Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Purchaser is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Purchaser.  Each of this Agreement
and the Investor Rights Agreement has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
 
(b)            No Conflicts.  The execution, delivery and performance by such
Purchaser of this Agreement and the Investor Rights Agreement and the
consummation by such Purchaser of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
such Purchaser, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Purchaser is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment  or
decree (including federal and state securities laws) applicable to such
Purchaser, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
ability of such Purchaser to perform its obligations hereunder.
 
(c)            Investment Intent.  Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to, or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable state securities laws, provided, however,
that by making the representations herein, such Purchaser does not agree to hold
any of the Securities for any minimum period of time and reserves the right,
subject to the provisions of this Agreement and the Investor Rights Agreement,
at all times to sell or otherwise dispose of all or any part of the Warrants or
the Shares pursuant to an effective registration statement under the Securities
Act or under an exemption from such registration and in compliance with
applicable federal and state securities laws.  Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such Purchaser does
not presently have any agreement, plan or understanding, directly or indirectly,
with any Person to distribute or effect any distribution of any of the
Securities (or any securities which are derivatives thereof) to or through any
Person; such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act or an entity engaged in a business that would require it to be so
registered as a broker-dealer.
 
(d)            Purchaser Status.  At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is an “accredited investor” as
defined in Rule 501(a) under the Securities Act.
 
(e)            General Solicitation.  Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general advertisement.
 
22

--------------------------------------------------------------------------------

 
(f)            Experience of Such Purchaser.  Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.  Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
 
(g)           Access to Information.  Such Purchaser acknowledges that it has
had the opportunity to review the Disclosure Materials and has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information about the Company and
its respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.  Such Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed decision with respect to its acquisition of the Securities.
 
(h)           Certain Trading Activities. Other than with respect to the
transactions contemplated herein, since the time that such Purchaser was first
contacted by the Company, the Consultant or any other Person regarding the
transactions contemplated hereby until the date hereof, neither the Purchaser
nor any Affiliate of such Purchaser which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Purchaser’s
investments or trading or information concerning such Purchaser’s investments,
including in respect of the Securities, and (z) is subject to such Purchaser’s
review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”) has directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Purchaser
or Trading Affiliate, effected or agreed to effect any transactions in the
securities of the Company (including, without limitation, any Short Sales
involving the Company’s securities). Notwithstanding the foregoing, in the case
of a Purchaser and/or Trading Affiliate that is, individually or collectively, a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's or Trading Affiliate’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's or Trading
Affiliate’s assets, the representation set forth above shall apply only with
respect to the portion of assets managed by the portfolio manager that has
knowledge about the transactions contemplated by this Agreement.  Other than to
other Persons who are parties to this Agreement, such Purchaser has maintained
the confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, and except as otherwise provided in Section 4.12
of this Agreement, no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in Short Sales in the securities of the Company
after the effectiveness of any Registration Statement filed pursuant to the
Investor Rights Agreement.
 
(i)            Brokers and Finders.  Except for the Consultant Fees, no Person
will have, as a result of the transactions contemplated by this Agreement, any
valid right, interest or claim against or upon the Company or any Purchaser for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Purchaser.
 
23

--------------------------------------------------------------------------------

 
(j)            Independent Investment Decision.  Such Purchaser has
independently evaluated the merits of its decision to purchase Securities
pursuant to the Transaction Documents, and such Purchaser confirms that it has
not relied on the advice of any other Purchaser’s business and/or legal counsel
in making such decision.  Such Purchaser understands that nothing in this
Agreement or any other materials presented by or on behalf of the Company to the
Purchaser in connection with the purchase of the Securities constitutes legal,
tax or investment advice.  Such Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Securities.
 
(k)            Reliance on Exemptions.  Such Purchaser understands that the
Securities being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.
 
(l)             No Governmental Review.  Such Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
 
(m)           Regulation M. Such Purchaser is aware that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Series A
Preferred and Common Stock and other activities with respect to the Series A
Preferred and Common Stock by the Purchasers.
 
(n)            Residency.  Such Purchaser’s principal executive offices are in
the jurisdiction set forth immediately below Purchaser’s name on the applicable
signature page attached hereto.
 
The Company and each of the Purchasers acknowledge and agree that no party to
this Agreement has made or makes any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set forth
in this Article III and the Transaction Documents.
 
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1  Transfer Restrictions.
 
(a)            Compliance with Laws.  Notwithstanding any other provision of
this Article IV, each Purchaser covenants that the Securities may be disposed of
only pursuant to an effective registration statement under, and in compliance
with the requirements of, the Securities Act, or pursuant to an available
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, and in compliance with any applicable state
and federal securities laws.  In connection with any transfer of the Securities
other than (i) pursuant to an effective registration statement, (ii) to the
Company (including pursuant to the Lead Investor’s exercise of the Put Right),
(iii) to an Affiliate of a Purchaser, (iv) pursuant to Rule 144 (provided that
the Purchaser provides the Company with reasonable assurances (in the form of
seller and broker representation letters) that the securities may be sold
pursuant to such rule) or Rule 144A, (v) pursuant to Rule 144 following the
applicable holding period or (vi) in connection with a bona fide pledge, the
Company may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the Company,
the form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.  As a condition of transfer of
any Securities other than Unrestricted Securities (as defined below), any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Investor
Rights Agreement.
 
24

--------------------------------------------------------------------------------

 
(b)            Legends.  Each of the Warrants and the certificates evidencing
the Shares shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form, as applicable,
until such time as they are not required under Section 4.1(c) (and a stock
transfer order may be placed against transfer of the certificates for the
Shares):
 
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION
OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PROVIDED BY ARTICLE IV OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS
OF APRIL 17, 2010, BY AND AMONG KUN RUN BIOTECHNOLOGY, INC. AND THE PURCHASERS
IDENTIFIED ON THE SIGNATURE PAGES THERETO.
 
In addition, if any Purchaser is an Affiliate of the Company, the Warrants and
the certificates evidencing the Shares issued to such Purchaser shall bear a
customary “affiliates” legend.
 
(c)            Removal of Legends.  The legend set forth in Section 4.1(b) above
shall be removed and the Company shall issue a certificate without such legend
or any other legend to the holder of the applicable Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC, if (i) a Registration Statement covering the resale of such
Securities by the Purchasers is effective, (ii) such Securities are sold or
transferred pursuant to Rule 144 (if the transferor is not an Affiliate of the
Company), or (iii) such Securities are eligible for sale under Rule 144 (any
Securities meeting any of such criteria being referred to as “Unrestricted
Securities”).  Fees with respect to the Transfer Agent and Company Counsel
associated with the removal of such legend shall be borne by the
Company.  Following such time as a legend is no longer required for certain
Securities, the Company will no later than five (5) Trading Days following the
delivery by a Purchaser to the Company or the Transfer Agent (with notice to the
Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer), deliver or cause to be
delivered to the transferee of such Purchaser or such Purchaser, as applicable,
a certificate representing such Securities that is free from all restrictive and
other legends.  The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section 4.1.  In lieu of delivering physical certificates, upon
the written request of any Purchaser, the Company shall use its best efforts to
transmit certificates for Securities subject to legend removal hereunder to such
Purchaser by crediting the account of the transferee’s Purchaser’s prime broker
with DTC through its Deposit Withdrawal Agent Commission (DWAC) system.  The
time periods for delivery and penalties described herein shall apply to the
electronic transmittals described herein.  Any delivery not effected by
electronic transmission shall be effected by delivery of physical
certificates.  Each Purchaser agrees that the removal of the restrictive legend
from any certificates representing Securities as set forth in this Section
4.1(c) above is predicated upon the Company’s reliance that such Purchaser would
sell, transfer, assign, pledge, hypothecate or otherwise dispose of such
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if such Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set
forth therein.
 
25

--------------------------------------------------------------------------------

 
(d)            Irrevocable Transfer Agent Instructions.  The Company shall
execute and deliver irrevocable instructions to its Transfer Agent, which
irrevocable instructions shall be acknowledged in writing by the Transfer Agent
(the “Irrevocable Transfer Agent Instructions”). The Company represents and
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions or instructions consistent therewith referred to in this Section
4.1(d) will be given by the Company to its transfer agent in connection with
this Agreement, and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement, the other Transaction Documents and applicable law. The Company
acknowledges that a breach by it of its obligations under this Section 4.1(d)
will cause irreparable harm to a Purchaser. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 4.1(d) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 4.1(d), that
a Purchaser shall be entitled, in addition to all other available remedies, to
an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

(e)            Acknowledgement.  Each Purchaser hereunder acknowledges its
primary responsibilities under the Securities Act and accordingly will not sell
or otherwise transfer any of the Securities or any interest therein without
complying with the requirements of the Securities Act.  While any Registration
Statement remains effective, each Purchaser hereunder may sell the Shares in
accordance with the plan of distribution contained in such Registration
Statement and, if it does so, it will comply therewith and with the related
prospectus delivery requirements unless an exemption therefrom is
available.  Each Purchaser, severally and not jointly with the other Purchasers,
agrees that if it is notified by the Company in writing at any time that a
Registration Statement registering the resale of any of the Shares is not
effective or that the prospectus included in such Registration Statement no
longer complies with the requirements of Section 10 of the Securities Act, the
Purchaser will refrain from selling such Shares until such time as the Purchaser
is notified by the Company that such Registration Statement is effective or such
prospectus is compliant with Section 10 of the Exchange Act, unless such
Purchaser is able to, and does, sell such Shares pursuant to an available
exemption from the registration requirements of Section 5 of the Securities
Act.  Both the Company and its Transfer Agent, and their respective directors,
officers, employees and agents, may rely on this subsection (e), and each
Purchaser hereunder will indemnify and hold harmless each of such persons from
any breaches or violations of this paragraph.

4.2  Acknowledgment of Dilution.  The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Series A
Preferred and Common Stock.  The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation its
obligation to issue the Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
 
4.3  Reservation of Series A Preferred Stock and Common Stock.  As of the
Closing Date, the Company shall have taken all action necessary to authorize and
reserve no less than (i) the aggregate number of shares of Series A Preferred to
be sold and issued hereunder as Unit Shares, and (ii) the maximum number of
shares of Common Stock issuable upon conversion of such Series A Preferred.  The
Company shall, so long as any of the Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
capital stock, solely for the purpose of effecting the exercise of the Warrants
(x) the maximum number of shares of Series A Preferred issuable upon exercise of
the Warrants (without taking into account any limitations on the exercise of the
Warrants set forth in the Warrants) and (y) the maximum number of shares of
Common Stock issuable upon conversion of the Series A Preferred issuable upon
exercise of the Warrants.
 
26

--------------------------------------------------------------------------------

 
4.4  Furnishing of Information.  In order to enable the Purchasers to sell the
Securities under Rule 144 of the Securities Act, commencing on the date hereof
and ending at such time as all Purchasers can freely sell Securities without
restriction under the Securities Act, the Company shall use its commercially
reasonable efforts to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act.  During such period,
if the Company is not required to file reports pursuant to such laws, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Shares under Rule 144.
 
4.5  Form D and Blue Sky.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser who requests a copy in writing promptly after such
filing.  The Company, on or before the Closing Date, shall take such action as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Purchasers at each
Closing pursuant to this Agreement under applicable securities or “Blue Sky”
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Purchasers who request in writing such evidence on or prior to the Closing
Date.  The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or “Blue Sky” laws
of the states of the United States following the Closing Date.
 
4.6  No Integration.  The Company shall not, and shall use its commercially
reasonable efforts to ensure that no Affiliate of the Company shall sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that will be integrated
with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers, or that will be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.
 
4.7  Securities Laws Disclosure; Publicity. By 9:00 a.m., New York City time, on
the Trading Day immediately following the execution of this Agreement, the
Company shall issue a press release (the “Press Release”) reasonably acceptable
to the Lead Investor disclosing all material terms of the transactions
contemplated hereby.  On or before 9:00 a.m., New York City time, on the fourth
Trading Day following the execution of this Agreement (or such earlier time as
required by law), the Company will file a Current Report on Form 8-K with the
Commission describing the terms of the Transaction Documents (and including as
exhibits to such Current Report on Form 8-K the material Transaction Documents
(including, without limitation, this Agreement, the forms of Net Income Warrant
and the Investor Rights Agreement)). Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser or an Affiliate of any
Purchaser, or include the name of any Purchaser or an Affiliate of any Purchaser
in any press release or filing with the Commission (other than the Registration
Statement) or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except (i) as required by federal securities law in
connection with (A)  any Registration Statement contemplated by the Investor
Rights Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such
disclosure is required by law, request of the Staff of the Commission or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior written notice of such disclosure permitted under this subclause
(ii).  Each Purchaser, severally and not jointly with the other Purchasers,
covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company as described in this Section
4.7, such Purchaser will maintain the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and terms of
this transaction), except that such Purchaser may disclose the terms to its
financial, accounting, legal and other advisors.
 
27

--------------------------------------------------------------------------------

 
4.8  Indemnification.  In addition to the indemnity provided in the Investor
Rights Agreement, the Company agrees to indemnify and hold each Purchaser and
all of their respective directors, officers, stockholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls a Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, stockholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation (collectively, “Losses”) that any
such Purchaser Party may suffer or incur whether direct, indirect or
consequential, as a result of or arising from or relating to or in connection
with (a) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction
Documents, provided that such a claim for indemnification relating to any breach
of any of the representations or warranties made by the Company in this
Agreement is made within two years from the Closing or (b) any action instituted
against a Purchaser, or any of their respective Affiliates, by any Person who is
not an Affiliate of such Purchaser, with respect to any of transactions
contemplated by the Transaction Documents (unless such action is based upon any
agreements or understanding such Purchaser may have with any such Person or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence or willful
misconduct).   Notwithstanding anything to the contrary contained herein, the
Company and the Key Stockholder agree to jointly and severally indemnify and
hold each Purchaser Party harmless from any and all Losses that any such
Purchaser Party may suffer or incur whether direct, indirect or consequential,
as a result of or arising from or relating to or in connection with (w) the
failure by the Company, Kun Run HK, Hainan Zhonghe or any PRC resident (if so
required by PRC law) to secure, according to the PRC Notice on Relevant Issues
concerning Foreign Exchange Administration for Domestic Residents to Engage in
Financing and in Round-trip Investment via Overseas Special Purpose Companies
which was issued on October 21, 2005 (“Circular 75”), registration with the PRC
State Administration of Foreign Exchange (“SAFE Registration”) for the Hainan
Zhonghe Pharmaceutical Acquisition, (x) any action by the PRC Ministry of
Commerce against the Company, Kun Run HK or Hainan Zhonghe in relation to any
failure or alleged failure to have obtained approvals under Circular 10 of 2006
for the entire Hainan Zhonghe Pharmaceutical Acquisition or any part of it, (y)
any claim against the Company or any of its Subsidiaries relating to a breach of
Section 3.1(a) in relation to the issue or transfer of securities by any of the
Subsidiaries, and (z) the failure by the Company to fulfill its obligations to
the Lead Investor under the Put Right, including without limitation payment of
the Put Amount upon the Lead Investor’s exercise of the Put
Right.  Notwithstanding anything to the contrary herein, all indemnification
provided for hereunder shall not exceed the maximum Put Amount, assuming the
Lead Investor exercises the Put Right for all Shares (including all Warrant
Shares actually issued upon exercise of the Warrants) then held by the Lead
Investor and its affiliates.  To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this Section 4.9 may be unenforceable because
it is violative of any law or public policy, the Company and Key Stockholder, as
applicable, shall, contribute the maximum amount which it is permitted to pay
and satisfy under applicable law, to the payment and satisfaction of all
indemnified matters incurred by the Purchaser Parties.
 
28

--------------------------------------------------------------------------------

 
4.9  Listing of Securities.  In the time and manner required by the Principal
Trading Market, the Company shall prepare and file with such Trading Market an
additional shares listing application covering all of the Shares and shall use
its commercially reasonable efforts to take all steps necessary to maintain, so
long as any other shares of Common Stock shall be so listed, such listing.
 
4.10        Use of Proceeds.  The Company shall use the proceeds from the sale
of the Units for (i) potential acquisitions of drug products and pipeline
assets, (ii) working capital, (iii) payment of the Consultant Fee, (iv)
reimbursement of Investor Fees, and (v) repayment of certain outstanding
obligations of the Company or its Subsidiaries.
 
4.11        Dispositions and Confidentiality After the Date Hereof.  Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it, will engage in any transactions in the Company’s
securities (including, without limitation, any Short Sales involving the
Company’s securities) during the period from the date hereof until the earlier
of such time as (i) the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.7 or (ii) this Agreement is
terminated in full pursuant to Section 6.1 hereof.  Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenants set forth above shall apply only with respect
to the portion of assets managed by the portfolio manager that has knowledge
about the transactions contemplated by this Agreement.  Each Purchaser
understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that covering a
short position established prior to effectiveness of a resale registration
statement with shares included in such registration statement would be a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5
under Section A, of the Manual of Publicly Available Telephone Interpretations,
dated July 1997, compiled by the Office of Chief Counsel, Division of
Corporation Finance.
 
4.12        No Shop Agreement.  Until the earlier to occur of (i) the Closing or
(ii) a valid termination pursuant to Section 6.1 hereof, the effect of which
results in the Closing failing to occur, the Company will not, and will not
cause nor permit any of its Affiliates or any of its or their officers,
directors, stockholders, employees, agents or representatives to, directly or
indirectly:
 
(a)            negotiate, authorize, recommend, enter into or propose to enter
into, with any Person other than Persons designated by mutual agreement of the
Company and the Lead Investor, any transaction involving (directly or
indirectly) an issuance, sale or acquisition of any Capital Stock of the Company
(other than (i) the issuance of Securities pursuant to the Transaction
Documents, (ii) employee, director and consultant stock option grants consistent
with past custom and practice and (iii) shares of Common Stock issued upon the
exercise of (A) warrants in existence as of the date hereof or (B) stock options
granted to employees, directors or consultants of the Company and its
Subsidiaries and that are either in existence as of the date hereof or that have
been granted consistent with past custom and practice), a sale, lease or other
conveyance of a substantial portion of the business or assets of the Company and
its Subsidiaries, or any merger, recapitalization, business combination,
strategic alliance, joint venture or similar transaction involving the Company
(a “Competing Transaction”);
 
(b)            continue to engage in any pending discussions or negotiations
with any third party concerning any previously proposed Competing Transaction;
 
(c)            knowingly encourage, solicit or initiate discussions,
negotiations or submissions of proposals, indications of interest or offers in
respect of a Competing Transaction;
 
29

--------------------------------------------------------------------------------

 
(d)            knowingly furnish or cause to be furnished to any person any
information in furtherance of a Competing Transaction.
 
4.13        Schedule 14F-1.  If necessary, the Company shall file with the
Commission a Schedule 14f-1 at least 10 days prior to the Closing Date.
 
4.14        Access to Information and Properties.  Prior to the Closing, the
Company shall, and shall cause each of its Subsidiaries to, (a) afford the Lead
Investor and its personnel, accountants, counsel and other representatives
reasonable access during normal business hours and on reasonable advance notice
to the Company’s and each of such Subsidiary’s premises and other properties,
books and records and all other existing information concerning the business,
properties and personnel of the Company and such Subsidiary as the Lead Investor
may reasonably request, (b) make available at reasonable times and to a
reasonable extent officers and employees of the Company and such Subsidiary to
discuss the business and affairs of the Company and such Subsidiary and (c)
furnish promptly during normal business hours to personnel, accountants, counsel
and other representatives of the Lead Investor such additional financial and
operating data and other information regarding the assets, properties and
business of the Company and each Subsidiary as the Lead Investor may from time
to time reasonably request in order to assist the Lead Investor in fulfilling
its obligations under this Agreement and to facilitate the consummation of the
transactions contemplated by this Agreement.
 
4.15        SAFE Registration; Put Right.  Promptly following the Closing Date,
the Company shall and shall cause Kun Run HK, Hainan Zhonghe and any PRC
resident (if so required by PRC law) to use all commercially reasonable efforts
to register with SAFE for the Hainan Zhonghe Pharmaceutical Acquisition (the
“SAFE Registration Undertaking”).  In the event any time during the three (3)
year period following the Closing Date of any action by the PRC Ministry of
Commerce against the Company, Kun Run HK or Hainan Zhonghe in relation to any
failure or alleged failure to have obtained approvals under Circular 10 of 2006
for the entire Hainan Zhonghe Pharmaceutical Acquisition or any part of it, or
in the event any time during the three (3) year period following the Closing
Date of either the failure to promptly initiate the SAFE Registration
Undertaking or the refusal of the PRC State Administration of Foreign Exchange
to grant or approve the SAFE Registration, and so long as a Lead Investor owns
not less than fifty percent (50%) of the Unit Shares (or shares of Common Stock
issued or issuable upon conversion of such Unit Shares) purchased under this
Agreement by such Lead Investor as of the time of a determination under this
Section the Lead Investor shall have the right in its sole discretion and
without obligation (the “Put Right”), by delivery of written notice to the
Company (the “Put Notice”) to require the Company to purchase from the Lead
Investor and its Affiliates for cash all, or at its election a portion of the
Shares (including any Warrant Shares actually issued upon exercise of the
Warrants) then held by the Lead Investor and its affiliates at an aggregate
purchase price (“Put Amount”) equal to (a) the number of Shares specified in the
Put Notice multiplied by (b) $1.53 per Share (subject to Section 7.15 hereof)
plus accrued interest on such amount equal to 8% per annum, compounded monthly
from the applicable issuance date of such Share. The Put Right shall expire the
later of (a) three (3) years following the Closing Date and (b) six (6) months
following the discovery by, or notice to, the Lead Investor of the event giving
rise to the Put Right.  The closing of a sale of Shares to the Company under the
Put Right will occur within five (5) Business Days after the date of the Lead
Investor’s Put Notice to the Company.
 
4.16        Equity Incentive Plan.  By the date one (1) year after the Closing
Date, the Company shall have duly adopted and received all requisite approvals
for an employee equity incentive or similar employee benefit plan (“Equity
Incentive Plan”), establishing a reserve of 4,411,765 shares of Common Stock
thereunder.
 
30

--------------------------------------------------------------------------------

 
4.17        Real Property Matters.
 
(a)            By July 31, 2010, the Company shall provide evidence to Lead
Investor that RMB 29,000,000 bank loan the company borrowed from Haikou
Chengjiao Rural Credit Cooperatives Union (the “Bank Loan” ) and secured by real
properties described in ownership certificates Hai Fang Zi HK047825, Hai Fang Zi
HK047826, Hai Fang Zi HK047827, Hai Fang Zi HK047828, Hai Fang Zi HK047829, Hai
Fang Zi HK047830, Hai Fang Zi HK047831 and land certificate Hai Kou Shi Guo Yong
(Ji) Zi No. 000139 (the “Mortgaged Properties”) shall have been repaid in full.
 
(b)            By August 15, 2010, the Company shall provide evidence to Lead
Investor that all Liens including, without limitation, the mortgage securing the
Bank Loan, have been released from the Mortgaged Properties.
 
(c)            By December 31, 2010, the Mortgaged Properties shall have been
transferred by Zhonghe Group to Hainan Zhonghe, free and clear of all Liens.
 
(d)            By May 31, 2010, the Company shall have provided evidence to the
reasonable satisfaction of Lead Investor of the original acquisition by Zhonghe
Group of real property currently held or occupied, or being transferred as
described in this Agreement, to Hainan Zhonghe.
 
4.18        Labor Reserves.  By May 31, 2010, the Company shall procure the
establishment by Hainan Zhonghe of a housing reserve and social insurance
reserves of at least CNY 1 million with respect to liabilities incurred on or
before the Closing Date with respect to its current and former employees.
 
4.19        Warrant Exercise.  Upon receipt of an Exercise Notice (as defined in
the Warrants) and payment of the applicable Warrant Exercise Price, the Company
shall issue and sell the relevant Warrant Shares in accordance with the terms
and conditions set forth in the Warrants.
 
4.20        Miscellaneous Covenants.
 
(a)            By April 30, 2010, all existing new drug certificates in the
names of R&D Co. and/or Zhonghe Group for the followng drugs/drug candidates
shall have been transferred to Hainan Zhonghe: (i) Diammonium Glycyrrhizinate
for Injection, (ii) Propylgallate Injection, (iii) Thymopentin Injection, (iv)
Levofloxacin Mesylate for Injection, and (v) Thymosin α1 for Injection, and each
of R&D Co. and Zhonghe Group shall have provided written confirmation acceptable
to Lead Investor that neither Zhonghe Group nor R&D Co. have any rights to, in
or over such drugs/drug candidates and all Intellectual Property relating
thereto, and that Hainan Zhonghe is the sole and exclusive owner thereof.
 
(b)            By May 31, 2010, the Company shall have demonstrated to the
reasonable satisfaction of Lead Investor that the GMP certificate covers all
operations of Hainan Zonghe.
 
(c)            By August 31, 2010, the Company shall have demonstrated to the
reasonable satisfaction of Lead Investor that the Hainan Zhonghe’s distributors
possess requisite Pharmaceutical Trading Licenses and GSP certificates as
required under the laws of the PRC.
 
(d)           By May 31, 2010, the Company shall have demonstrated to the
reasonable satisfaction of Lead Investor that  all activities and payments
related to Hainan Zhonghe’s individual agents have been properly arranged
according to PRC laws and regulations.
 
(e)            By August 31, 2010, the Company shall have demonstrated to the
reasonable satisfaction of Lead Investor that Hainan Zhonghe’s distribution
agreements for distributors representing at least 80% of sales in the latest
financial year are in writing, are currently in force and comply with all
relevant PRC laws and regulations.
 
31

--------------------------------------------------------------------------------

 
(f)            By December 31, 2010, the Company shall have demonstrated to the
reasonable satisfaction of Lead Investor that Hainan Zhonghe has obtained a
Pollution Discharge Permit.
 
(g)           By May 31, 2010, Zonghe Group shall have entered into license
agreements granting a perpetual and royalty free license to Hainan Zonghe to use
certain trademarks and such license agreements shall have been filed with PRC
State Administration of Industry and Commerce on or before July 10, 2010.  The
said trademarks include 和宜,和文, 和力 and 和方.
 
(h)           From and after the Closing Date, the Company shall work with the
Lead Investor to ensure that the Company, Hainan Zhonghe and their respective
Affiliates develop and implement appropriate compliance policies and procedures
suitable for similarly situated publicly held groups, and shall dedicate
sufficient resources to such compliance programs in order to facilitate a
possible listing of the Company’s securities on a Trading Market.
 
(i)            By May 31, 2010, the Company shall have demonstrated to the
reasonable satisfaction of Lead Investor that Kun Run HK’s 2009 Annual Return
shall have been corrected and refiled to show the Company as the sole
shareholder of Kun Run HK.
 
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING

5.1  Conditions Precedent to the Obligations of the Purchasers to Purchase Units
at the Closing.  The obligation of each Purchaser listed on Annex A hereto to
purchase Units at the Closing is subject to the fulfillment to such Purchaser’s
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by such Purchaser (as to itself only):
 
(a)            Representations and Warranties.  The representations and
warranties of the Company contained herein shall be true and correct in all
respects as of the date when made and as of the Closing Date, as though made on
and as of such date.
 
(b)            Performance.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing.
 
(c)            No Legal Restraint.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction (collectively, a “Legal Restraint”) that prohibits the consummation
of any of the transactions contemplated by the Transaction Documents.  The
Company shall not be subject to any Insolvency Proceedings.
 
(d)            Consents and Approvals.  The Company shall have obtained in a
timely fashion any and all consents, permits, approvals, registrations and
waivers necessary for consummation of the purchase and sale of the Units at the
Closing  (including, without limitation, all Required Approvals and any other
necessary regulatory and third party consents and approvals), all of which shall
be and remain so long as necessary in full force and effect.
 
(e)            No Material Adverse Effect.  There shall have been no Material
Adverse Effect on the Company between the date hereof and the Closing.
 
32

--------------------------------------------------------------------------------

 
(f)            No Suspensions of Trading in Common Stock; Listing.  The Common
Stock (i) shall be designated for quotation or listed on the Principal Trading
Market and (ii) shall not have been suspended, as of the Closing Date, by the
Commission or the Principal Trading Market from trading on the Principal Trading
Market nor shall suspension by the Commission or the Principal Trading Market
have been threatened, as of the Closing Date, either (A) in writing by the
Commission or the Principal Trading Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Trading Market.
 
(g)            Company Deliverables.  The Company shall have delivered the
Company Deliverables in accordance with Section 2.2(a).
 
(h)            Compliance Certificate.  The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1(a),
(b) and (d) in the form attached hereto as Exhibit H.
 
(i)             Filing of Certificate of Amendment.  The Certificate of
Designation attached hereto as Exhibit I of the Company shall have been duly
filed with the Secretary of State of the State of Nevada in accordance with the
NRS, and the Purchasers shall have received evidence of such filing in form and
substance reasonably satisfactory to the Purchasers.
 
(j)             Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.1 herein.
 
(k)            Board of Directors.  Upon the Closing, the authorized size of the
Board shall be three (3) members, of which one (1) member shall be designated by
the Lead Investor, and one (1) member shall be an individual with no prior
affiliation with the Company or the Company’s existing stockholders as of the
Closing, which individual will be acceptable to the Lead Investor (the
“Independent Designee”), pursuant to the Investor Rights Agreement and the
Voting Agreement.  As of the Closing, the Board shall be comprised of Xueyun Cui
and Nancy Chang, and the Independent Designee shall be appointed to the Board
following Closing.
 
(l)             Indemnification Agreements.  The Company shall have entered into
indemnification agreements with all members of the Board in a form satisfactory
to the Lead Investor.
 
(m)           Management Rights Agreement.  The Company shall have entered into
a management rights agreement with the Lead Investor in a form satisfactory to
the Lead Investor.
 
(n)            Closing Bid Price.  The Common Stock shall have sustained a
Closing Bid Price of greater than one $1.50 per share for each of the five (5)
trading days immediately preceding the Closing Date.
 
(o)            Reimbursement of Expenses.  The Company shall have tendered
payment for reimbursement of all reasonable fees and expenses incurred by the
Lead Investor in accordance with Section 7.1.
 
(p)            Employee Transaction Benefit.  The Company shall have delivered
to the Lead Investor documentation reasonably acceptable to the Lead Investor
providing that no executive officers of the Company shall be entitled to any
Employee Transaction Benefit.
 
33

--------------------------------------------------------------------------------

 
(q)            Auditor Engagement.  The Company shall have engaged a Qualified
Auditor to conduct the Company’s 2010 fiscal year audit pursuant to a written
engagement letter executed by the Company and such Qualified Auditor.
 
(r)            R&D Co. Transaction.  Hainan Zhonghe shall have acquired all
assets related to pharmaceutical products, excluding real-estate, office
equipment and any assets not related to pharmaceutical products held by Hainan
Zhonghe Peptide Drugs Research & Development Co., Ltd (“R&D Co.”) and all
technology assets related to drug candidates and drugs developed or owned by
Zhonghe Group for an aggregate consideration of $1,000,000.  R&D Co. and its
officers and directors shall have executed noncompetition agreements in a form
satisfactory to the Lead Investor.
 
(s)            Noncompetition Agreements.  The Key Stockholder shall have
delivered a noncompetition side letter to the Lead Investor in a form
satisfactory to the Lead Investor.  Hainan Zhonghe shall have entered into
noncompetition agreements with all of its key employees in a form satisfactory
to the Lead Investor.
 
(t)   Loan Extension.  On or prior to the Closing Date, the Company shall have
repaid the aggregate outstanding balance of RMB 9,637,800 of loans owed by the
Company .
 
(u)  Distribution Arrangements.  The Company shall have entered into
distribution arrangements with Hainan Heyi Pharmaceutical Co., Ltd that are
satisfactory to the Lead Investor.
 
5.2  Conditions Precedent to the Obligations of the Company to Sell Securities
at the Closing.  The Company's obligation to sell and issue the Units to each
Purchaser listed on Annex A hereto at the Closing is subject to the fulfillment
to the satisfaction of the Company on or prior to the Closing Date of the
following conditions, any of which may be waived by the Company:
 
(a)            Representations and Warranties.  The representations and
warranties made by such Purchaser in Section 3.2 hereof shall be true and
correct in all material respects as of the date when made, and as of the Closing
Date as though made on and as of such date, except for representations and
warranties that speak as of a specific date.
 
(b)            Performance.  Such Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing Date.
 
(c)            No Legal Restraint.  No Legal Restraint shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits the consummation of any of the
transactions contemplated by the Transaction Documents.  The Company shall not
be subject to any Insolvency Proceedings.
 
(d)            Consents and Approvals.  The Company shall have obtained in a
timely fashion any and all consents, permits, approvals, registrations and
waivers necessary for consummation of the purchase and sale of the Units
(including, without limitation, all Required Approvals and any other necessary
regulatory and third party consents and approvals), all of which shall be and
remain so long as necessary in full force and effect.
 
(e)            Purchasers Deliverables.  Such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b).
 
34

--------------------------------------------------------------------------------

 
(f)            Termination.    This Agreement shall not have been terminated as
to such Purchaser in accordance with Section 6.1 herein.
 
ARTICLE VI.
TERMINATION

6.1  Termination Prior to the Closing. This Agreement and the purchase and sale
of the Units at the Closing may be terminated at any time prior to the Closing:
 
(a)            by mutual written consent of the Company and each of the
Purchasers listed on Annex A hereto; or
 
(b)            by any Purchaser listed on Annex A hereto (as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers), or the Company, if (i) the
Closing shall not have been consummated on or prior to September 30, 2010 unless
(A) the Closing shall not have occurred due to the failure of the conditions set
forth in Sections 5.1(d) or 5.2(d) hereof;  or (ii) any Legal Restraint (which
Legal Restraint the parties hereto shall have used all commercially reasonable
efforts to resist, resolve or lift, as applicable) permanently restraining,
enjoining or otherwise prohibiting consummation of the Closing shall become
final and non-appealable; provided that the right to terminate this Agreement
pursuant to this Section 6.1(b) shall not be available to any party hereto whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, with respect to clause (i) the failure of the Closing to be
consummated or, with respect to clause (ii) above, such Legal Restraint having
been issued.
 
6.2  Effect of Termination.
 
(a)            In the event that this Agreement is validly terminated as
provided herein, then the Company and the terminating Purchaser(s) shall not
have any further obligation or liability (including arising from such
termination) to the other, and no Purchaser will have any liability to any other
Purchaser under the Transaction Documents as a result therefrom;
provided, however, that nothing in this Section 6.2 shall be deemed to release
any party from any liability for any breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.  In the
event that this Agreement is validly terminated as provided herein, the Company
shall promptly notify all non-terminating Purchasers.
 
(b)            The provisions of Article I (Definitions), Section 4.9
(Indemnification), Section 4.15 (Injunctive Relief), this Section 6.2, and
Article VII (Miscellaneous) shall survive any termination of this Agreement
pursuant to Section 6.1 hereof.
 
35

--------------------------------------------------------------------------------

 
ARTICLE VII.
MISCELLANEOUS
 
7.1  Fees and Expenses.  If the Closing is consummated, the Company shall
reimburse the Lead Investor for all reasonable fees and expenses of the Lead
Investor (“Investor Fees”), including, without limitation, legal, intellectual
property, corporate and other due diligence costs (including, without
limitation, fees and expenses for the GMP facility review and review of the
Company’s financial statements by a Qualified Auditor) and legal fees and
expenses incurred in connection with investigating a possible investment in the
Company, and the preparation, negotiation, execution, delivery and performance
of this Agreement and the other Transaction Documents (and any amendments,
modifications or waivers thereto), provided that such fees and expenses shall
not exceed $200,000.  Notwithstanding anything to the contrary contained herein,
the Company shall reimburse the Lead Investor for all Investor Fees (a) if the
Company fails to consummate the Closing (other than pursuant to a valid
termination pursuant to Section 6.1 hereof), or (b) in the event of a Financial
Discrepancy, provided that such fees and expenses shall not exceed
$200,000.  “Financial Discrepancy” shall mean the determination by the Lead
Investor, with the assistance of its accounting advisors, of a discrepancy of
more than 10% for any of the following financial measures from what was reported
in any of the Company’s financial statements for the 2007 fiscal year, the 2008
fiscal year or the 6 months ended June 30, 2009 delivered or made available to
the Lead Investors prior to the Closing: (i) revenue, (ii) gross profit, (iii)
earnings before interest and tax, (iv) earnings before interest, tax,
depreciation and amortization, and (v) net income.  Notwithstanding anything to
the contrary contained herein, the Company shall not be required to reimburse
the Lead Investor for Investor Fees if the Lead Investor fails to consummate the
Closing (other than pursuant to a valid termination pursuant to Section 6.1
hereof).  The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the sale and issuance of the
Securities to the Purchasers, and shall pay the Consultant Fees due to the
Consultant in connection with the transactions contemplated by this Agreement.
 
7.2  Entire Agreement.  The Transaction Documents, together with the Exhibits
and Schedules hereto and thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements, understandings, discussions and representations, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
 
7.3  Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section 7.3 prior to 5:00 p.m., New York City
time, on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or later
than 5:00 p.m., New York City time, on any Trading Day, (c) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service with next day delivery specified, or (d) upon actual receipt by
the party to whom such notice is required to be given.  The address for such
notices and communications shall be as follows:
 

 
(a)
If to the Company:
         
Kun Run Biotechnology, Inc.
   
Free Trade Zone
   
168 Nanhai Avenue, Haikou City
   
Hainan Province, China 570216
   
Telephone No.: 86-898-6680-2207
   
Facsimile No.:  0-898-6680-2833
   
Attention:  President
         
With a copy to (which shall not constitute notice):
         
Cadwalader, Wickersham & Taft LLP
   
2301 China Central Place
   
Tower 2,
   
No. 79 Jianguo Road
   
Beijing, China 100025

 
36

--------------------------------------------------------------------------------

 

   
Telephone No.:  86-10-6599-7200
   
Facsimile No.:  86-10-6599-7300
   
Attention:  Jiannan Zhang, Esq.

 

 
(b)
If to a Purchaser:

 

 
To the address set forth under such Purchaser’s name on the signature page
hereof.
     
With a copy to (which shall not constitute notice):
     
Cooley Godward Kronish LLP
 
Five Palo Alto Square
 
3000 El Camino Real
 
Palo Alto, California  94306-2155
 
Telephone No.:  (650) 843-5636
 
Facsimile No.: (650) 849-7400
 
Attention:  Michael E. Tenta, Esq.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

7.4  Amendments; Waivers; No Additional Consideration.  No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchaser or Purchasers holding or
having the right to acquire, at the time of such amendment, at least a majority
of the total Unit Shares and Warrant Shares (on a fully-diluted basis) then
issued and held by, or remaining issuable to, all Purchasers or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought;
provided that if any provision of this Agreement states that such provision can
only be waived as to a Purchaser with the consent of such Purchaser, then the
consent of such Purchaser shall be required to waive such provision with respect
to such Purchaser. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.  No consideration shall be offered or paid to
any Purchaser to amend or consent to a waiver or modification of any other
provision of this Agreement, the Warrants or the Investor Rights Agreement
unless the same consideration is also offered to all Purchasers.
 
7.5  Construction.  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.  This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.
 
7.6  Successors and Assigns.  The provisions of this Agreement shall inure to
the benefit of and be binding upon the parties and their successors and
permitted assigns.  This Agreement, or any rights or obligations hereunder, may
not be assigned by the Company without the prior written consent of the
Purchasers.  Any Purchaser may assign its rights hereunder in whole or in part
to any Person to whom such Purchaser assigns or transfers any Securities in
compliance with the Transaction Documents and applicable law, provided such
transferee shall agree in writing to be bound, with respect to the transferred
Securities, by the terms and conditions of this Agreement that apply to the
“Purchasers”.  In addition, any Purchaser may assign its rights or obligations
to purchase the Units that the Purchaser has agreed to purchase at the Closing,
in whole or part, to any other Person (including in the event that the
conditions to such Purchaser’s obligation to acquire the Units at the Closing as
set forth in Section 5.1 hereof are not satisfied or waived by such Purchaser),
subject to the written consent of the Company and Purchasers (including the
assigning Purchaser) who have agreed to purchase a majority of the aggregate
number of Units to be sold at the Closing, which consent shall not be
unreasonably withheld.
 
37

--------------------------------------------------------------------------------

 
7.7  No Third-Party Beneficiaries.  This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.
 
7.8  Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without regard to the principles of conflicts of law thereof.  Each party agrees
that all Proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the courts of the State
of New York sitting in New York County or in the United States of America for
the Southern District of New York (the “New York Courts”).  Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum.  Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law.  EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.  EACH PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PURCHASERS ENTERING INTO THIS AGREEMENT.
 
7.9           Survival.  The representations and warranties contained herein
shall survive the Closing and shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or the Purchasers or
any person controlling any of them and shall survive delivery of and payment for
the Securities for two (2) years following each the Closing.  The agreements and
covenants contained herein shall survive for the applicable statute of
limitations.
 
7.10         Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
 
38

--------------------------------------------------------------------------------

 
7.11         Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
7.12         Replacement of Securities.  If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon the execution by the holder thereof of a customary
lost certificate affidavit of that fact and an agreement to indemnify and hold
harmless the Company and, with respect to Shares, the Transfer Agent for any
losses in connection therewith or, if required by the Transfer Agent, a bond in
such form and amount as is required by the Transfer Agent.  If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
 
7.13         Remedies.  In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents.  The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation (other than in connection
with any action for a temporary restraining order) the defense that a remedy at
law would be adequate.
 
7.14         Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Series A
Preferred or Common Stock (or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly shares of Series
A Preferred or Common Stock, as applicable), combination or other similar
recapitalization or event occurring after the date hereof, each reference in any
Transaction Document to a number of shares or a price per share shall be deemed
to be amended to appropriately account for such event.
 
7.15         Independent Nature of Purchasers' Obligations and Rights.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document.  The decision of each Purchaser to
purchase and/or acquire Securities pursuant to the Transaction Documents has
been made by such Purchaser independently of any other Purchaser and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company which
may have been made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser and any of its agents or employees
shall have any liability to any other Purchaser (or any other Person) relating
to or arising from any such information, materials, statement or
opinions.  Nothing contained herein or in any Transaction Document, and no
action taken by any Purchaser pursuant thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  Each Purchaser
acknowledges that no other Purchaser has acted as agent for such Purchaser in
connection with making its investment hereunder and that no Purchaser will be
acting as agent of such Purchaser in connection with monitoring its investment
in the Securities or enforcing its rights under the Transaction Documents.  Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.  The Company acknowledges that each of the Purchasers has been provided
with the same Transaction Documents for the purpose of closing a transaction
with multiple Purchasers and not because it was required or requested to do so
by any Purchaser. The Company’s obligations to each Purchaser under this
Agreement are identical to its obligations to each other Purchaser other than
such differences resulting solely from the number of Securities purchased by
such Purchaser, but regardless of whether such obligations are memorialized
herein or in another agreement between the Company and a Purchaser.
 
[Signature Pages Follow]

 
39

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 

 
COMPANY:
       
Kun Run Biotechnology, Inc.
       
By:
 

       
Printed Name:
 

       
Title:
 

     
KEY STOCKHOLDER:
       
Xueyun Cui
       
By:
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

NAME OF PURCHASER:
     
Caduceus Asia Partners, LP
       
By:
   
Name:
   
Title:
   

Subscription Amount:    $8,000,000
 
Tax ID No.: _____________________________
 
Address for Notice:
 
__________________________________
__________________________________
__________________________________
 
Telephone No.: _____________________
 
Facsimile No.: ______________________
 
Attention: __________________________

Delivery Instructions:
(if different than above)

c/o  _______________________________

Street:   ____________________________

City/State/Zip: ______________________

Attention: __________________________

Telephone No.: _____________________

 
 

--------------------------------------------------------------------------------

 

ANNEX A

Purchasers

Caduceus Asia Partners, LP

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(a)
 
None.

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(c)
 
None.

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(d)
 
The Company has orally extended its loan agreement for RMB 29,000,000,000 with
Hainan Rural Credit Cooperative, but it has neither entered into any extension
agreement with the Hainan Rural Credit Cooperative, nor has the pledged property
being seized by Hainan Rural Credit Cooperative.  As of April 13, 2010, the
outstanding balance of loan amounts were RMB 9,637,800.
 
The Company has entered into agreements with agencies for the sale of the new
product “Entecavir.” However, the approval for the production of such new
product has not yet been obtained, which lack of approval may affect the
execution and performance of the agency agreements.

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(g)(i)
 
As of March 31, 2010:
 
Other payables exceeding RMB 1 million include:
 
 
·
Coland: RMB 3,000,000 (deposit of agent)

 
 
·
Huadong Medicine: RMB 1,100,000 (deposit of agent)

 
 
·
Tong Wentao: RMB 1,000,000 (deposit of agent)

 
Long-term bank loan:
 
 
·
the Bureau of Finance of Ledong Li Autonomous County: RMB 2,250,000

 
Short-term bank loan:
 
 
·
the Bureau of Finance of Ledong Li Autonomous County: RMB 2,250,000

 
 
·
Hainan Rural Credit Cooperative: RMB 18,571,559

 
As of April 13, the outstanding balance of the loan were RMB 9,637,800

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(g)(ii)
 
None.
 

--------------------------------------------------------------------------------

 
Schedule 3.1(n)
 
None.
 

--------------------------------------------------------------------------------

 
Schedule 3.1(q)
 
None.

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(y)
 
None.

 
 

--------------------------------------------------------------------------------

 
 
Schedule 3.1(bb)
 
None.

 
 

--------------------------------------------------------------------------------

 

EXHIBITS:
 
Exhibit A:
 
Form of Net Income Warrant
Exhibit B:
 
[reserved]
Exhibit C:
 
Form of Investor Rights Agreement
Exhibit D-1:
 
Accredited Investor Questionnaire
Exhibit D-2:
 
Stock Certificate Questionnaire
Exhibit E-1:
 
Form of Opinion of Company Counsel (PRC)
Exhibit E-2:
 
 Form of Opinion of Company Counsel (USA)
Exhibit F:
 
[reserved]
Exhibit G:
 
Form of Secretary’s Certificate
Exhibit H:
 
Form of Compliance Certificate
Exhibit I:
 
Certificate of Designation
Exhibit J:
 
[reserved]
Exhibit K:
 
[reserved]
Exhibit L:
  
Form of Voting Agreement

 
 

--------------------------------------------------------------------------------

 

EXHIBIT A
 
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION
OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PROVIDED BY ARTICLE IV OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS
OF APRIL  17, 2010, BY AND AMONG KUN RUN BIOTECHNOLOGY, INC. AND THE PURCHASERS
IDENTIFIED ON THE SIGNATURE PAGES THERETO.
 
NET INCOME WARRANT TO PURCHASE SERIES A PREFERRED STOCK
 
Warrant No. [___]
[_________ __], 2010
Warrant to Purchase 1,568,627 Shares

 
THIS CERTIFIES THAT, Caduceus Asia Partners, LP, or its registered assigns (in
each case, the “Holder”), has the right to purchase from KUN RUN BIOTECHNOLOGY,
INC., a Nevada corporation (the “Company”), 1,568,627 fully paid and
nonassessable shares of the Company’s Series A Preferred Stock, $0.001 par value
per share (“Series A Preferred”), subject to adjustment as provided herein, at a
price equal to the Exercise Price as defined in Section 3 below, at any time
during the Exercise Period (as defined below).
 
This Net Income Warrant to Purchase Series A Preferred (this “Warrant”) is being
issued pursuant to that certain Securities Purchase Agreement, dated as of April
17, 2010, by and between the Company and purchasers identified on the signature
pages thereto (as amended, modified, restated or supplemented from time to time,
the “Purchase Agreement”).
 
Section 1.            Certain Defined Terms.  Capitalized terms used herein and
not otherwise defined will have the meanings set forth in the Purchase
Agreement, which definitions are incorporated herein in full.  For purposes of
this Warrant, the following terms will have the following meanings:
 
“Commencement Date” means [___________], 2010.
 
“Convertible Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exchangeable or exercisable for
shares of Common Stock.
 
 “Exercise Period” means the period beginning on April 15, 2011 and ending at
5:00 p.m., New York City time, on the Expiration Date.
 
“Expiration Date” means the earlier of (i) April 15, 2016 and (ii) the date of
the Company’s achievement of the 2010 Net Income Milestone.
 
“Issuance Date” means the original date of issuance of this Warrant pursuant to
the Purchase Agreement, which date is [___________ __], 2010, regardless of any
exchange or replacement of this Warrant in whole or in part.
 
 “Market Price” means the average of the daily Weighted Average Price per share
of Common Stock for the 20 consecutive Trading Days immediately prior to the
date of determination.
 
“Milestone Threshold” means (i) $9,000,000, in the event the Company obtains PRC
State Food and Drug Authority (“PRC SFDA”) approval for Entecavir on or prior to
September 30, 2010; or (ii) $7,150,000, in the event the Company does not obtain
PRC SFDA approval for Entecavir on or prior to September 30, 2010.

 
 

--------------------------------------------------------------------------------

 
 
“Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.
 
“Required Warrantholders” means the holders of outstanding Warrants representing
at least a [majority] of the unexercised Warrant Shares.
 
“Series A Price” means the product of (i) the Market Price and (ii) the number
of shares Common Stock issuable upon conversion of one share of Series A
Preferred.
 
“Subscription Date” means [___________ __], 2010.
 
“Term” means the period beginning on the Commencement Date and ending at 5:00
p.m., New York City time, on the Expiration Date.
 
“2010 Net Income Milestone” shall be deemed to have been achieved by the Company
if (i) a Qualified Auditor (as defined in the Purchase Agreement) has completed
its 2010 fiscal year audit of the Company, (ii) such Qualified Auditor has
issued a report with respect to the Company’s 2010 financial statements on or
before March 30, 2011 or on or before the last day of any extension period
pursuant to Rule 12b-25 promulgated under the Securities Exchange Act of 1934,
and (iii) such 2010 audited financial statements indicate that in the 2010
fiscal year, the Company recorded net income (before non-cash expenses, expense
associated with the listing transfer to NASDAQ, expense associated with business
development relating to the Company’s product candidates, business acquisitions
or in-licenses of intellectual property rights for products or product
candidates, provided that such acquisitions are approved by a majority of the
Board) attributable to the Company’s equity holders of at least the Milestone
Threshold.
 
 “Warrantholder” shall mean any holder of an outstanding Warrant.
 
“Warrant Value” means greater of (i) the aggregate Exercise Price of the then
unexercised portion of this Warrant and (ii) the product of (a) the Series A
Price and (b) the number of shares of Series A Preferred issuable upon exercise
of the then unexercised portion of this Warrant.
 
“Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Trading Market during the
period beginning at 9:30 a.m. New York time (or such other time as the Principal
Market publicly announces is the official open of trading), and ending at 4:00
p.m. New York time (or such other time as the Trading Market publicly announces
is the official close of trading) as reported by Bloomberg Financial Markets
(“Bloomberg”) through its “Volume at Price” functions (ignoring any trade by the
Company or its Affiliates (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions involving such
security after the Issuance Date)), or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30 a.m. New York time (or such other time as the Trading Market
publicly announces is the official open of trading), and ending at 4:00 p.m. New
York time (or such other time as the Trading Market publicly announces is the
official close of trading) as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported by Pink OTC
Markets, Inc.  If the Weighted Average Price cannot be calculated for such
security on such date on any of the foregoing bases, the Weighted Average Price
of such security on such date will be the fair market value as mutually
determined by the Company and the holders of a majority in interest of the
Warrants involved in the transaction (whether an Exercise, redemption or
otherwise) for which the calculation of the Market Price is required.  All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during any period during which
the Weighted Average Price is being determined.

 
 

--------------------------------------------------------------------------------

 
 
Section 2.              Exercise.
 
(a)           Manner of Exercise.  During the Exercise Period, this Warrant may
be exercised as to all or any lesser number of full shares of Series A Preferred
covered hereby upon surrender of this Warrant, with the Exercise Form attached
hereto as Exhibit A (the “Exercise Form”) duly completed and executed, together
with the full Exercise Price (as defined below, which may be satisfied by a Cash
Exercise or a Cashless Exercise, as each is defined below) for each share of
Series A Preferred as to which this Warrant is Exercised, at the office of the
Company, Kun Run Biotechnology, Inc., Free Trade Zone, 168 Nanhai Avenue, Haikou
City, Hainan Province, China 570216, Fax: [____], or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form sent to the Company and the transfer agent for
the Series A Preferred (“Transfer Agent”) by facsimile (such surrender and
payment of the Exercise Price hereinafter called the “Exercise” of this
Warrant).
 
(b)           Date of Exercise. The “Date of Exercise” of the Warrant shall be
defined as the date that the Exercise Form, completed and executed, is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company and the Exercise Price is satisfied, each as soon as
practicable thereafter. Alternatively, the Date of Exercise shall be defined as
the date the original Exercise Form is received by the Company, if Holder has
not sent advance notice by facsimile.
 
(c)           Confirmation; Delivery of Series A Preferred Upon Exercise.  Upon
receipt by the Company of an Exercise Form, the Company will promptly send, but
in no event later than three (3) Trading Days following such receipt, via
facsimile or other electronic means, a confirmation of receipt of such Exercise
Form to the Holder and the Transfer Agent.  Within five (5) Trading Days after
any Date of Exercise (the “Delivery Period”), the Company shall issue and
deliver (or cause its Transfer Agent to so issue and deliver) in accordance with
the terms hereof to or upon the order of the Holder that number of shares of
Series A Preferred (“Exercise Shares”) for the portion of this Warrant
Exercised. Upon the Exercise of this Warrant or any part thereof, the Company
shall, at its own cost and expense, take all necessary steps, including
obtaining and delivering, an opinion of counsel to assure that the Transfer
Agent shall issue stock certificates in the name of Holder (or its nominee) or
such other persons as designated by Holder and in such denominations to be
specified at Exercise representing the Exercise Shares issuable upon such
Exercise.
 
(d)           Delivery Failure. In addition to any other remedies which may be
available to the Holder, in the event that the Company fails for any reason to
effect delivery of the Exercise Shares by the end of the Delivery Period (a
“Delivery Failure”), the Holder will be entitled to revoke all or part of the
relevant Exercise Form by delivery of a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to the delivery of such notice.
 
(e)           Cancellation of Warrant.  This Warrant shall be canceled upon the
full Exercise of this Warrant or upon full redemption of this Warrant.  If this
Warrant is not Exercised in full, Holder shall be entitled to receive a new
Warrant (containing terms identical to this Warrant) representing any
unexercised portion of this Warrant in addition to any Exercise Shares.

 
 

--------------------------------------------------------------------------------

 
 
(f)           Holder of Record.  Each person in whose name any Warrant for
shares of Series A Preferred is issued shall, for all purposes, be deemed to be
the Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of the Series A Preferred purchased upon
the Exercise of this Warrant or the date such Series A Preferred is credited to
the Holder’s DTC account, as the case may be. Nothing in this Warrant shall be
construed as conferring upon Holder any rights as a stockholder of the Company.
 
(g)          Delivery of Electronic Shares.  In lieu of delivering physical
certificates representing the Series A Preferred issuable upon Exercise or
redemption, upon the written request of any Holder, the Company shall use its
best efforts to transmit certificates for such shares of Series A Preferred to
such Purchaser by crediting the account of the transferee’s Purchaser’s prime
broker with DTC through its Deposit Withdrawal Agent Commission (DWAC)
system.  Any delivery not effected by electronic transmission shall be effected
by delivery of physical certificates.
 
Section 3.              Payment of Warrant Exercise Price.
 
(a)           Exercise Price. The Exercise Price (“Exercise Price”) shall
initially equal $1.53 per share subject to adjustment pursuant to the terms
hereof, including but not limited to Section 4 below.  Payment of the Exercise
Price may be made by either of the following, or a combination thereof, at the
election of Holder:
 
(i)         Cash Exercise: The Holder may exercise this Warrant in cash, bank or
cashier’s check or wire transfer (a “Cash Exercise”); or
 
(ii)        Cashless Exercise. The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction. In order to effect a Cashless
Exercise, the Holder shall surrender this Warrant at the principal office of the
Company together with the Exercise Form attached hereto as Exhibit A indicating
that the Holder is exercising the Warrant pursuant to a cashless election, in
which event the Company shall issue Holder a number of shares of Series A
Preferred computed using the following formula (a “Cashless Exercise”):
 
X = Y (A-B)/A
 
                       where:         X = the number of shares of Series A
Preferred to be issued to Holder.
 
Y = the number of shares of Series A Preferred for which this Warrant is being
Exercised.
 
A = the Series A Price of one (1) share of Series A Preferred.
 
B = the Exercise Price.
 
For purposes of Rule 144 and subsection (d)(3)(ii) thereof, it is intended,
understood and acknowledged that any Exercise Shares issued in a Cashless
Exercise transaction and/or any shares issued in a redemption pursuant to
Section 4(b)(ii) shall be deemed to have been acquired at the time this Warrant
was issued. Moreover, it is intended, understood and acknowledged that the
holding period for any Exercise Shares issued in a Cashless Exercise transaction
and/or any shares issued in a redemption pursuant to Section 4(b)(ii) shall be
deemed to have commenced on the date this Warrant was issued.
 
Notwithstanding anything herein to the contrary, on the Expiration Date, any
outstanding portion of this Warrant shall be automatically exercised via a
Cashless Exercise.

 
 

--------------------------------------------------------------------------------

 
 
(b)          Dispute Resolution.  In the case of a dispute as to the
determination of any closing price, trading price or any other stock price or
the arithmetic calculation of the Exercise Price, Market Price, any Redemption
Price or any similar calculation, the Company will issue or instruct the
Transfer Agent to issue to the Holder the Shares representing the number of
Shares that is not disputed or pay to the Holder the amount that is not disputed
and will transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within one Business Day of receipt, or
deemed receipt, of the Exercise Notice or Change of Control Redemption Notice,
or other event giving rise to such dispute, as the case may be.  If the Holder
and the Company are unable to agree upon such determination or calculation
within one Business Day of such disputed determination or arithmetic calculation
being transmitted to the Holder, then the Company will within two Business Days
submit via facsimile or by other electronic means (A) the disputed determination
of the closing price, the trading price or such other stock price to an
independent, reputable investment bank agreed to by the Company and the holders
of a majority in interest of the Warrants involved in the transaction (whether
an Exercise, redemption or otherwise) for which such determination is required,
or (B) the disputed arithmetic calculation of the Exercise Price, Market Price,
any Change of Control Redemption Price or any similar calculation to the
Company’s independent, outside accountant or such other independent accountants
agreed to by the Company and the holders of a majority in interest of the
Warrants involved in the transaction (whether an Exercise, redemption or
otherwise) for which such calculation is required.  The Company, at its expense,
will cause the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holders of the
results no later than three Business Days from the time it receives the disputed
determinations or calculations.  Such investment bank’s or accountant’s
determination or calculation, as the case may be, will be binding upon all
parties absent demonstrable error.
 
Section 4.             Adjustments Upon Certain Events.
 
(a)          Subdivisions, Splits and Combinations of Stock.  If the outstanding
shares of Series A Preferred will be subdivided into a greater number of such
shares or will be combined into a smaller number of such shares, then upon the
effective date thereof, the number of shares of Series A Preferred which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be increased
or decreased, as the case may be, in direct proportion to the increase or
decrease in the number of shares of Series A Preferred by reason of such
subdivision or combination, and the Exercise Price shall be, in the case of an
increase in the number of shares, proportionally decreased and, in the case of
decrease in the number of shares, proportionally increased.
 
(b)          Reorganization, Reclassification, Consolidation, Merger or Sale.
 
(i)           Reorganization, Reclassification, Consolidation, Merger or
Sale.  If any (i) capital reorganization; (ii) reclassification of the capital
stock of the Company; (iii) merger, consolidation or reorganization or other
similar transaction or series of related transactions which results in the
voting securities of the Company outstanding immediately prior thereto
representing immediately thereafter (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
50% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger,
consolidation or reorganization; or (iv) sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company; (each of
(i) – (iv) above a “Corporate Reorganization”) shall be effected, then the
Company shall use its best efforts to ensure that lawful and adequate provision
shall be made whereby each Warrantholder shall thereafter continue to have the
right to purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Exercise Shares issuable upon exercise of
the Warrants held by such Warrantholder, shares of stock in the surviving or
acquiring entity (“Acquirer”), receivable upon such Corporate Reorganization by
a Warrantholder of the number of shares of Series A Preferred which might have
been purchased by the Warrantholder immediately prior to such Corporate
Reorganization, and in any such case appropriate provisions shall be made with
respect to the rights and interest of the Warrantholder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Exercise Price and the number of shares issuable hereunder and the
provisions relating to the Cashless Exercise) shall thereafter be applicable in
relation to any shares of stock or other securities and property thereafter
deliverable upon exercise hereof.  For the avoidance of doubt, if the surviving
or acquiring entity, as the case may be, is a member of a consolidated group for
financial reporting purposes, the “Acquirer” shall be deemed to be the parent of
such consolidated group for purposes of this Section 4(b)(i) and Appendix A
hereto.

 
 

--------------------------------------------------------------------------------

 
 
Moreover, appropriate provision shall be made with respect to the rights and
interests of each Warrantholder to the end that the provisions hereof
(including, without limitation, provision for adjustment of the Warrant Price)
shall thereafter be applicable, as nearly equivalent as may be practicable in
relation to any shares of stock thereafter deliverable upon the exercise
thereof. The Company shall not effect any such Corporate Reorganization unless
prior to or simultaneously with the consummation thereof the successor
corporation resulting from such consolidation or merger, or the corporation
purchasing or otherwise acquiring such assets or other appropriate corporation
or entity shall assume by written instrument, reasonably deemed by the Board of
Directors of the Company and the Required Warrantholders to be satisfactory in
form and substance, the obligation to deliver to the Warrantholders, at the last
address of such holder appearing on the books of the Company, such shares of
stock, as, in accordance with the foregoing provisions, such holder may be
entitled to purchase, and the other obligations under these Warrants. The
provisions of this Section 4(b)(i) shall similarly apply to successive Corporate
Reorganizations. If the Company, in spite of using its best efforts, is unable
to cause these Warrants to continue in full force and effect during the entire
Term in connection with any Corporate Reorganization, then such Corporate
Reorganization shall be treated as a change of control of the Company (“Change
of Control”) hereunder, the Holder shall be deemed to have delivered a Change of
Control Notice with respect to this Warrant and the Holder shall be entitled to
receive a Change of Control Redemption Price equal to the Warrant Value in
accordance with Sections 4(b)(ii) – (iv) hereunder.

(ii)          Optional Redemption Upon Change of Control.  In addition to the
rights of the Holder under Section 4(b)(i), upon a Change of Control the Holder
will have the right, at the Holder’s option, to require the Company to redeem (a
“Redemption Upon Change of Control”) all or a portion of this Warrant. At least
fifteen (15) days prior to the consummation of any Change of Control, but, in
any event, on the first to occur of (x) the date of the public announcement of
such Change of Control if such announcement is made before 4:00 p.m., New York
City time, or (y) the day following the public announcement of such Change of
Control if such announcement is made on and after 4:00 p.m., New York City time,
the Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “Change of Control Notice”). At any time during the
period beginning after the Holder’s receipt of a Change of Control Notice and
ending five (5) Trading Days prior to the consummation of such Change of
Control, the Holder may exercise its redemption rights hereunder by delivering
written notice thereof (“Change of Control Redemption Notice”) to the Company,
which Change of Control Redemption Notice shall indicate the portion of the
Warrant (the “Redeemed Shares”) that the Holder is electing to have
redeemed.  The Redeemed Shares shall be redeemed by the Company at a price (the
“Change of Control Redemption Price”) equal to the Warrant Value therefor.  The
Change of Control Redemption Price shall be payable no later than the date of
the consummation of the Change of Control.  The Change of Control Redemption
Price shall be paid in cash in the event that the Change of Control results in
the stockholders of the Company receiving cash from the Acquirer at the closing
of the transaction, and shall be made in shares of Series A Preferred (with the
value of each share of Series A Preferred equal to the Series A Price) in the
event that the Change of Control results in the stockholders of the Company
receiving shares in the Acquirer or other entity at the closing of the
transaction. In the event that the stockholders of the Company receive both cash
and shares at the closing of the transaction, such payment to the Warrantholders
shall be also be made in both cash and shares in the same proportion as the
consideration received by the stockholders.

 
 

--------------------------------------------------------------------------------

 
 
(iii)         Escrow; Payment of Change of Control Redemption Price.  If the
Company is required to redeem a Warrant from any Warrantholder, the Company
shall not effect a Change of Control, unless it either obtains the written
agreement of the acquiring entity that payment of the Change of Control
Redemption Price shall be made to the Warrantholder (either in cash or shares,
as the case may be) upon consummation of such Change of Control or it shall
first place into an escrow account with an independent escrow agent, at least
three (3) Trading Days prior to the closing date of the Change of Control (the
“Change of Control Escrow Deadline”), an amount (in cash or shares, as
applicable) equal to the Change of Control Redemption Price. Concurrently upon
closing of such Change of Control, the Company shall pay or deliver or shall
instruct the escrow agent to pay or deliver the Change of Control Redemption
Price to the Warrantholder.  For purposes of determining the amount required to
be placed in escrow pursuant to the provisions of this subsection (iii) and
without affecting the amount of the actual Change of Control Redemption Price,
the Warrant Value of the Warrant shall be calculated as of the Trading Day
immediately preceding the date that the funds and/or shares, as applicable, are
deposited with the escrow agent.
 
(iv)         Injunction.  If the Company is required to redeem a Warrant from
any Warrantholder, in the event that the Company attempts to consummate a Change
of Control without placing the Change of Control Redemption Price in escrow in
accordance with subsection (iii) above or without payment of the Change of
Control Redemption Price to the Holder upon consummation of such Change of
Control, the Holder shall have the right to apply for an injunction in any state
or federal courts sitting in the City of San Francisco to prevent the closing of
such Change of Control until the Change of Control Redemption Price is paid to
the Holder, in full.
 
To the extent redemptions required by Section 4(b)(ii) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Warrant by the
Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 4, until the Change of
Control Redemption Price is paid in full, this Warrant may be exercised, in
whole or in part, by the Holder into shares of Series A Preferred, or in the
event the Exercise Date is after the consummation of the Change of Control,
shares of Series A Preferred (or their equivalent) of the Acquirer pursuant to
Section 4(b)(i).  The parties hereto agree that in the event of the Company’s
redemption of any portion of the Warrant under Section 4(b)(ii), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any premium due under Section 4(b)(ii) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of
its investment opportunity and not as a penalty.
 
(c)          Antidilution Protection.  The conversion price of the Series A
Preferred issuable upon exercise of this Warrant is subject to full ratchet
antidilution protection as set forth in [Section 3(d) of the Company’s
Certificate of Designation of the Preferences, Rights, Limitations,
Qualifications and Restrictions of the Series A Convertible Preferred Stock], as
amended from time to time.
 
(d)          Record Date.  If the Company takes a record of the holders of
Series A Preferred for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Series A Preferred, Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Series A Preferred,
Common Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the Series A Preferred, Common
Stock, Options or Convertible Securities deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

 
 

--------------------------------------------------------------------------------

 
 
(e)          Other Events.  If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Exercise Shares issuable hereunder so as to protect the rights of
the Holder under this Warrant; provided that no such adjustment will increase
the Exercise Price or decrease the number of Exercise Shares issuable hereunder
as otherwise determined pursuant to this Section 4.
 
(f)          This Warrant Deemed Outstanding.  If during the period beginning on
and including the Subscription Date and ending on the date immediately preceding
the Issuance Date, the Company enters into or undertakes any action described in
this Section 4, then solely for purposes of determining any adjustment under
this Section 4 as a result of such action, this Warrant shall be deemed to have
been outstanding at the time of each such action.
 
(g)         Exercise Price Adjusted.  As used in this Warrant, the term
“Exercise Price” shall mean the purchase price per share specified in
Section 3(a) of this Warrant, until the occurrence of an event stated in this
Section 4 or otherwise set forth in this Warrant, and thereafter shall mean said
price as adjusted from time to time in accordance with the provisions of this
Section 4.
 
(h)         Adjustments: Additional Shares, Securities or Assets.  In the event
that at any time, as a result of an adjustment made pursuant to this Section 4
or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Series A Preferred)
then, wherever appropriate, all references herein to shares of Series A
Preferred shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 4.
 
(i)          Notice of Adjustments.   Whenever the Exercise Price is adjusted
pursuant to the terms of this Warrant, the Company shall promptly mail to the
Holder a notice (an “Exercise Price Adjustment Notice”) setting forth the
Exercise Price after such adjustment and setting forth a statement of the facts
requiring such adjustment. The Company shall, upon the written request at any
time of the Holder, furnish to such Holder a like Warrant setting forth (i) such
adjustment or readjustment, (ii) the Exercise Price at the time in effect and
(iii) the number of shares of Series A Preferred and the amount, if any, of
other securities or property which at the time would be received upon Exercise
of the Warrant. For purposes of clarification, whether or not the Company
provides an Exercise Price Adjustment Notice pursuant to this Section 4(i), upon
the occurrence of any event that leads to an adjustment of the Exercise Price,
the Holder would be entitled to receive a number of Exercise Shares based upon
the new Exercise Price, as adjusted, for exercises occurring on or after the
date of such adjustment, regardless of whether a Holder accurately refers to the
adjusted Exercise Price in the Exercise Form.
 
Section 5.            Fractional Interests. No fractional shares or scrip
representing fractional shares shall be issuable upon the Exercise of this
Warrant, but on Exercise of this Warrant, Holder may purchase only a whole
number of shares of Series A Preferred. If, on Exercise of this Warrant, Holder
would be entitled to a fractional share of Series A Preferred or a right to
acquire a fractional share of Series A Preferred, such fractional share shall be
disregarded and the Company shall pay for such fractional shares in cash.

 
 

--------------------------------------------------------------------------------

 
 
Section 6.            Reservation of Shares.
 
(a)          Reservation.  From and after the date hereof, the Company shall at
all times reserve for issuance such number of authorized and unissued shares of
(i) Series A Preferred (or other securities substituted therefor as herein above
provided) as is equal to the number of shares of Series A Preferred issuable
upon the Exercise of this Warrant (the “Series A Reserve Amount”) and (ii)
Common Stock issuable upon conversion of such Series A Preferred issuable upon
Exercise of this Warrants  (the “Common Stock Reserve Amount” and together with
the Series A Reserve Amount, the “Required Reserve Amounts”)  The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Series A Preferred issuable upon such Exercise and all shares of Common Stock
issuable upon conversion of such Series A Preferred shall be duly and validly
issued, fully paid and nonassessable and not subject to preemptive rights,
rights of first refusal or similar rights of any person or entity.
 
(b)          Insufficient Authorized Shares.  If at any time the Company does
not have a sufficient number of authorized and unreserved shares of Series A
Preferred or Common Stock equal to at least the Series A Reserve Amount or
Common Stock Reserve Amount, respectively (in each case, an “Authorized Share
Failure”), then the Company will immediately take all action necessary to
increase the Company’s authorized shares of Series A Preferred or Common Stock,
as applicable, to an amount sufficient to allow the Company to reserve the
applicable Required Reserve Amount.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than 90 days after the
occurrence of such Authorized Share Failure, the Company will hold a meeting of
its stockholders for the authorization of an increase in the number of
authorized shares of Series A Preferred or Common Stock, as applicable.  In
connection with such meeting, the Company will provide each stockholder with a
proxy statement and will use its commercially reasonable best efforts to solicit
its stockholders’ approval of such increase in authorized shares and to cause
its board of directors to recommend to the stockholders that they approve such
proposal.
 
Section 7.           Noncircumvention.   The Company hereby covenants and agrees
that the Company will not, by amendment of its articles of incorporation, bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Series A Preferred
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Series A Preferred upon the exercise of this Warrant.
 
Section 8.             Default and Redemption.
 
(a)          Events Of Default.  Each of the following events shall be
considered to be an “Event of Default,” unless waived by the Holder:
 
(i)           Failure To Deliver Series A Preferred.  A Delivery Failure occurs
and remains uncured for a period of more than twenty (20) days; or at any time,
the Company announces or states in writing that it will not honor its
obligations to issue Exercise Shares upon Exercise by the Holder of this
Warrant; and
 
 
 

--------------------------------------------------------------------------------

 

(ii)          Corporate Reorganization; Change of Control. (A) with respect to
an Corporate Reorganization, the Company has failed to meet the requirements of
Section 4(b)(i) prior to effecting such Corporate Reorganization or (B) the
Company has effected a Change of Control without paying the Change of Control
Redemption Price, if applicable, to the Holder pursuant to Section 4(b)(ii).
 
(b)         Remedies, Other Obligations, Breaches And Injunctive Relief. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Purchase Agreement and the
Investor Rights Agreement, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holder of this Warrant shall be entitled to an injunction restraining any
breach.  The parties further acknowledge that (A) the amount of loss or damages
likely to be incurred by the Holder is incapable or is difficult to precisely
estimate and (B) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm’s length.
 
Section 9.            Mechanics of Holder’s Redemptions.   In the event that the
Holder has sent a Change of Control Redemption Notice to the Company pursuant to
Section 4(b)(ii), the Holder shall promptly submit this Warrant to the Company.
If the Holder has submitted a Change of Control Redemption Notice in accordance
with Section 4(b)(ii), the Company shall deliver the applicable Change of
Control Redemption Price to the Holder concurrently with the consummation of
such Change of Control.
 
Section 10.          No Obligation to Net Cash Settle this
Warrant.  Notwithstanding anything to the contrary herein, in the event that the
Company is not permitted to issue shares of Series A Preferred to Holder
pursuant to this Warrant because the Company has insufficient shares authorized
under its Restated Articles of Incorporation, the Company shall not be required
to net cash settle or otherwise make any cash payment to Holder to settle this
Warrant by virtue of such limitation.
 
Section 11.          Benefits of this Warrant.   Nothing in this Warrant shall
be construed to confer upon any person other than the Company and Holder any
legal or equitable right, remedy or claim under this Warrant and this Warrant
shall be for the sole and exclusive benefit of the Company and Holder.
 
Section 12.           Reserved.
 
Section 13.          Transfer of this Warrant; Legends and Legend Removal.  The
Holder may assign or transfer some or all of its rights hereunder at any time
and from time to time, subject to compliance with the Securities Act, without
the consent of the Company, provided that such assignment or transfer complies
with Section 4.1 of the Purchase Agreement.  The Warrant and the Warrant Shares
shall be subject to the legend requirements and legend removal procedures and
penalties described in Section 4.1 of the Purchase Agreement.  Holder shall
deliver a written notice to Company, substantially in the form of the Assignment
attached hereto as Exhibit B, indicating the person or persons to whom the
Warrant shall be assigned and the respective number of warrants to be assigned
to each assignee. The Company shall effect the assignment within fifteen
(15) Trading Days of its receipt of a properly completed and executed form of
Assignment (the “Transfer Delivery Period”) and any other documents required by
Company Counsel, and shall deliver to the assignee(s) designated by Holder a
Warrant or Warrants of like tenor and terms for the appropriate number of
shares.  This Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors and assigns of the Holder. The provisions
of this Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant, and shall be enforceable by any such Holder.

 
 

--------------------------------------------------------------------------------

 
 
Section 14.          Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be governed by
and construed and enforced in accordance with the laws of the State of New York,
without regard to the principles of conflicts of law thereof.  Each party agrees
that all Proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Warrant (whether brought against a party
hereto or its respective Affiliates, employees or agents) shall be commenced
exclusively in the courts of the State of New York sitting in New York County or
in the United States of America for the Southern District of New York (the “New
York Courts”).  Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum.  Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Warrant and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY HEREBY
ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PURCHASERS
ENTERING INTO THE PURCHASE AGREEMENT.
 
Section 15.          Replacement of Warrant.  If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new Warrant, but only upon execution by the Holder of a
customary lost certificate affidavit and an agreement to indemnify and hold
harmless the Company for any losses in connection therewith, the fees and
expenses of which shall be borne by the Holder.  If a replacement certificate or
instrument evidencing this Warrant is requested due to a mutilation thereof, the
Company may require delivery of such mutilated certificate or instrument as a
condition precedent to any issuance of a replacement.
 
Section 16.          Reissuance of Warrant.  In the event of a partial exercise
of this Warrant, the Company will promptly cause to be issued and delivered to
the Holder, upon tender by the Holder of this Warrant, a new Warrant of like
tenor representing the remaining unexercised Shares.  The “Issuance Date” will
not change as a result of such reissuance.
 
Section 17.          Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section 17 prior to 5:00
p.m., New York City time, on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section on a day that is not a Trading
Day or later than 5:00 p.m., New York City time, on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service with next day delivery specified, or (d) upon actual
receipt by the party to whom such notice is required to be given.  Until another
address is designated in writing by the Company, any notice to Company shall be
sent to the address set forth in Section 7.3 of the Purchase Agreement, and
until another address is designated in writing by the Holder, any notice to
Holder shall be sent to the address set forth in Section 7.3 of the Purchase
Agreement.

 
[Signature Pages Follow]

 
 

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the _____
day of _________, 2010.
 
KUN RUN BIOTECHNOLOGY, INC.
 
By:
   
 
Print Name:
 
Title:

 
 

--------------------------------------------------------------------------------

 

EXHIBIT A
 
EXERCISE FORM FOR WARRANT
 
TO:  KUN RUN BIOTECHNOLOGY, INC.
 
CHECK THE APPLICABLE BOX:
 
¨
Cash Exercise

 
The undersigned hereby irrevocably exercises the attached warrant (the
“Warrant”) with respect to ________ shares of Series A Preferred, par value
$0.001 per share (the “Common Stock”), of Kun Run Biotechnology, Inc., a Nevada
corporation (the “Company”).

¨
Cashless Exercise

 
The undersigned hereby irrevocably exercises the Warrant with respect to _______
shares of Series A Preferred of the Company and herewith makes payment of the
Exercise Price with respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
 
1.
The undersigned agrees not to sell, transfer, assign, pledge, hypothecate or
otherwise dispose of any of the Series A Preferred obtained on Exercise of the
Warrant, except in accordance with applicable securities laws and the provisions
of Section 4.1 of the Purchase Agreement.

 
2.
The undersigned requests that a warrant representing any unexercised portion
hereof be issued, pursuant to the Warrant in the name of the undersigned and
delivered to the undersigned at the address set forth below.

 
3.
Capitalized terms used but not otherwise defined in this Exercise Form shall
have the meaning ascribed thereto in the Warrant.

 
4.
In the event of any conflict between the term of this Exercise Form and any
provisions of this Warrant, the terms of the Warrant shall govern.

 
 

--------------------------------------------------------------------------------

 

5.
Please issue the Series A Preferred to be issued upon Exercise of this Warrant
in the following name and to the following address:

 
Issue
to: ___________________________________________________________________________________
 
Facsimile
Number:___________________________________________________________________________

DTC Participant Number and Name (if electronic book entry
transfer):_________________________

Account Number  (if electronic book entry
transfer):______________________________________
 
Dated: ______________________
 

   
Signature
     
Print Name
     
Address

 
NOTICE
 
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.

 
 

--------------------------------------------------------------------------------

 
 
ACKNOWLEDGEMENT
 
                The Company hereby acknowledges this Exercise Form and receipt
of the appropriate exercise price and hereby directs Securities Transfer
Corporation to issue the above indicated number of shares of Series A Preferred
in accordance with the Irrevocable Transfer Agent Instructions dated
[_____________], 2010, from the Company and acknowledged and agreed to by
Securities Transfer Corporation.

KUN RUN BIOTECHNOLOGY, INC.
 
By:
   
Name:
   
Title:
   

 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT B
 
ASSIGNMENT
 
(To be executed by the registered holder
 
desiring to transfer the Warrant)
 
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
“Warrant”) hereby sells, assigns and transfers unto the person or persons below
named the right to purchase                      shares of the Series A
Preferred of Kun Run Biotechnology, Inc., a Nevada corporation, evidenced by the
attached Warrant and does hereby irrevocably constitute and appoint
                     attorney to transfer the said Warrant on the books of the
Company, with full power of substitution in the premises.
 
The undersigned hereby certifies that the Warrant is being sold, assigned or
transferred in accordance with all applicable securities laws.

 
Dated:
   
       
  
Signature

Fill in for new registration of Warrant:

 

   
Name
     
Address
     
Please print name and address of assignee
(including zip code number)

 
NOTICE
 
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT C
 
INVESTOR RIGHTS AGREEMENT
 
This Investor Rights Agreement (this “Agreement”) is made and entered into as of
April 17, 2010, by and among Kun Run Biotechnology, Inc., a Nevada corporation
(the “Company”), the purchasers signatory hereto (including any successor or
assign of any purchaser signatory hereto, each a “Purchaser” and, collectively,
the “Purchasers”) and the holders of Capital Stock signatory hereto (each a “Key
Holder” and, collectively, the “Key Holders”).  Capitalized terms used and not
otherwise defined herein that are defined in the Purchase Agreement shall have
the meanings given such terms in the Purchase Agreement.
 
This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof between the Company and each Purchaser (the “Purchase
Agreement”).
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each of the
Purchasers agree as follows:
 
1.           Definitions.  As used in this Agreement, the following terms shall
have the following meanings:
 
“Advice” shall have the meaning set forth in Section 4(b).
 
“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 144, provided that for purposes of Section 8(d),
“Affiliate” means, with respect to the Company or any Subsidiary of the Company,
(a) each person that, directly or indirectly, owns or controls 5% or more of the
stock or membership interests having ordinary voting power in the election of
directors or managers of the Company or such Subsidiary, and (b) each person
that controls, is controlled by or is under common control with the Company or
such Subsidiary.  With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.
 
“Effective Date” means the date that a Registration Statement filed pursuant to
Section 2(a) is first declared effective by the Commission.
 
“Effectiveness Deadline” means, with respect to each Initial Registration
Statement or New Registration Statement, the earlier of: (i) the 60th calendar
day following the applicable Filing Deadline; provided, that, if the Commission
reviews and has written comments to a filed Registration Statement, then the
Effectiveness Deadline under this clause (i) shall be the 90th calendar day
following the applicable Filing Deadline, and (ii) fifth (5th) Business Day
following the date on which the Company is notified by the Commission that the
applicable Registration Statement will not be reviewed or is no longer subject
to further review and comments and the effectiveness of such Registration
Statement may be accelerated; provided, however, that if the Effectiveness
Deadline falls on a Saturday, Sunday or other day that the Commission is closed
for business, the Effectiveness Deadline shall be extended to the next Business
Day on which the Commission is open for business.
 
“Effectiveness Period” shall have the meaning set forth in Section 2(b).
 

--------------------------------------------------------------------------------

 
“Excluded Securities” means any issuance of (a) securities to employees,
officers or directors of the Company pursuant to any duly-adopted equity
incentive or equity compensation plan, to the extent approved by a majority of
the non-employee members of the Board or a majority of the members of a
committee of non-employee directors established for such purpose, (b) securities
upon the exercise, exchange or conversion of any securities issued or issuable
under the Purchase Agreement and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of such securities, (c)
securities issued pursuant to acquisitions or strategic transactions approved by
a majority of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person which is, itself or through its subsidiaries,
an operating company in a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the investment of
funds, but shall not include any transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities or (d) securities issued in an
underwritten public offering of the Company’s securities.
 
“Filing Deadline” means, with respect to each of the Registration Statements
required to be filed pursuant to Section 2(a), the 60th calendar day following
the Closing Date; provided, however, that if the Filing Deadline falls on a
Saturday, Sunday or other day that the Commission is closed for business, the
Filing Deadline shall be extended to the next Business Day on which the
Commission is open for business.
 
“FINRA” means the Financial Industry Regulatory Authority, Inc. or any successor
entity or entities.
 
“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities.
 
“Indemnified Party” shall have the meaning set forth in Section 6(c).
 
“Indemnifying Party” shall have the meaning set forth in Section 6(c).
 
“Initial Registration Statement” shall have the meaning set forth in Section
2(a).
 
“Issuer Filing” shall have the meaning set forth in Section 3(p).
 
“OrbiMed Designee” shall have the meaning set forth in Section 8(b)(2).
 
“Losses” shall have the meaning set forth in Section 6(a).
 
“New Registration Statement” shall have the meaning set forth in Section 2(a).
 
“Observer Rights” shall have the meaning set forth in Section 8(b)(1).
 
“OrbiMed” means Caduceus Asia Partners, LP and its Affiliates.
 
“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
 
2

--------------------------------------------------------------------------------

 
“Register,” “registered” and “registration” refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the Securities Act and pursuant to Rule 415, and the declaration or
ordering of effectiveness of such Registration Statement or document.
 
“Registrable Securities” means all of (i) the Shares and (ii) any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the Shares, provided, that the
Shares shall cease to be Registrable Securities upon the earliest to occur of
the following:  (A) sale pursuant to a Registration Statement or Rule 144 under
the Securities Act (in which case, only such security sold shall cease to be a
Registrable Security); or (B) to the extent Shares may be immediately sold to
the public without registration or restriction (including without limitation as
to volume by each holder thereof) under the Securities Act, including pursuant
to Rule 144.
 
“Registration Statements” means any one or more registration statements of the
Company filed under the Securities Act that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement (including
without limitation any Initial Registration Statements, New Registration
Statements and Remainder Registration Statements), amendments and supplements to
such Registration Statements, including post-effective amendments, all exhibits
and all material incorporated by reference or deemed to be incorporated by
reference in such Registration Statements.
 
“Remainder Registration Statements” shall have the meaning set forth in Section
2(a).
 
“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
“SEC Guidance” means (i) any publicly-available written or oral guidance,
comments, requirements or requests of the Commission staff and (ii) the
Securities Act.
 
“Selling Stockholder Questionnaire” means a questionnaire in the form attached
as Annex A hereto, or such other form of questionnaire as may reasonably be
adopted by the Company from time to time.
 
“Special Registration Statement” shall mean a registration statement relating to
any employee benefit plan under Form S-8 or similar form or with respect to any
corporate reorganization or other transaction under Rule 145 of the Securities
Act.
 
“Suspension Certificate” shall have the meaning set forth in Section 4(a).
 
“Suspension Period” shall have the meaning set forth in Section 4(a).
 
“Violations” shall have the meaning set forth in Section 6(a).
 
3

--------------------------------------------------------------------------------

 
2.            Registration.
 
(a)           On or prior to each Filing Deadline, the Company shall prepare and
file with the Commission a “shelf” Registration Statement covering the resale of
all of the then outstanding Registrable Securities or Registrable Securities
issuable upon exercise of then outstanding Warrants not already covered by an
existing and effective Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 or, if Rule 415 is not available for
offers and sales of the Registrable Securities, by such other means of
distribution of Registrable Securities as the Holders may reasonably specify
(each, an “Initial Registration Statement”).  Each Initial Registration
Statement shall be on Form S-3 (except if the Company is then ineligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on Form S-1) subject to the provisions of Section 2(e) and
shall contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement) the
“Plan of Distribution” section approved by a majority of the
Holders.  Notwithstanding the registration obligations set forth in this
subsection (a) and subsections (b) and (c) of this Section 2, in the event the
Commission informs the Company that all of the Registrable Securities required
to be included in an Initial Registration Statement cannot, as a result of the
application of Rule 415, be registered for resale as a secondary offering on a
single registration statement, the Company agrees to promptly (i) inform each of
the Holders thereof and file amendments to the applicable Initial Registration
Statement as required by the Commission and/or (ii) withdraw such Initial
Registration Statement and file a new registration statement (a “New
Registration Statement”), in either case covering the maximum number of
Registrable Securities required to be included in an Initial Registration
Statement and permitted to be registered by the Commission, on Form S-3 or such
other form available to register for resale the Registrable Securities as a
secondary offering; provided, however, that prior to filing such amendment or
New Registration Statement, the Company shall be obligated to use its
commercially reasonable efforts to advocate with the Commission for the
registration of all of the Registrable Securities in accordance with SEC
Guidance, including without limitation, the Manual of Publicly Available
Telephone Interpretations D.29.  Notwithstanding any other provision of this
Agreement, if any SEC Guidance sets forth a limitation of the number of
Registrable Securities permitted to be registered on a particular Registration
Statement as a secondary offering (and notwithstanding that the Company used
commercially reasonable efforts to advocate with the Commission for the
registration of all or a greater number of Registrable Securities), unless
otherwise directed in writing by a Holder as to its Registrable Securities, the
number of Registrable Securities to be registered on such Registration Statement
will (A) if applicable, first be reduced by Registrable Securities not acquired
pursuant to the Purchase Agreement (whether pursuant to registration rights or
otherwise), and (B) second by Registrable Securities represented by holders of
Shares (applied, in the case that some Shares may be registered, to the Holders
on a pro rata basis based on the total number of unregistered Shares held by
such Holders).  In the event the Company amends an Initial Registration
Statement or files a New Registration Statement, as the case may be, under
clauses (i) or (ii) above, the Company will file with the Commission, as
promptly as allowed by Commission or SEC Guidance provided to the Company or to
registrants of securities in general, one or more registration statements on
Form S-3 or such other form available to register for resale those Registrable
Securities that were not registered for resale on the Initial Registration
Statement, as amended, or the New Registration Statement (the “Remainder
Registration Statements”).
 
(b)           The Company shall use its best efforts to cause each Registration
Statement to be declared effective by the Commission as soon as practicable and,
with respect to each Initial Registration Statement or New Registration
Statement, as applicable, shall use commercially reasonable efforts to cause
each Registration Statement to be declared effective by the Commission no later
than the Effectiveness Deadline (including filing with the Commission a request
for acceleration of effectiveness in accordance with Rule 461 promulgated under
the Securities Act within five (5) Business Days after the date that the Company
is notified (orally or in writing, whichever is earlier) by the Commission that
such Registration Statement will not be “reviewed,” or will not be subject to
further review and that the effectiveness of such Registration Statement may be
accelerated) and shall, subject to Section 3(c) hereof, keep each such
Registration Statement continuously effective under the Securities Act until the
earlier of (i) such time as all of the Shares (including any securities issued
or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing) shall cease to
be Registrable Securities hereunder, (ii) the date on which the Purchasers shall
have sold all of the Registrable Securities covered by such Registration
Statement or (iii) the date four years after the Effective Date (the
“Effectiveness Period”).  The Company shall ensure that each Registration
Statement (including any amendments or supplements thereto and Prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of Prospectuses, in the light of the
circumstances in which they were made) not misleading.  Each Registration
Statement shall also cover, to the extent allowable under the Securities Act and
the rules promulgated thereunder (including Rule 416), such indeterminate number
of additional shares of Common Stock resulting from stock splits, stock
dividends or similar transactions with respect to the Registrable
Securities.  The Company shall promptly notify the Holders via facsimile or
e-mail of the effectiveness of a Registration Statement within two (2) Business
Days of the date on which the Company telephonically confirms effectiveness with
the Commission, which confirmation shall initially be the date requested for
effectiveness of a Registration Statement.  The Company shall, by 9:30 a.m. New
York City Time on the third Business Day after the Effective Date, file a Rule
424(b) prospectus with the Commission.
 
4

--------------------------------------------------------------------------------

 
(c)           The Company shall not, prior to the Effective Date of the
Registration Statements covering the resale of the Registrable Securities issued
or issuable at, or upon exercise or conversion of securities issued at, the
Closing, prepare and file with the Commission any registration statement under
the Securities Act covering any of its securities other than a registration
statement on Form S-8.
 
(d)           Each Holder agrees to furnish to the Company a completed Selling
Stockholder Questionnaire not more than ten (10) Business Days following the
date of this Agreement. Each Holder further agrees that it shall not be entitled
to be named as a selling securityholder in a Registration Statement or use the
Prospectus for offers and resales of Registrable Securities at any time, unless
such Holder has returned to the Company a completed and signed Selling
Stockholder Questionnaire. If a Holder of Registrable Securities returns a
Selling Stockholder Questionnaire after the deadline specified in the previous
sentence, the Company shall take such actions as are required to name such
Holder as a selling security holder in the applicable Registration Statement or
any pre-effective or post-effective amendment thereto and to include (to the
extent not theretofore included) in such Registration Statement the Registrable
Securities identified in such late Selling Stockholder Questionnaire. Each
Holder acknowledges and agrees that the information in the Selling Stockholder
Questionnaire will be used by the Company in the preparation of one or more
Registration Statements covering such Holder’s Registrable Securities and hereby
consents to the inclusion of such information in such Registration Statements.
 
(e)           In the event that Form S-3 is not available for the registration
of the resale of Registrable Securities hereunder, the Company shall register
the resale of the Registrable Securities on another appropriate form reasonably
acceptable to the Holders, including a registration statement on Form S-1 and
maintain the effectiveness of such Registration Statement that is on a form
other than Form S-3 during the Effectiveness Period.
 
3.            Registration Procedures
 
In connection with the Company’s registration obligations hereunder, the Company
shall:
 
(a)           Not less than five (5) Business Days prior to the filing of a
Registration Statement and not less than three (3) Business Days prior to the
filing of any related Prospectus or any amendment or supplement thereto (except
for annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K and any similar or successor reports), the Company shall
furnish to the Holder copies of such Registration Statement, Prospectus or
amendment or supplement thereto, as proposed to be filed, which documents will
be subject to the review of such Holder (it being acknowledged and agreed that
if a Holder does not object to or comment on the aforementioned documents within
such five (5) Business Day or three (3) Business Day period, as the case may be,
then the Holder shall be deemed to have consented to and approved the use of
such documents).  The Company shall not file any Registration Statement or
amendment or supplement thereto in a form to which a Holder reasonably objects
in good faith, provided that, the Company is notified of such objection in
writing within the five (5) Business Day or three (3) Business Day period
described above, as applicable.  The Company shall permit a single firm of
counsel designated by the Holders to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) and use commercially reasonable efforts to reflect in
such documents any comments as such counsel may reasonably propose (so long as
such comments are provided to the Company at least  three (3) Business Day prior
to the expected filing date) and will not request acceleration of such
Registration Statement without prior notice to such counsel.
 
5

--------------------------------------------------------------------------------

 
(b)           (i)  Prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to each Registration
Statement and the Prospectus used in connection therewith as may be necessary to
keep such Registration Statement continuously effective as to the applicable
Registrable Securities for its Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement (subject to the terms of this Agreement), and, as so supplemented or
amended, to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably practicable to any comments received from the Commission with respect
to each Registration Statement or any amendment thereto and, as promptly as
reasonably possible, provide the Holders true and complete copies of all
correspondence from and to the Commission relating to such Registration
Statement but, except as agreed by a Holder, not any comments that would result
in the disclosure to the Holders of material and non-public information
concerning the Company; and (iv) comply with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement until such time as all of such
Registrable Securities shall have been disposed of (subject to the terms of this
Agreement) in accordance with the intended methods of disposition by the Holders
thereof as set forth in such Registration Statement as so amended or in such
Prospectus as so supplemented; provided, however, that each Purchaser shall be
responsible for the delivery of the Prospectus to the Persons to whom such
Purchaser sells any of the Shares (including in accordance with Rule 172 under
the Securities Act), and each Purchaser agrees to dispose of Registrable
Securities in compliance with the plan of distribution described in the
applicable Registration Statement and otherwise in compliance with applicable
federal and state securities laws. In the case of amendments and supplements to
a Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report
under the Exchange Act, the Company shall have incorporated such report by
reference into such Registration Statement, if applicable, or shall file such
amendments or supplements with the Commission on the same day on which the
Exchange Act report which created the requirement for the Company to amend or
supplement such Registration Statement was filed.
 
6

--------------------------------------------------------------------------------

 
(c)           Notify the Holders (which notice shall, pursuant to clauses (iii)
through (v) hereof, be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made) as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than three Business Days
prior to such filing, in the case of (iii) and (iv) below, not more than one
Business Day after such issuance or receipt, and in the case of (v) below, not
less than one Business Day after a determination by the Company that the
financial statements in any Registration Statement have become ineligible for
inclusion therein) and (if requested by any such Person) confirm such notice in
writing no later than one Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a “review” of such Registration Statement and
whenever the Commission comments in writing on any Registration Statement (in
which case the Company shall provide to each of the Holders true and complete
copies of all comments that pertain to the Holders as a “Selling Stockholder” or
to the “Plan of Distribution” and all written responses thereto, but not
information that the Company believes would constitute material and non-public
information); and (C) with respect to each Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information that pertains to the Holders as “Selling Stockholders” or
the “Plan of Distribution”; (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (v) of the occurrence of any event or passage
of time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in such Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to such Registration Statement, Prospectus or other
documents so that, in the case of such Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus, form of prospectus
or supplement thereto, in light of the circumstances under which they were
made), not misleading; provided that any and all of such information shall
remain confidential to each Holder until such information otherwise becomes
public, unless disclosure by a Holder is required by law; provided, further,
that notwithstanding each Holder’s agreement to keep such information
confidential, the Holders make no acknowledgement that any such information is
material, non-public information.
 
(d)           Use commercially reasonable efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of (i) any order suspending the effectiveness
of a Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as practicable.
 
(e)           Prior to any resale of Registrable Securities by a Holder,
register or qualify, or cooperate with the selling Holders in connection with
the registration or qualification, unless an exemption from registration and
qualification applies, the Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder reasonably requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during any Effectiveness Period
and to do any and all other acts or things reasonably necessary to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statements; provided, that the Company shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject the Company to general
service of process in any jurisdiction where it is not then so subject or
subject the Company to any material tax in any such jurisdiction where it is not
then so subject.
 
(f)           If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to any
Registration Statement, which certificates shall be free, to the extent
permitted by the Purchase Agreement and under law, of all restrictive legends,
and to enable such Registrable Securities to be in such denominations and
registered in such names as any such Holders may reasonably request.  In
connection therewith, if required by the Company’s transfer agent, the Company
shall promptly after the effectiveness of the applicable Registration Statement
cause an opinion of counsel as to the effectiveness of such Registration
Statement to be delivered to and maintained with its transfer agent, together
with any other authorizations, certificates and directions required by the
transfer agent, which authorize and direct the transfer agent to issue such
Registrable Securities without legend upon sale by the holder of such shares of
Registrable Securities under such Registration Statement.
 
7

--------------------------------------------------------------------------------

 
(g)           Following the occurrence of any event contemplated by Section
3(c)(iii) through (v), as promptly as reasonably practicable, prepare a
supplement or amendment, including a post-effective amendment, to the affected
Registration Statements or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, no
Registration Statement nor any Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus, form of
prospectus or supplement thereto, in light of the circumstances under which they
were made), not misleading.
 
(h)           In the time and manner required by the Principal Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities, (ii) use commercially
reasonable efforts to take all steps necessary to cause such Registrable
Securities to be approved for listing on the Principal Trading Market as soon as
possible thereafter, (iii) if requested by any Holder, provide such Holder
evidence of such listing, and (iv) during each Effectiveness Period, use
commercially reasonable efforts to maintain the listing of such Registrable
Securities on the Principal Trading Market.
 
(i)           In order to enable the Holders to sell Shares under Rule 144, for
a period commencing on the date hereof until five years of the later of the date
hereof, and the Closing, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act. During such period, if the Company
is not required to file reports pursuant to Section 13(a) or 15(d) of the
Exchange Act, it will prepare and furnish to the Holders and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act, as well as any other
information required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. The Company further
covenants that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Person to
sell Shares without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 promulgated under the Securities
Act.  The Company agrees to furnish to the Holders so long as the Holders own
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act as required for applicable provisions of Rule 144, (ii)
a copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Holders to sell such
securities pursuant to Rule 144 without registration.
 
(j)           The Company may require each selling Holder to furnish to the
Company a certified statement as to (i) the number of shares of Common Stock
beneficially owned by such Holder and any Affiliate thereof, (ii) any FINRA
affiliations, (iii) any natural persons who have the power to vote or dispose of
the Common Stock and (iv) any other information as may be requested by the
Commission, FINRA or any state securities commission.
 
8

--------------------------------------------------------------------------------

 
(k)           The Company shall hold in confidence and not make any disclosure
of information concerning a Holder provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities laws
or the rules of any securities exchange or trading market on which the Company’s
securities are then listed or traded, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning a Holder is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Holder prior to
making such disclosure, and allow such Holder, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
 
(l)           The Company shall cooperate with each Holder who holds Registrable
Securities being offered and the managing underwriter or underwriters as
reasonably requested by them with respect to an applicable Registration
Statement, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or a Holder may reasonably request
and registered in such names as the managing underwriter or underwriters, if
any, or a Holder may request, and, within three (3) Business Days after a
Registration Statement which includes Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to each Holder) an appropriate instruction
and an opinion of such counsel in the form required by the transfer agent in
order to issue such Registrable Securities free of restrictive legends upon the
resale of such Registrable Securities pursuant to such Registration Statement.
 
(m)           At the reasonable request of a Holder, the Company shall prepare
and file with the Commission such amendments (including post-effective
amendments) and supplements to a Registration Statement and any prospectus used
in connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.  The
Company shall take all other reasonable actions necessary to expedite and
facilitate disposition by the Holders of Registrable Securities pursuant to a
Registration Statement.
 
(n)           The Company shall use commercially reasonable efforts to comply
with all applicable laws related to a Registration Statement and offering and
sale of securities and all applicable rules and regulations of governmental
authorities in connection therewith (including without limitation the Securities
Act and the Exchange Act and the rules and regulations promulgated by the
Commission).
 
(o)           If required by the FINRA Corporate Financing Department or any
similar entity, the Purchasers shall promptly effect a filing with FINRA
pursuant to FINRA Rule 2710 with respect to the public offering contemplated by
resales of securities under the Registration Statement (an “Issuer Filing”), and
the Company shall pay the filing fee required by such Issuer Filing. The
Purchasers shall use commercially reasonable efforts to pursue the Issuer Filing
until FINRA issues a letter confirming that it does not object to the terms of
the offering contemplated by the Registration Statement.
 
4.            Holder Covenants.
 
(a)           Suspension of Trading. At any time after the Registrable
Securities are covered by an effective Registration Statement, the Company may
deliver to the Holders of such Registrable Securities a certificate (the
“Suspension Certificate”) approved by the Chief Executive Officer or Chief
Financial Officer of the Company and signed by an officer of the Company stating
that the effectiveness of and sales of Registrable Securities under the
applicable Registration Statement would:
 
9

--------------------------------------------------------------------------------

 
1.           materially interfere with any transaction that would require the
Company to prepare financial statements under the Securities Act that the
Company would otherwise not be required to prepare in order to comply with its
obligations under the Exchange Act, or
 
2.           require public disclosure of a material transaction or event prior
to the time such disclosure might otherwise be required.
 
Upon receipt of a Suspension Certificate by Holders of Registrable Securities,
such Holders of Registrable Securities shall refrain from selling or otherwise
transferring or disposing of any Registrable Securities then held by such
Holders for a specified period of time (a “Suspension Period”) that is customary
under the circumstances (not to exceed ten (10) Trading Days). Notwithstanding
the foregoing sentence, the Company shall be permitted to cause Holders of
Registrable Securities to so refrain from selling or otherwise transferring or
disposing of any Registrable Securities on only one (1) occasion during each six
(6) consecutive month period that such Registration Statement remains effective.
The Company may impose stop transfer instructions to enforce any required
agreement of the Holders under this Section 4(a).
 
(b)           Discontinued Disposition.  Each Holder agrees by its acquisition
of Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(c)(iii)-(v), such
Holder will forthwith discontinue disposition of such Registrable Securities
under the applicable Registration Statement until it is advised in writing (the
“Advice”) by the Company that the use of the applicable Prospectus (as it may
have been supplemented or amended) may be resumed.  The Company may provide
appropriate stop orders to enforce the provisions of this Section 4(b).
 
5.            Registration Expenses.  All fees and expenses incident to the
Company’s performance of or compliance with its obligations under this Agreement
shall be borne by the Company whether or not any Registrable Securities are sold
pursuant to a Registration Statement.  The fees and expenses to be borne by the
Company referred to in the foregoing sentence shall include, without limitation,
(i) all registration and filing fees (including, without limitation, fees and
expenses (A) with respect to filings required to be made with any Trading Market
on which the Common Stock of the Company is then listed for trading, (B) with
respect to compliance with applicable state securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel for the
Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as requested by
the Holders) and (C) with respect to any filing that may be required to be made
by any broker through which a Holder intends to make sales of Registrable
Securities with FINRA pursuant to FINRA Rule 2710 or similar rules, (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the Holders of a majority of
the Registrable Securities included in the applicable Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In no event shall the Company be responsible for
any underwriting, broker or similar fees or commissions of any Holder or, except
to the extent provided above or otherwise in any Transaction Document, any legal
fees or other costs of the Holders.
 
10

--------------------------------------------------------------------------------

 
6.            Indemnification.
 
(a)           Indemnification by the Company.  The Company shall,
notwithstanding any termination of this Agreement, indemnify, defend and hold
harmless each Holder, the officers, directors, agents, partners, members,
managers, stockholders, Affiliates and employees of each of them, each Person
who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, partners,
members, managers, stockholders, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable costs of preparation and investigation and reasonable
attorneys’ fees) and expenses (collectively, “Losses”), as incurred, that arise
out of or are based upon: (i) any untrue statement or alleged untrue statement
of a material fact in a Registration Statement or the omission or alleged
omission to state therein a material fact required to be stated or necessary to
make the statements therein not misleading; (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary Prospectus if
used prior to the effective date of such Registration Statement, or contained in
the final Prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the Commission) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law, any “blue sky” laws of any jurisdiction in which Registrable
Securities are offered, or any rule or regulation thereunder relating to the
offer or sale of the Registrable Securities (the matters in the foregoing
clauses (i) through (iii) being, collectively, “Violations”), except to the
extent, but only to the extent, that (A) such untrue statements, alleged untrue
statements, omissions or alleged omissions are based upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
consented to and approved by such Holder for use in the applicable Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto, or (B) in the case of an occurrence of an event of the type
specified in Section 3(c)(iii)-(v), related to the use by a Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice, but only if and to the extent that following the
receipt of the Advice the misstatement or omission giving rise to such Loss
would have been corrected.  The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding arising from or in connection
with the transactions contemplated by this Agreement of which the Company is
aware.  Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an Indemnified Party (as defined in
Section 6(c)) and shall survive the transfer of the Registrable Securities by
the Holders.
 
(b)           Indemnification by Holders. Each Holder shall, notwithstanding any
termination of this Agreement, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, arising out of or are
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus, or any form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading (i) to the
extent, but only to the extent that, such untrue statements or omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, (ii) to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and approved by such
Holder expressly for use in the applicable Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (iii) in the case of an occurrence of an event of the type specified in
Section 3(c)(iii)-(v), to the extent related to the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice.  In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
 
11

--------------------------------------------------------------------------------

 
(c)           Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all reasonable fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that
such failure shall have materially and adversely prejudiced the Indemnifying
Party.
 
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest exists or may arise if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party); provided,
that the Indemnifying Party shall not be liable for the fees and expenses of
more than one separate firm of attorneys at any time for all Indemnified Parties
except to the extent that an Indemnified Party shall have been advised by
counsel that a conflict of interest exists or may arise if the same counsel were
to represent such Indemnified Party and another Indemnified Party.  The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld, delayed or conditioned.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
 
Subject to the terms of this Agreement, all fees and expenses of the Indemnified
Party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such Proceeding in a manner
not inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within twenty Business Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is finally
judicially determined to not be entitled to indemnification hereunder). The
failure to deliver written notice to the Indemnifying Party within a reasonable
time of the commencement of any such action shall not relieve such Indemnifying
Party of any liability to the Indemnified Party under this Section 6, except to
the extent that the Indemnifying Party is prejudiced in its ability to defend
such action.
 
12

--------------------------------------------------------------------------------

 
(d)           Contribution.  If a claim for indemnification under Section 6(a)
or 6(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in this Agreement,
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
 
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph.  Notwithstanding the provisions of this Section 6(d), (A) no Holder
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the net proceeds actually received by such Holder from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of
any damages that such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (B)
no contribution will be made under circumstances where the maker of such
contribution would not have been required to indemnify the Indemnified Party
under the fault standards set forth in this Section 6.  No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
 
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties and are not in diminution or limitation of the
indemnification provisions under the Purchase Agreement.
 
7.            Piggy-Back Registrations.
 
(a)           If at any time after the date hereof there is not one or more
effective Registration Statements covering all of the Registrable Securities
then outstanding or Registrable Securities issuable upon exercise of then
outstanding Warrants, the Company shall notify all Holders in writing at least
five (5) Business Days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding Special
Registration Statements) and will, subject to Section 7(b) hereof, afford each
such Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder.  Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within five (5) Business Days after the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder.  If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
 
13

--------------------------------------------------------------------------------

 
(b)           Underwriting. If the registration statement under which the
Company gives notice under this Section 7 is for an underwritten offering, the
Company shall so advise the Holders.  In such event, the right of any such
Holder to be included in a registration pursuant to this Section 7 shall be
conditioned upon such Holder’s participation in such underwriting and the
inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company (or, in the case of a registration statement
initiated by stockholders of the Company, the underwriter selected by such
stockholders that is reasonably acceptable to the Company).  Notwithstanding any
other provision of the Agreement, if the underwriter determines in good faith
that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated (i) in the case of a registration statement initiated by the
Company for any offering of shares by the Company, first, to the Company;
second, to the Holders, together with any other stockholders of the Company  on
a pro rata basis and (ii) in the case of a registration statement initiated by
stockholders of the Company  the Holders and any other participating
stockholders of the Company on a pro rata basis. If any Holder disapproves of
the terms of any such underwriting, such Holder may elect to withdraw therefrom
by written notice to the Company and the underwriter, delivered at least ten
(10) Business Days prior to the effective date of the applicable registration
statement.  Any Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the registration.
 
(c)           Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 7
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration, and shall promptly notify
any Holder that has elected to include Registrable Securities in such
registration of such termination or withdrawal. The expenses of such withdrawn
registration shall be borne by the Company in accordance with this Agreement.
 
8.            Other Agreements.
 
(a)           Preemptive Rights.
 
1.           So long as a Purchaser owns not less than fifty percent (50%) of
the Unit Shares (or shares of Common Stock issued or issuable upon conversion of
such Unit Shares) purchased under the Purchase Agreement by such Purchaser as of
the time of a determination under this Section, and subject to applicable
securities laws, each Purchaser shall have a right of first refusal to purchase
its pro rata share of all Common Stock Equivalents that the Company may, from
time to time, propose to sell and issue, other than Excluded Securities.  Each
Purchaser’s pro rata share is equal to the ratio of (A) the number of
outstanding Unit Shares (including all shares of Common Stock issuable or issued
upon conversion of such Unit Shares) of which such Purchaser is deemed to be a
holder immediately prior to the issuance of such Common Stock Equivalents to
(B) the total number of outstanding shares of Common Stock of the Company on an
as-converted basis immediately prior to the issuance of the Common Stock
Equivalents; provided, however, that such Purchaser shall not have right of
first refusal to purchase more than twenty five percent (25%) of each offering
of such Common Stock Equivalents.
 
14

--------------------------------------------------------------------------------

 
2.           If the Company proposes to issue any Common Stock Equivalents, it
shall give each Purchaser written notice of its intention, describing the Common
Stock Equivalents, the price and the terms and conditions upon which the Company
proposes to issue the same.  Each Purchaser shall have ten (10) Business Days
from the receipt of such notice to agree to purchase its pro rata share of the
Common Stock Equivalents (except as provided above) for the price and upon the
terms and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Common Stock Equivalents to be
purchased.  Notwithstanding the foregoing, the Company shall not be required to
offer or sell such Common Stock Equivalents to any Purchaser who would cause the
Company to be in violation of applicable federal securities laws by virtue of
such offer or sale.
 
3.           If not all of the Purchasers elect to purchase their pro rata share
of the available Common Stock Equivalents, then the Company shall promptly
notify in writing the Purchasers who do so elect and shall offer such Purchasers
the right to acquire such unsubscribed shares on a pro rata basis among such
participating Purchasers.  The Purchasers shall have five (5) days after receipt
of such notice to notify the Company of its election to purchase all or a
portion thereof of the unsubscribed shares.  The Company shall have ninety (90)
days thereafter to sell the Common Stock Equivalents in respect of which the
Purchasers’ rights were not exercised, at a price not lower and upon terms and
conditions not more favorable, or in preference to the rights granted, to the
purchasers thereof than specified in the Company’s notice to the Purchasers
pursuant to Section 8(a)(2) hereof.  If the Company has not sold such Common
Stock Equivalents within such ninety (90) day period, the Company shall not
thereafter issue or sell any Common Stock Equivalents, without first offering
such securities to the Purchasers in the manner provided above.
 
(b)          Board of Directors.
 
1.            From and after the Closing, the Company shall take all appropriate
action and each Key Holder hereby agrees to vote with respect to all Capital
Stock held by such Key Holder to establish the initial size of the Board at
three (3) members, (i) one (1) of which shall be the Company’s Chairman (ii) one
(1) of which shall be designated in writing by OrbiMed to be nominated by the
Company to serve as a member of the Board (the “OrbiMed Designee”), so long as
OrbiMed  (together with any Affiliates) beneficially owns at least 5% of the
outstanding shares of Common Stock of the Company on an as-converted basis and
(iii) one (1) of which shall be an individual with no prior affiliation with the
Company or the Company’s existing stockholders as of the Closing, which
individual will be acceptable to OrbiMed (the “Independent Designee”).  The
OrbiMed Designee may, from time to time, name an associate or advisor who shall
be entitled to accompany the OrbiMed Designee to all meetings of the Board and
committees of the Board, or, in the absence of the OrbiMed Designee, to attend
such meetings as an observer, provided, that the Company reserves the right to
exclude such associate or advisor from access to any material or meeting or
portion thereof if the Company believes upon advice of counsel that such
exclusion is reasonably necessary to preserve the attorney-client privilege.
 
2.           The Company (including any appropriate committee thereof) shall
nominate the OrbiMed Designee and the Independent Designee for election (in case
of the initial election of the OrbiMed Designee and the Independent Designee) or
re-election (including, in the case of the end of the term of the OrbiMed
Designee and the Independent Designee), as applicable, as a director of the
Company as part of the slate proposed by the Company that is included in the
proxy statement (or consent solicitation or similar document) of the Company
relating to the election of its directors, and shall use its best efforts to
have the OrbiMed Designee and the Independent Designee elected and provide the
same level of support for each of the OrbiMed Designee and the Independent
Designee as it provides to other members of the Board or other persons standing
for election as a director of the Company as part of a slate proposed by the
Company, so long as OrbiMed (together with any Affiliates) beneficially owns at
least 5% of the outstanding shares of on an as-converted basis of the Company on
an as-converted basis.  In the event that a vacancy is created on the Board at
any time by the resignation, death or disability of the OrbiMed Designee, so
long as OrbiMed (together with any Affiliates) beneficially owns at least 5% of
the outstanding shares of Common Stock of the Company on an as-converted basis,
OrbiMed may designate another person as the OrbiMed Designee to fill the vacancy
created thereby, and the Company hereby agrees to take, at any time and from
time to time, all actions necessary to fill the vacancy as provided in the
foregoing.
 
15

--------------------------------------------------------------------------------

 
3.           The Company shall provide each of the OrbiMed Designee and the
Independent Designee with all notices, minutes, consents and other materials,
financial or otherwise, which the Company provides to the other members of the
Board and committees thereof in their capacity as such.
 
4.           The Company shall reimburse each of the OrbiMed Designee and the
Independent Designee for his or her out-of-pocket expenses incurred in
connection with his or her participation as a member of the Board, in a manner
consistent with the Company’s policies for reimbursing such expenses of the
members of the Board. In addition, the Company shall pay each of the OrbiMed
Designee and the Independent Designee, in his or her capacity as a non-employee
member of the Board, the same compensation as to which all non-employee members
of the Board are entitled, in their capacity as such, subject to compliance with
applicable law. The Company shall indemnify each of the OrbiMed Designee and the
Independent Designee to the same extent it indemnifies its other directors
pursuant to its organizational documents and applicable law.
 
(c)           Qualified Auditor.  The Company hereby agrees that so long as
OrbiMed or any of its affiliates holds any Capital Stock of the Company, the
Company shall continue to engage a Qualified Auditor to perform audit services.
 
(d)           Transactions with Affiliates.  The Company shall not, without the
prior written consent of OrbiMed, enter into, renew, extend or be a party to, or
permit any of its Subsidiaries to enter into, renew, extend or be a party to,
any transaction or series of related transactions (including the purchase, sale,
lease, transfer or exchange of property or assets of any kind or the rendering
of services of any kind) with any Affiliate, director, officer or employee
except (i) in the ordinary course of business in a manner and to an extent
consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to it or its Subsidiaries than would be obtainable in a comparable arm’s length
transaction with a Person that is not an Affiliate thereof, (ii) reasonable and
customary director, officer and employee compensation (including bonuses) and
other benefits (including retirement, health, stock option, and other benefit
plans) and, in the case of senior officers or director, indemnification
arrangements, in each case approved in good faith by the board of directors of
the Company, and (iii) transactions related to any tax sharing agreement between
the Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes.
 
(e)           D&O Insurance. The Company shall use reasonable efforts to obtain
and maintain directors’ and officers’ liability insurance in an amount
reasonably acceptable to the Board and consistent with industry practice.
 
9.            Miscellaneous.
 
(a)           Remedies.  In the event of a breach by the Company or by a Holder
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.  The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
 
16

--------------------------------------------------------------------------------

 
(b)          No Senior Registration Rights.  Until such time as all Registrable
Securities have been registered on a Registration Statement that has been
declared effective by the Commission, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in a Registration Statement other than the
Registrable Securities, and the Company shall not enter into any agreement
providing any such right to any of its security holders or prospective security
holders that are senior to the rights of the Holders without the written consent
of Holders of at least a majority of the Registrable Securities.
 
(c)          Entire Agreement.  This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter, except for, and as provided in the Transaction Documents.
 
(d)          Amendments and Waivers.  The provisions of Sections 2 through 7 and
9 of this Agreement, including definitions in Section 1 with respect to such
sections, may not be amended, modified, supplemented or waived unless the same
shall be in writing and signed by the Company and Holders holding at least a
majority of the then outstanding Registrable Securities.  The provisions of
Section 8 of this Agreement, including the definitions in Section 1 and the
provisions of this sentence with respect to such section, may not be amended,
modified, supplemented or waived unless the same shall be in writing and signed
by the Company (i) each Purchaser to which such amendment, modification,
supplement or waiver relates with respect to Section 8(a) and (ii)
OrbiMed.  Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of all of the Registrable Securities to
which such waiver or consent relates; provided, however, that the provisions of
this sentence may not be amended, modified or supplemented except in accordance
with the provisions of the immediately preceding sentence.
 
(e)           Term.  The registration rights provided to the Holders of
Registrable Securities hereunder, and the Company’s obligation to keep the
Registration Statements effective, shall terminate at such time as there are no
Registrable Securities.  Notwithstanding the foregoing, Section 5, Section 6 and
Section 9 shall survive the termination of this Agreement.
 
(f)           Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.
 
(g)          Successors and Assigns.  This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder.  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.  The Company may not assign its
rights or obligations (i) under Sections 2 through 7 hereof without the prior
written consent of Holders holding at least a majority of the then outstanding
Registrable Securities, (ii) under Section 8(a) hereof without the prior written
consent of each Purchaser to which such assignment relates or (iii) under
Section 8(b) hereof without the prior written consent of OrbiMed (other than by
merger or consolidation or to an entity which acquires the Company, including by
way of acquiring all or substantially all of the Company’s assets).  The rights
of the Holders hereunder, including the right to have the Company register
Registrable Securities pursuant to this Agreement, may be assigned by each
Holder to transferees or assignees of all or any portion of the Registrable
Securities, but only if (i) the Holder agrees in writing with the transferee or
assignee to assign such rights and related obligations under this Agreement, and
for the transferee or assignee to assume such obligations, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being transferred or assigned, (iii) at or before the
time the Company received the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein and (iv) the transferee is an
“accredited investor,” as that term is defined in Rule 501 of Regulation D.
 
17

--------------------------------------------------------------------------------

 
(h)          Execution and Counterparts.  This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together 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, it being understood that both parties
need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature were the original
thereof.
 
(i)           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.
 
(j)           Cumulative Remedies.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
 
(k)           Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.  It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
 
(l)           Headings.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
 
(m)         Currency.  Unless otherwise indicated, all dollar amounts referred
to in this Agreement are in United States Dollars.  All amounts owing under this
Agreement are in United States Dollars.  All amounts denominated in other
currencies shall be converted in the United States Dollar equivalent amount in
accordance with the applicable exchange rate in effect on the date of
calculation.
 
(n)          Further Assurances.  The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGES TO FOLLOW]
 
18

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as
of the date first written above.
 

 
KUN RUN BIOTECHNOLOGY, INC.
     
By:
  
    Name:      Title: 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGES OF HOLDERS TO FOLLOW]
 

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as
of the date first written above.

 
NAME OF PURCHASER

 
Caduceus Asia Partners, LP
       
By:
  
 
Name:
  
 
Title:
  

 
ADDRESS FOR NOTICE
       
c/o:
  
       
Street:
  
       
City/State/Zip:
  
       
Country:
  
       
Attention:
  
       
Tel:
  
       
Fax:
  
       
Email:
  

 

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as
of the date first written above.

 
NAME OF KEY HOLDER
             
AUTHORIZED SIGNATORY
      By:
 
    Name:      Title:       
ADDRESS FOR NOTICE
     
c/o:
         
Street:
         
City/State/Zip:
         
Attention:
         
Tel:
         
Fax:
         
Email:
 

 

--------------------------------------------------------------------------------

Annex A
 
SELLING STOCKHOLDER NOTICE AND QUESTIONNAIRE

The undersigned holder of shares of and warrants to purchase shares of the
Series A Preferred Stock, par value $0.001 per share, of Kun Run Biotechnology,
Inc., a Nevada corporation (the “Company”), issued pursuant to that certain
Securities Purchase Agreement by and among the Company and the Purchasers named
therein, dated as of April 17, 2010 (the “Purchase Agreement”), understands that
the Company intends to file with the Commission a registration statement on Form
S-3 (except if the Company is ineligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on a
registration statement on Form S-1) (the “Resale Registration Statement”) for
the registration and the resale under Rule 415 of the Securities Act of
Registrable Securities in accordance with the terms of that certain Investor
Rights Agreement, dated as of the date of the Purchase Agreement, by and among
the Company and the Purchasers as defined therein, to which this Notice and
Questionnaire is attached as Annex A (the “Agreement”). All capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.

In order to sell or otherwise dispose of any Registrable Securities pursuant to
the Resale Registration Statement, a holder of Registrable Securities generally
will be required to be named as a selling stockholder in the related prospectus
or a supplement thereto (as so supplemented, the “Prospectus”), deliver such
Prospectus to purchasers of Registrable Securities (including pursuant to Rule
172 under the Securities Act) and be bound by the provisions of the Agreement
(including certain indemnification provisions, as described below). Holders must
complete and deliver this Notice and Questionnaire in order to be named as
selling stockholders in the Prospectus. Holders of Registrable Securities who do
not complete, execute and return this Notice and Questionnaire within ten (10)
Business Days following the date of the Agreement shall not be entitled to (1)
be named as a selling stockholder in the Resale Registration Statement or the
Prospectus or (2) use such Prospectus for offers and resales of Registrable
Securities at any time.

Certain legal consequences arise from being named as a selling stockholder in
the Resale Registration Statement and the Prospectus. Holders of Registrable
Securities are advised to consult their own securities law counsel regarding the
consequences of being named or not named as a selling stockholder in the Resale
Registration Statement and the Prospectus.

NOTICE
 
The undersigned holder (the “Selling Stockholder”) of Registrable Securities
hereby gives notice to the Company of its intention to sell or otherwise dispose
of Registrable Securities owned by it and listed below in Item (3), unless
otherwise specified in Item (3), pursuant to the Resale Registration Statement.
The undersigned, by signing and returning this Notice and Questionnaire,
understands and agrees that it will be bound by the terms and conditions of this
Notice and Questionnaire and the Agreement.

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate and complete:
 

--------------------------------------------------------------------------------

 
QUESTIONNAIRE
 
1.  Name.
 
 
(a)
Full Legal Name of Selling Stockholder:
           

 
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities Listed in Item 3 below are held:
           

 
 
(c)
Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by this Notice and Questionnaire):
           

2.  Address for Notices to Selling Stockholder:
 

     
Telephone:
 
Fax:
 
Contact Person:
 
E-mail Address of Contact Person:
 

3.  Beneficial Ownership of Registrable Securities Issuable Pursuant to the
Purchase Agreement:
 
 
(a)
Type and Number of Registrable Securities beneficially owned and issued pursuant
to the Purchase Agreement:
                       

 
 
(b)
Number of shares of common stock to be registered pursuant to this Notice and
Questionnaire for resale:
                       

 

--------------------------------------------------------------------------------

 
4.  Broker-Dealer Status:
 
 
(a)
Are you a broker-dealer?

 
Yes o               No o
 
(b)
If “yes” to Section 4(a), did you receive your Registrable Securities as
compensation for investment banking services to the Company?

 
Yes o               No o
 
Note:
If no, the Commission’s staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 
 
(c)
Are you an affiliate of a broker-dealer?

 
Yes o               No o
 
Note:
If yes, provide a narrative explanation below:
                 

 
(c)
If you are an affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at the time of
the purchase of the Registrable Securities to be resold, you had no agreements
or understandings, directly or indirectly, with any person to distribute the
Registrable Securities?

 
Yes o               No o
 
Note:
If no, the Commission’s staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 
5.  Beneficial Ownership of Other Securities of the Company Owned by the Selling
Stockholder.
 
Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
 
 
(a)
Type and amount of other securities beneficially owned:
                       

 
6.  Relationships with the Company:
 
Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.
 

--------------------------------------------------------------------------------

 
 
State any exceptions here:
           

7.  Plan of Distribution:
 
The undersigned has reviewed the form of Plan of Distribution provided by the
Company, and hereby confirms that, except as set forth below, the information
contained therein regarding the undersigned and its plan of distribution is
correct and complete.
 
 
State any exceptions here:
           

***********
 
The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the effective date of any applicable Resale Registration
Statement. All notices hereunder shall be made as provided in the Agreement. In
the absence of any such notification, the Company shall be entitled to continue
to rely on the accuracy of the information in this Notice and Questionnaire.
 
By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items (1) through (7) above and the inclusion
of such information in the Resale Registration Statement and the Prospectus. The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of any such Registration
Statement and the Prospectus.
 
By signing below, the undersigned acknowledges that it understands its
obligation to comply, and agrees that it will comply, with the provisions of the
Exchange Act and the rules and regulations thereunder, particularly Regulation M
in connection with any offering of Registrable Securities pursuant to the Resale
Registration Statement. The undersigned also acknowledges that it understands
that the answers to this Notice and Questionnaire are furnished for use in
connection with Registration Statements filed pursuant to the Investor Rights
Agreement and any amendments or supplements thereto filed with the Commission
pursuant to the Securities Act.
 
The undersigned hereby acknowledges and is advised of the following
Interpretation A.65 of the July 1997 SEC Manual of Publicly Available Telephone
Interpretations regarding short selling:
 

--------------------------------------------------------------------------------

 
“An Issuer filed a Form S-3 registration statement for a secondary offering of
common stock which is not yet effective.  One of the selling stockholders wanted
to do a short sale of common stock “against the box” and cover the short sale
with registered shares after the effective date.  The issuer was advised that
the short sale could not be made before the registration statement becomes
effective, because the shares underlying the short sale are deemed to be sold at
the time such sale is made.  There would, therefore, be a violation of Section 5
if the shares were effectively sold prior to the effective date.”
 
By returning this Notice and Questionnaire, the undersigned will be deemed to be
aware of the foregoing interpretation.
 
I confirm that, to the best of my knowledge and belief, the foregoing statements
(including without limitation the answers to this Notice and Questionnaire) are
correct.
 

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
 
Dated:
   
Beneficial Owner:
 

 

     
By:
          Name:          Title: 

 
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

Free Trade Zone
168 Nanhai Avenue, Haikou City
Hainan Province, China 570216
Telephone No.: 86-898-6680-2207
Facsimile No.:
Attention:  President

With a copy to:

Cadwalader, Wickersham & Taft LLP
2301 China Central Place, Tower 2,
No. 79 Jianguo Road
Beijing, China 100025
Telephone No.:  86-10-6599-7200
Facsimile No.:  86-10-6599-7300
Attention:  Jiannan Zhang, Esq.
 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT D-1
 
ACCREDITED INVESTOR QUESTIONNAIRE

INVESTOR NAME: ________________________

Kun Run Biotechnology, Inc. (the “Company”) is relying exclusively upon this
questionnaire to determine the suitability of the undersigned (the “Investor”)
as a potential investor in securities of the Company.

1.1
INVESTOR CATEGORY  The Investor represents and warrants that the Investor comes
within one category marked below, and that for any category marked, the Investor
has truthfully set forth, where applicable, the factual basis or reason the
Investor comes within that category.  ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL.  The undersigned shall furnish any
additional information which the Company deems necessary in order to verify the
answers set forth below.

(please check the appropriate box)
 
Category A   ¨
The undersigned is an individual (not a partnership, corporation, etc.) whose
individual net worth, or joint net worth with his or her spouse, presently
exceeds US$1,000,000.

Explanation.  In calculating net worth you may include equity in personal
property and real estate, including your principal residence, cash, short-term
investments, stock and securities.  Equity in personal property and real estate
should be based on the fair market value of such property less debt secured by
such property.

Category B   ¨
The undersigned is an individual (not a partnership, corporation, etc.) who had
an individual income in excess of US$200,000 in each of the two most recent
years, or joint income with his or her spouse in excess of US$300,000 in each of
those years (in each case including foreign income, tax exempt income and full
amount of capital gains and losses but excluding any income of other family
members and any unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current year.

Category C   ¨
The undersigned is a director or executive officer of the Company which is
issuing and selling the securities.

Category D   ¨
The undersigned is a bank; a savings and loan association; insurance company;
registered investment company; registered business development company; licensed
small business investment company (“SBIC”); or employee benefit plan within the
meaning of Title 1 of ERISA and (a) the investment decision is made by a plan
fiduciary which is either a bank, savings and loan association, insurance
company or registered investment advisor, or (b) the plan has total assets in
excess of US$5,000,000 or is a self directed plan with investment decisions made
solely by persons that are accredited investors.

 

--------------------------------------------------------------------------------

 

  
(describe entity)

Category E   ¨
The undersigned is a private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940.

  
(describe entity)

 
-2-

--------------------------------------------------------------------------------

 

Category F   ¨
The undersigned is either a corporation, partnership, Massachusetts business
trust, or non-profit organization within the meaning of Section 501(c)(3) of the
Internal Revenue Code, in each case not formed for the specific purpose of
acquiring the securities and with total assets in excess of US$5,000,000.

  
(describe entity)

Category G   ¨
The undersigned is a trust with total assets in excess of US$5,000,000, not
formed for the specific purpose of acquiring the securities, where the purchase
is directed by a “sophisticated person” as defined in Regulation 506(b)(2)(ii)
under the Act.

Category H   ¨
The undersigned is an entity (other than a trust) all the equity owners of which
are “accredited investors” within one or more of the above categories.  If
relying upon this Category alone, each equity owner must complete a separate
copy of this Agreement.

  
(describe entity)

Category I   ¨
The undersigned is not within any of the categories above and is therefore not
an accredited investor.

The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the execution of this Agreement in the event that the
representations and warranties in this Agreement shall cease to be true,
accurate and complete.

1.2           SUITABILITY  (please answer each question)

 
(a)
For an individual Investor, please describe your current employment, including
the company by which you are employed and its principal business:
                       

 
(b)  For an individual Investor, please describe any college or graduate degrees
held by you:
 

 
 
 
           

 

 
(c) 
For all Investors, please list types of prior investments:

 
-3-

--------------------------------------------------------------------------------

 
 

 
 
 
           

 
(d)  For all Investors, please state whether you have you participated in
otherprivate placements before:

¨ YES                      ¨ NO

 
-4-

--------------------------------------------------------------------------------

 

(e)  If your answer to question (d) above was “YES”, please indicate frequency
of such prior participation in private placements of:

 
Public
 
Private
 
Companies
 
Companies
       
Frequently
¨
 
¨
Occasionally
¨
 
¨
Never
¨
 
¨

(f)  For individual Investors, do you expect your current level of income to
significantly decrease in the foreseeable future:

¨ YES                      ¨ NO

If so, please explain:
_______________________________________

(g)  For trust, corporate, partnership and other institutional Investors, do you
expect your total assets to significantly decrease in the foreseeable future:

¨ YES                      ¨ NO

If so, please explain:
_______________________________________

(h)  For all Investors, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:

¨ YES                      ¨ NO

(i)  For all Investors, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?

¨ YES                      ¨ NO

(j)  For all Investors, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?

¨ YES                      ¨ NO

 
-5-

--------------------------------------------------------------------------------

 

(k)  For all Investors, please state whether or not you have been indicted or
convicted of any felony or any criminal conduct in any foreign, federal, state
or local proceeding:

¨ YES                      ¨ NO

(1) If you answered yes to item (k) above, please describe such activity and the
penalty, if any, imposed upon you.
 

 
 
 
           

 
(2) You hereby authorize us to perform a background check upon you and your
affiliates, if necessary, in order to provide to us sufficient information to
determine your suitability as an investor.

¨ YES                      ¨ NO

1.3           MANNER IN WHICH TITLE IS TO BE HELD  (check one)

 
¨ Individual Ownership

 
¨ Community Property

 
¨ Joint Tenant with Right of Survivorship (both parties must sign)

 
¨ Partnership*

 
¨ Tenants in Common

 
¨ Corporation*

 
¨ Trust*

 
¨ Limited Liability Company*

 
¨ Other

 
*If the securities are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.

1.4           NASD AFFILIATION

Are you affiliated or associated with an NASD member firm (please check one):

¨ YES                                ¨ NO

If Yes, please describe:
 

 
 
 
           

 
-6-

--------------------------------------------------------------------------------

 

*If Investor is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:

The undersigned NASD member firm acknowledges receipt of the notice required by
Rule 3050 of the NASD Conduct Rules.
 

--------------------------------------------------------------------------------

Name of NASD Member Firm

By:
  
 
Authorized Officer
   
Date:
  

1.5
The undersigned has been informed of the significance to the Company of the
foregoing representations and answers contained in the Accredited Investor
Questionnaire contained in this Section and such answers have been provided
under the assumption that the Company will rely on them.

 
-7-

--------------------------------------------------------------------------------

 

Signature Page

INVESTOR NAME:__________________

INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL
 
(1)           Address Information
Please complete the following contact information for the address where Investor
wishes to receive all correspondence concerning this matter.
 

 
  
 
  
 
Address for Correspondence
 
Address for Correspondence
         
  
 
  
 
City, State and Zip Code
 
City, State and Zip Code
         
E-mailAddress _______________________________
 
E-mail Address ___________________________________
         
  
 
  
 
Telephone (Business)
 
Telephone (Business)
         
  
 
  
 
Telephone (Residence)
 
Telephone (Residence)
         
  
 
  
 
Facsimile (Business)
 
Facsimile (Business)
         
  
 
  
 
Facsimile (Residence)
 
Facsimile (Residence)
         
  
 
  
 
Tax ID # or Social Security #
 
Tax ID # or Social Security #
         
AGREED AND SUBSCRIBED
 
AGREED AND SUBSCRIBED
 
This __ day of ______, 2010
 
This __ day of ______, 2010
       
BY:
 
 
By:
  
 
      SIGNATURE OF INVESTOR 
 
SIGNATURE OF JOINT INVESTOR (if
     
any)
   
  
   
   
 
   
 
Investor Name (Typed or Printed)
 
Additional Investor Name (Typed or
     
Printed)

 
-8-

--------------------------------------------------------------------------------

 
 
(2)           Alternate Legal Address Information

If the address information set forth above is not the Investor’s primary legal
residence (in the case of an individual) or primary place of business (in the
case of an entity), please set forth such primary address information below.

  
 
  
Legal Address
 
Legal Address
     
  
 
  
City, State, and Zip Code
 
City, State, and Zip Code

 
-9-

--------------------------------------------------------------------------------

 

Certificate of Signatory

(To be completed only if the securities are being subscribed for by an entity)

I,                                      , am the _____________________ (title)
of _______________________ (the “Entity”).
I certify that I am empowered and duly authorized by the Entity to execute and
carry out the terms of the Securities Purchase Agreement and to purchase and
hold the Series A Preferred Stock, and certify further that the Securities
Purchase Agreement has been duly and validly executed on behalf of the Entity
and constitutes a legal and binding obligation of the Entity.

IN WITNESS WHEREOF, I have set my hand this ____ day of _________________, 2010.

  
 
(Signature)

 
-10-

--------------------------------------------------------------------------------

 

EXHIBIT D-2
 
Stock Certificate Questionnaire

Please provide us with the following information:

1.  The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s) and warrant(s)):
 

2.  The relationship between the Purchaser of the Securities and the Registered
Holder listed in response to Item 1 above:
 

3.  The mailing address, telephone and telecopy number of the Registered Holder
listed in response to Item 1 above:
 
 
4.  The Tax Identification Number (or, if an individual, the Social Security
Number) of the Registered Holder listed in response to Item 1 above:
 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT E-1
 
[e1pg01.jpg]
 

--------------------------------------------------------------------------------

 
[e1pg02.jpg]
 

--------------------------------------------------------------------------------

 
[e1pg03.jpg]
 

--------------------------------------------------------------------------------

 
[e1pg04.jpg]
 

--------------------------------------------------------------------------------

 
[e1pg05.jpg]
 

--------------------------------------------------------------------------------

 
[e1pg06.jpg]
 

--------------------------------------------------------------------------------

EXHIBIT E-2
 

Kun Run Biotechnology, Inc. -  Form of Company Counsel Opinion

1.
The Company has been duly incorporated and is a validly existing corporation in
good standing under the laws of the State of Nevada.

 
2.
The Company has the requisite corporate power to enter into and perform its
obligations under the Transaction Documents.  The Company has the requisite
corporate power to own its properties and assets and to conduct its business as,
to the best of our knowledge, it is currently being conducted, and, to the best
of our knowledge, is not required to qualify as a foreign corporation to do
business in any other jurisdiction in the United States.

 
3.
The Transaction Documents have been duly and validly authorized, executed and
delivered by the Company and constitute valid and binding agreements of the
Company enforceable against the Company in accordance with their respective
terms.

 
4.
The Unit Shares, the Net Income Warrant Shares and the Repayment Warrant Shares
(together, the “Shares”) have been duly authorized, and upon issuance and
delivery against payment therefor in accordance with the terms of the Agreement,
the Net Income Warrant or the Repayment Warrant, as applicable, the Shares will
be duly authorized, validly issued and fully paid and nonassessable.

 
5.
The execution and delivery of the Transaction Documents by the Company and the
offer, issuance and sale of the Shares pursuant to the Agreement do not violate
any provision of the Company’s [Articles of Incorporation] or [Bylaws], do not
constitute a default under, or a material breach of, any Material Agreement do
not violate or contravene (a) any governmental statute, rule or regulation which
in our experience is typically applicable to transactions of the nature
contemplated by the Transaction Documents or (b) any order, writ, judgment,
injunction, decree, determination or award which has been entered against the
Company and of which we are aware, in each case to the extent the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.

 
6.
The Company’s authorized capital stock consists of (a) [______] shares of Common
Stock, par value $[_______] per share, and (b) [________]shares of Preferred
Stock, par value $0.0001 per share, of which [_________] have been designated
[_________].  The holders of outstanding shares of capital stock of the Company
are not entitled to preemptive rights under the Company’s [Articles of
Incorporation], as in effect as of the date hereof (the “Restated Certificate”),
or [Bylaws], as in effect as of the date hereof (the “Restated Bylaws”), or
Nevada law.

 

--------------------------------------------------------------------------------

 
7.
To our knowledge, there is  no action, suit or proceeding by or before any court
or other governmental agency, authority or body or any arbitrator pending or
overtly threatened against the Company by a third party that questions the
validity of the Transaction Documents.

 
8.
The offer and sale of the Common Shares are exempt from the registration
requirements of the Securities Act of 1933, as amended, subject to the timely
filing of a Form D pursuant to Securities and Exchange Commission Regulation D.

 

--------------------------------------------------------------------------------

 
EXHIBIT G
  
KUN RUN BIOTECHNOLOGY, INC.
 
certificate of Secretary
 
This Certificate is being issued in connection with the Securities Purchase
Agreement dated as of April __, 2010 (the “Agreement”), by and among Kun Run
Biotechnology, Inc., a Nevada corporation (the “Company”), the Purchasers
identified on the signature pages thereto and Xueyun Cui. Capitalized terms used
but not defined herein shall have the same meanings given them in the Agreement.

The undersigned hereby certifies as follows:
 
1.           That [he] is the duly appointed and at this date is Secretary
of the Company.

2.           Attached hereto as Exhibit A is a true and correct copy of the
Company’s Amended and Restated Articles of Incorporation, together with all
certificates of designation as in effect as of the date hereof (the “Restated
Articles”). Said Restated Articles has not in any way been amended, annulled,
rescinded, repealed, revoked or supplemented, and remains in full force and
effect as of the date hereof.

3.           Attached hereto as Exhibit B is a true and correct copy of the
Company’s Amended and Restated Bylaws as presently in effect.

4.           Attached hereto as Exhibit C is a full, true and correct copy of
the resolutions adopted by the Board of Directors of the Company on __________,
2010 approving the transactions contemplated by the Agreement and the other
Transaction Documents and the issuance of the Securities.  Said resolutions have
not been revoked, modified, rescinded, or amended and are in full force and
effect.

5.           Each of the following named individuals is, on the date hereof, a
duly elected officer of the Company, holding the office set forth opposite his
name, the signature set forth opposite his name is his genuine signature and
each of the following named individuals is authorized to execute and deliver the
Agreement, the other Transaction Documents and any certificate or instrument
furnished pursuant to the Agreement:
 
Name
 
Office
 
Signature
         
Xiaoqun Ye
 
Chief Executive Officer
   

 
 

--------------------------------------------------------------------------------

 

In Witness Whereof, I have set my hand thereto as of the __________ day of
________, 2010.
 

  __________________________________________________   
__________, Secretary

I, Xiaoqun Ye, Chief Executive Officer of the Company, do hereby certify that
__________ is the duly appointed, qualified and acting Secretary of the Company
and that the signature above is [his] genuine signature.

     
Xiaoqun Ye, Chief Executive Officer

 
 

--------------------------------------------------------------------------------

 

Exhibit A

AMENDED AND RESTATED ARTICLES OF INCORPORATION

 
 

--------------------------------------------------------------------------------

 

Exhibit B

AMENDED AND RESTATED BYLAWS

 
 

--------------------------------------------------------------------------------

 

Exhibit C

RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS

 
 

--------------------------------------------------------------------------------

 

EXHIBIT H
 

KUN RUN BIOTECHNOLOGY, INC.
 
Compliance Certificate
 
Pursuant to Section 5.1(h) of the Securities Purchase Agreement dated as of
April __, 2010 (the “Agreement”), by and among Kun Run Biotechnology, Inc., a
Nevada corporation (the “Company”), the Purchasers identified on the signature
pages thereto, and Xueyun Cui, Xiaoqun Ye certifies that he is the duly elected
and acting Chief Executive Officer of the Company, and further certifies on
behalf of the Company that:  (i) the representations and warranties of the
Company contained in the Agreement are true and correct in all respects as of
the date when made and as of the Closing Date, as though made on and as of such
date; (ii) the Company has performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing, and (iii) the Company has obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Units at the Closing (including,
without limitation, all Required Approvals and any other necessary regulatory
and third party consents and approvals), all of which are and remain so long as
necessary in full force and effect.  Capitalized terms used but not defined
herein shall have the same meanings given them in the Agreement.

 
In Witness Whereof, the undersigned has hereunto set his hand as Chief Executive
Officer of the Company this __________ day of __________, 2010.
 

 
Kun Run Biotechnology, Inc.
     
By:
     
Xiaoqun Ye, Chief Executive Officer

 
 
1.

--------------------------------------------------------------------------------

 

EXHIBIT I
 

CERTIFICATE OF DESIGNATION
of the
PREFERENCES, RIGHTS, LIMITATIONS, QUALIFICATIONS AND RESTRICTIONS
of the
SERIES A CONVERTIBLE PREFERRED STOCK
of
KUN RUN BIOTECHNOLOGY, INC.

KUN RUN BIOTECHNOLOGY, INC. (the “Corporation”), a corporation organized and
existing under Chapter 78 of the Nevada Revised Statutes, as amended (the
"NRS"), hereby certifies that, pursuant to the authority conferred upon the
Board of Directors of the Corporation (the “Board”) by its Amended and Restated
Articles of Incorporation, filed with the Secretary of State of the State of
Nevada on November 1, 2008 (the "Articles of Incorporation"), and pursuant to
the provisions of the NRS, the Board adopted the following resolution providing
for the authorization of 6,800,000 shares of the Corporation's Series A
Convertible Preferred Stock, $0.001 par value per share (the "Series A Preferred
Stock"):

RESOLVED, that pursuant to the authority vested in the Board by the
Corporation’s Articles of Incorporation, the Board hereby establishes the Series
A Preferred Stock of the Corporation, authorizes 6,800,000 shares of Series A
Preferred Stock and determines the designation, preferences, rights,
qualifications, limitations and privileges of Series A Preferred Stock of the
Corporation as follows:

1. Voting Rights.

(a) Except as otherwise provided herein or as required by law, the Series A
Preferred Stock shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation and shall vote together with the Corporation's common stock, $0.001
par value per share (the "Common Stock"), as a single class at any annual or
special meeting of stockholders of the Corporation and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series A Preferred Stock (each, a
"Holder" and collectively, the "Holders") shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such Holder’s aggregate number of shares of Series A Preferred Stock are
convertible pursuant to Section 3 below immediately after the close of business
on the record date fixed for such meeting or the effective date of such written
consent.

(b) The Series A Preferred Stock shall have the following class voting rights
(in addition to the voting rights set forth in Section 1(a) hereof). So long as
any shares of the Series A Preferred Stock remain outstanding, the Corporation
shall not, without the affirmative vote or consent of the holders of a majority
of the shares of the Series A Preferred Stock outstanding at the time (the
“Required Holders”), given in person or by proxy, either in writing or at a
meeting in which the holders of the Series A Preferred Stock vote separately as
a class:

(i) increase or decrease the authorized amount of the Common Stock or any class
or series of Preferred Stock;

(ii) Any authorization or any designation, whether by reclassification or
otherwise, of any new class or series of stock or any other securities
convertible into equity securities of the Corporation ranking on a parity with
or senior to the Series A Preferred Stock in right of redemption, liquidation
preference, voting or dividend rights or any increase in the authorized or
designated number of any such new class or series;;

 
1

--------------------------------------------------------------------------------

 

(iii) amend, alter or repeal the provisions of the Series A Preferred Stock,
whether by merger, consolidation, filing of a certificate of designation or
otherwise, so as to adversely affect any right, preference, privilege or voting
power of the Series A Preferred Stock; provided, however, that any creation and
issuance of other classes and series of equity securities of the Corporation
which by their terms do not rank pari passu or senior to the Series A Preferred
Stock (“Junior Stock”) shall not be deemed to adversely affect such rights,
preferences, privileges or voting powers;

(iv) consummate an Acquisition or Asset Transfer as defined in Section 2(c)
herein;

(v) repurchase or redeem shares of Common Stock (other than as permitted by
Section 5(b) hereof);

(vi) amend or waive any provision of the Articles of Incorporation or By-Laws of
the Corporation so as to affect materially and adversely any right, preference,
privilege or voting power of the Series A Preferred Stock; provided, however,
that any creation and issuance of another series of Junior Stock shall not be
deemed to adversely affect such rights, preferences, privileges or voting
powers;

(vii) increase or decrease the authorized size of the Corporation’s Board of
Directors;

(viii) pay or declare dividends on or make any distribution to any shares of
Common Stock or any class or series of Preferred Stock; or

(ix) issue debt in excess of $250,000 (unless such issuance of debt has been
approved by a majority of the Corporation’s Board of Directors).

(c)          Election of Board of Directors.

(i)           The holders of Common Stock and Series A Preferred Stock, voting
together as a single class on an as-if-converted basis, shall be entitled to
elect all members of the Corporation’s Board of Directors at each meeting or
pursuant to each consent of the Corporation’s stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors.

2. Liquidation Rights.

(a) Upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (a “Liquidation Event”), after payment or provision for
payment of debts and other liabilities of the Corporation, before any
distribution or payment shall be made to the holders of any other equity
securities of the Corporation by reason of their ownership thereof, the Holders
of Series A Preferred Stock shall first be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders an amount with
respect to each share of Series A Preferred Stock equal to $1.53 (the “Original
Series A Issue Price”), plus any declared and accrued but unpaid dividends
thereon (collectively, the “Series A Liquidation Value”).

(b) After payment has been made to the Holders of the Series A Preferred Stock
of the full amount of the Series A Liquidation Value, any remaining assets of
the Corporation  (or the consideration received by the Corporation or its
stockholders in such Acquisition or Asset Transfer) shall be distributed ratably
to the holders of the Corporation's Common Stock and Series A Preferred Stock
(on an as-if-converted to Common Stock basis) .

 
2

--------------------------------------------------------------------------------

 

(c) In the case of any merger, consolidation, business combination,
reorganization or recapitalization of the Corporation (other than any merger
effected solely for the purpose of changing the domicile of the Corporation) in
which the Corporation is not the surviving entity or in which the stockholders
of the Corporation immediately prior to such transaction own capital stock
representing less than 50% of the Corporation’s voting power immediately after
such transaction or any transaction or series of related transactions in which
capital stock representing in excess of 50% of the Corporation’s voting power is
transferred (each, an “Acquisition”) or a sale, conveyance, transfer, lease,
exclusive license or other disposition of all or substantially all of the assets
of the Corporation (each, an “Asset Transfer”), the Holders of the Series A
Preferred Stock shall be entitled to receive the amount of cash, securities or
other property which such Holders would be entitled to receive in a Liquidation
Event pursuant to sections 2(a) and 2(b).

(d) If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to make payment in full to all
Holders of Series A Preferred Stock, then such assets shall be distributed among
the Holders of Series A Preferred Stock at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.

(e) Whenever any distribution provided for in this Section 2 shall be payable in
securities or property other than cash, the value of such distribution shall be
the fair market value thereof as determined in good faith by the Board.

3. Conversion Rights.  The Holders of Series A Preferred Stock shall have the
following rights with respect to the conversion of Series A Preferred Stock into
shares of Common Stock pursuant to this Section 3:

(a) Conversion.  Subject to and in compliance with the provisions of this
Section 3, any shares of Series A Preferred Stock may, at the option of the
Holder thereof, be converted at any time into fully paid and nonassessable
shares of Common Stock.  The number of shares of Common Stock to which a Holder
of Series A Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the number of shares of Series A Preferred Stock
being converted by the then-effective Series A Conversion Rate (determined in
accordance with Section 3(b) below).

(b) Series A Conversion Rate.  The conversion rate in effect at any time for
conversion of the Series A Preferred Stock (the "Series A Conversion Rate")
shall be the quotient obtained by dividing the Series A Liquidation Value by the
then-effective Series A Conversion Price (determined in accordance with Section
3(c) below).

(c) Series A Conversion Price.  The conversion price for Series A Preferred
Stock (the “Series A Conversion Price”) initially shall be the Original Series A
Issue Price.  The Series A Conversion Price is subject to adjustment as provided
in Section 3(d) and all references herein to the Series A Conversion Price shall
mean the Series A Conversion Price as so adjusted.

(d) Adjustment to the Series A Conversion Price.

(i) If, at any time or from time to time after the filing of this Certificate of
Designation with the Secretary of State of the State of Nevada (the "Original
Series A Filing Date"), the Corporation shall issue, or is deemed to issue by
the express provisions of this Section 3(d),  any Additional Stock (as defined
below) without consideration or for consideration per share less than the Series
A Conversion Price in effect immediately prior to the issuance of such
Additional Stock, then and in such event (except as otherwise provided in this
Section 3(d)) the Conversion Price of the Series A Preferred Stock shall be
reduced, concurrently with such issue, to the lowest price at which any of the
Additional Stock are issued.

 
3

--------------------------------------------------------------------------------

 

(ii) No adjustment of the Series A Conversion Price for any Series A Preferred
Stock shall be made in an amount less than one cent per share; provided that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be taken into account in any subsequent adjustment
made prior to three years from the date of the event giving rise to the
adjustment being carried forward.  No adjustment of such Series A Conversion
Price pursuant to this Section 3(d) shall have the effect of increasing the
Series A Conversion Price above the Series A Conversion Price in effect
immediately prior to such adjustment.

(iii) In the case of the issuance of Additional Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.

(iv) In the case of the issuance of the Additional Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the Board of
the Corporation .

(v) Additional Stock; Certain Issues Excepted. For the purpose of making any
adjustment to the Conversion Price of the Series A Preferred Stock required
under this Section 3(d), “Additional Stock” shall mean all shares of Common
Stock issued by the Corporation or deemed to be issued pursuant to this
Section 3 (including shares of Common Stock subsequently reacquired or retired
by the Corporation), other than the following, for which, anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment to the Conversion Price upon: (A) a bona fide firm underwritten
public offering of the Corporation; (B) issuance of securities pursuant to a
bona fide acquisition of another business entity or business segment of any such
entity by the Corporation pursuant to a merger, purchase of substantially all
the assets or any type of reorganization  provided that (1) the Corporation will
own more than fifty percent (50%) of the voting power of such business entity or
business segment of such entity and (2) such transaction is approved by the
Board of Directors; (C) securities issued pursuant to the conversion or exercise
of convertible or exercisable securities issued or outstanding on or prior to
the Original Series A Filing Date or issued pursuant to the Securities Purchase
Agreement dated April 17, 2010 entered into by and among the Corporation, the
Purchasers (as defined therein) and the Key Stockholder (as defined therein) (so
long as the terms governing the conversion or exercise price of such securities
are not amended to lower such price and/or adversely affect the holders of the
Series A Preferred Stock); (D) securities issued in connection with bona fide
strategic license agreements or other partnering arrangements so long as such
issuances are not for the primary purpose of raising capital and are approved by
the Board of Directors; (E) Common Stock issued or the issuance or grants of
options to purchase Common Stock, in each case, at no less than the
then-applicable fair market value, pursuant to equity incentive plans that are
adopted and approved by the Corporation’s Board of Directors; (F) securities
issued at no less than the then-applicable fair market value to advisors or
consultants (including, without limitation, financial advisors and investor
relations firms) in connection with any engagement letter or consulting
agreement, provided that any such issuance is approved by the Board of
Directors; (G) securities issued to financial institutions or lessors in
connection with reasonable commercial credit arrangements, equipment financings
or similar transactions, provided that any such issue is approved by the Board
of Directors).

 
4

--------------------------------------------------------------------------------

 

(vi) In the event the Corporation at any time or from time to time after the
Original Series A Filing Date fixes a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock ("Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Series A Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 3(d)(v).

(vii) If the number of shares of Common Stock outstanding at any time after the
Original Series A Filing Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Series A Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Series A
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.

(viii)       For the purpose of the adjustment required under this Section 3(d),
if the Corporation issues or sells (x) preferred stock or other stock, options,
warrants, purchase rights or other securities convertible into, Additional Stock
(such convertible stock or securities being herein referred to as “Convertible
Securities”) or (y) rights or options for the purchase of Additional Stock or
Convertible Securities and if the Effective Price  (as defined below) of such
Additional Stock is less than the Series A Preferred Stock Conversion Price, in
each case the Corporation shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the maximum number
of Additional Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities plus:

(A)          in the case of such rights or options, the minimum amounts of
consideration, if any, payable to the Corporation upon the exercise of such
rights or options; and

(B)           in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Corporation upon the conversion thereof
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities); provided that if the minimum amounts of such
consideration cannot be ascertained, but are a function of antidilution or
similar protective clauses, the Corporation shall be deemed to have received the
minimum amounts of consideration without reference to such clauses.

(C)           If the minimum amount of consideration payable to the Corporation
upon the exercise or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall be
recalculated using the figure to which such minimum amount of consideration is
reduced; provided further, that if the minimum amount of consideration payable
to the Corporation upon the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the Effective Price shall be
again recalculated using the increased minimum amount of consideration payable
to the Corporation upon the exercise or conversion of such rights, options or
Convertible Securities.

 
5

--------------------------------------------------------------------------------

 

(D)           No further adjustment of the Series A Preferred Stock Conversion
Price, as adjusted upon the issuance of such rights, options or Convertible
Securities, shall be made as a result of the actual issuance of Additional Stock
or the exercise of any such rights or options or the conversion of any such
Convertible Securities.  If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Series A Preferred Stock Conversion Price as adjusted
upon the issuance of such rights, options or Convertible Securities shall be
readjusted to the Series A Preferred Stock Conversion Price which would have
been in effect had an adjustment been made on the basis that the only Additional
Stock so issued were the Additional Stock, if any, actually issued or sold on
the exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Stock, if any, were issued or sold
for the consideration actually received by the Corporation upon such exercise,
plus the consideration, if any, actually received by the Corporation for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion of such Convertible
Securities, provided that such readjustment shall not apply to prior conversions
of Series Preferred.

The “Effective Price” of Additional Stock shall mean the quotient determined by
dividing the total number of shares of Additional Stock issued or sold, or
deemed to have been issued or sold by the Corporation under this Section 3, into
the aggregate consideration received, or deemed to have been received by the
Corporation for such issue under this Section 3, for such shares of Additional
Stock.  In the event that the number of shares of Additional Common Stock or the
Effective Price cannot be ascertained at the time of issuance, such Additional
Stock shall be deemed issued immediately upon the occurrence of the first event
that makes such number of shares or the Effective Price, as applicable,
ascertainable.

(e) Other Distributions.  In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends),
securities or options or rights not referred to in Section 3(d), then, in each
such case for the purpose of this Section 3(e), the Holders of the Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock into which their shares of Series A Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
the Corporation entitled to receive such distribution.

(f) Recapitalizations.  If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination,
merger or sale of assets transaction provided for elsewhere in this Section 3 or
Section 2) provision shall be made so that the Holders of the Series A Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization.  In any case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the Holders of the Series A
Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Series A Conversion Price then in
effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.

(g) Treasury Shares.  The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Corporation, if any, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock.

 
6

--------------------------------------------------------------------------------

 

(h) No Impairment.  The Corporation shall not, by the amendment of its Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
at all times shall in good faith assist in the carrying out of all the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
Holders of the Series A Preferred Stock, against impairment.

(i) Mechanics of Conversion.  Before any Holder of Series A Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such Holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office of the election to convert the same and shall state therein the
name or names in which the certificate or certificates for shares of Common
Stock are to be issued.  The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such Holder of Series A
Preferred Stock, or to the nominee or nominees of such Holder, a certificate or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled as aforesaid, together with any cash dividends declared but unpaid
on such shares of Series A Preferred Stock.  In case the number of shares of
Series A Preferred Stock represented by the certificate or certificates
surrendered pursuant to Section 3(a) above exceeds the number of shares
converted, the Corporation shall, upon conversion, execute and deliver to the
Holder (at the expense of the Corporation) a new certificate or certificates for
the number of shares of Series A Preferred Stock surrendered but not converted.
 Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of such Series A
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.  If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any Holder tendering such Series A Preferred
Stock for conversion, be conditioned upon the closing with the underwriters of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive Common Stock upon conversion of such Series A Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities.

(j) Certificate of Adjustment.  In each case of an adjustment or readjustment of
the Series A Conversion Price or the number of shares of Common Stock or other
securities issuable upon conversion of the Series A Preferred Stock, the
Corporation, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions of this Section 3, prepare a certificate showing
such adjustment or readjustment and furnish such certificate to each registered
Holder of Series A Preferred Stock.  Such certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (A) the
consideration received or deemed to be received by the Corporation for any
additional shares of Common Stock issued or sold or deemed to have been issued
or sold, (B) the Series A Conversion Price in effect before and after such
adjustment, (C) the number of additional shares of Common Stock issued or sold
or deemed to have been issued or sold and (D) the type and amount, if any, of
other property which at the time would be received upon conversion of the Series
A Preferred Stock.

 
7

--------------------------------------------------------------------------------

 

(k) Notices of Record Date.  Upon (i) any taking by the Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution
or (ii) any Acquisition, Asset Transfer or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, in each case the
Corporation shall furnish to each Holder of Series A Preferred Stock at least 20
days prior to the record date specified therein a notice specifying (1) the date
on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such Acquisition, Asset Transfer, dissolution, liquidation or winding
up is expected to become effective and (3) the date, if any, that is to be fixed
for determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such Acquisition, Asset
Transfer, dissolution, liquidation or winding up.

(l) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to the
Articles of Incorporation.

(m) Fractional Shares.  No fractional shares of Common Stock shall be issued
upon conversion of Series A Preferred Stock.  All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series A Preferred Stock by a Holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share.  If, after such aggregation, the conversion would result in
the issuance of any fractional share, in lieu of issuing any fractional share,
the Corporation shall round the number of shares of Common Stock to be issued to
the nearest whole number.

4.  Dividend Rights.

(a)         Holders of Series A Preferred Stock, in preference to the holders of
Common Stock, shall be entitled to receive, when, as and if declared by the
Board of Directors (the “Board”), but only out of funds that are legally
available therefor, cash dividends at the rate of six percent (6%) of the
Original Series A Issue Price per annum on each outstanding share of Series A
Preferred Stock.  Such dividends shall be payable only when, as and if declared
by the Board and shall be non-cumulative.

(b)         So long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not pay or declare any dividend, whether in cash or
property, or make any other distribution on the Common Stock, or purchase,
redeem or otherwise acquire for value any shares of Common Stock until all
dividends as set forth in Section 5(a) above on the Series Preferred shall have
been paid or declared and set apart, except for:

(i)            acquisitions of Common Stock by the Corporation pursuant to
agreements which permit the Corporation to repurchase such shares at cost (or
the lesser of cost or fair market value) upon termination of services to the
Corporation;

(ii)           acquisitions of Common Stock in exercise of the Corporation’s
right of first refusal to repurchase such shares; or

(iii)          distributions to holders of Common Stock in accordance with
Section 2.

 
8

--------------------------------------------------------------------------------

 

(c)           In the event dividends are paid on any share of Common Stock, the
Corporation shall pay an additional dividend on all outstanding shares of Series
A Preferred Stock in a per share amount equal (on an as-if-converted to Common
Stock basis) to the amount paid or set aside for each share of Common Stock.

5. Transferability. The Series A Preferred Stock and any shares of Common Stock
issued upon conversion thereof, may only be sold, transferred, assigned, pledged
or otherwise disposed of ("Transfer") in accordance with state and federal
securities laws.  The Corporation shall keep at its principal office a register
of the Series A Preferred Stock.  Upon the surrender of any certificate
representing Series A Preferred Stock at such place, the Corporation, at the
request of the record Holder of such certificate, shall execute and deliver (at
the Corporation’s expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares represented by the
surrendered certificate.  Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the Holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate.

6. Amendment and Waiver.  This Certificate of Designation shall not be amended,
either directly or indirectly or through merger or consolidation with another
entity, in any manner that would alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them materially
and adversely without the affirmative vote of the Required Holders.  Any
amendment, modification or waiver of any of the terms or provisions of the
Series A Preferred Stock by the Required Holders, whether prospectively or
retroactively effective, shall be binding upon all Holders of Series A Preferred
Stock.

7. Replacement.  Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered Holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series A Preferred Stock, and in the case of any such loss,
theft or destruction upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory) or in the case
of any such mutilation upon surrender of such certificate, the Corporation, at
its expense, shall execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.

8. Notices.  Any notice required by the provisions of this Certificate of
Designation shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified; (ii) when sent by confirmed
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day; (iii) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt.  All notices to the Corporation
shall be addressed to the Corporation’s Chief Executive Officer at the
Corporation’s principal place of business on file with the Secretary of State of
the State of Nevada.  All notices to stockholders shall be addressed to each
holder of record at the address of such holder appearing on the books of the
Corporation.

* * * * *

 
9

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation
to be executed by Xiaoqun Ye, an Executive Officer of the Corporation, this ___
day of April, 2010.

 
By:
   
Name:
Xiaoqun Ye
 
Title:
Chief Executive Officer

 
 
10

--------------------------------------------------------------------------------

 

EXHIBIT L
 

VOTING AGREEMENT
 
This VOTING AGREEMENT (this “Agreement”) is entered into as of [   ], 2010, by
and among Kun Run Biotechnology, Inc., a Nevada corporation (the “Company”), the
holders of capital stock of the Company listed on Exhibit A hereto (each, a
“Stockholder” and collectively, the “Stockholders”) and the Investors listed on
the signature pages hereto (each, an “Investor”, and collectively, the
“Investors”).
 
WHEREAS, the Company and the Investors have entered into a Securities Purchase
Agreement, dated as of the date hereof (the “Purchase Agreement”), pursuant to
which, among other things, the Company has agreed to issue and sell to the
Investors and the Investors have agreed to purchase units of the Company
consisting of (i) shares of Series A Preferred Stock of the Company (the “Series
A Preferred”), and (ii) warrants to purchase shares of Series A Preferred.
 
WHEREAS, as of the date hereof, each Stockholder owns (i) the shares of capital
stock of the Company listed opposite such Stockholder’s name on Exhibit A and
(ii) the stock options, warrants or other rights to acquire shares of capital
stock of the Company listed opposite such Stockholder’s name on Exhibit A
(“Convertible Securities”).
 
WHEREAS, as a condition to the willingness of the Investors to enter into the
Purchase Agreement and to consummate the transactions contemplated thereby
(collectively, the “Transaction”), the Investors have required that the
Stockholders agree, and in order to induce the Investors to enter into the
Purchase Agreement, the Stockholders have agreed, to enter into this Agreement
with respect to all Shares now owned and which may hereafter be acquired by the
Stockholders.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
 
1.
Voting Agreement.

 
1.1         Purchase Agreement.  Prior to the earlier of the Closing (as defined
in the Purchase Agreement) or the valid termination of the Purchase Agreement
pursuant to Section 6.1 thereto, the Stockholders hereby agree that at any
meeting of the stockholders of the Company, however called, and in any action by
written consent of the Company’s stockholders, the Stockholders shall vote all
shares of capital stock of the Company registered in their respective names or
beneficially owned by them as of the date hereof and any and all other
securities of the Company legally or beneficially acquired by each of the
Stockholders after the date hereof, whether by conversion or exercise of
Convertible Securities or otherwise (hereinafter collectively referred to as the
“Shares”):
 
(a)          in favor of the Stockholder Approval (as defined in the Purchase
Agreement), including without limitation the approval of (i) any amended and
restated articles of incorporation or certificate of designation of the Company
to be filed with the Secretary of State of the State of Nevada pursuant to the
Purchase Agreement and (ii) all other transactions contemplated by the Purchase
Agreement as to which the stockholders of the Company are called upon to vote in
favor of or consent to any matter necessary for the consummation of the
transactions contemplated by the Purchase Agreement; and

 
 

--------------------------------------------------------------------------------

 
 
(b)          against (i) any proposal or any other action or agreement that
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company, any of its Affiliates or any
Stockholders under the Transaction Documents (as such terms are defined in the
Purchase Agreement) or which could result in any of the conditions to the
obligations of the Company, any of its Affiliates or any Stockholders under the
Transaction Documents not being fulfilled and (ii) any proposal or any other
action or agreement, including without limitation a Competing Transaction (as
defined in the Purchase Agreement) that is intended to, or would reasonably be
expected to, impede, interfere with, delay, postpone, discourage or adversely
affect the consummation of the Closing and all other transactions contemplated
by the Purchase Agreement.
 
The Stockholders shall not take or commit or agree to take any action
inconsistent with the foregoing.  The Stockholders acknowledge receipt and
review of a copy of the Purchase Agreement and the other Transaction Documents.
 
1.2         Election of Directors.
 
(a)          On and after the Closing (as defined in the Purchase Agreement), on
all matters relating to the election and removal of directors of the Company,
the Stockholders and the Investors hereby agree that at any meeting of the
stockholders of the Company, however called, and in any action by written
consent of the Company’s stockholders, the Stockholders shall vote all Shares
and the Investors shall vote all shares of capital stock of the Company held by
such Investors (“Investor Shares”) so as to elect members of the Company’s Board
of Directors (the “Board”)  as follows:
 
(i)           one member of the Board designated by Caduceus Asia Partners, LP
and its Affiliates (“OrbiMed”) so long as OrbiMed beneficially owns at least 5%
of the Company’s outstanding shares of Common Stock on an as-converted basis,
who shall initially be Nancy Chang;

(ii)          one member of the Board that has no prior affiliation with the
Company or any holder of shares of the Company’s capital stock as of the
Closing, which individual shall be acceptable to OrbiMed, so long as OrbiMed
beneficially owns at least 5% of the Company’s outstanding shares of Common
Stock on an as-converted basis; and
 
(iii)         one member of the Board designated by Xueyun Cui, so long as
Xueyun Cui beneficially owns at least 10% of the Company’s outstanding shares of
Common Stock on an as-converted basis, who shall initially be Xueyun Cui.
 
(b)          Any vote taken to remove any director elected pursuant to
Sections 1.2(a)(i), 1.2(a)(ii) or 1.2(a)(iii), as applicable, or to fill any
vacancy created by the resignation, removal or death of a director elected
pursuant to Sections 1.2(a)(i), 1.2(a)(ii) or 1.2(a)(iii), as applicable, shall
also be subject to the provisions of Sections 1.2(a)(i), 1.2(a)(ii) or
1.2(a)(iii), as applicable.  Upon the request of any party entitled to designate
a director as provided in Sections 1.2(a)(i), 1.2(a)(ii) or 1.2(a)(iii), as
applicable, each Stockholder and Investor agrees to vote its Shares and Investor
Shares, as applicable, for the removal of such director.

 
- 2 -

--------------------------------------------------------------------------------

 
 
1.3         No Liability for Election of Recommended Director. None of the
parties hereto and no officer, director, stockholder, partner, employee or agent
of any party makes any representation or warranty as to the fitness or
competence of the nominee of any party hereunder to serve on the Board of
Directors by virtue of such party’s execution of this Agreement or by the act of
such party in voting for such nominee pursuant to this Agreement.
 
2.
Representations and Warranties of the Stockholders.

 
Each Stockholder hereby represents and warrants, severally but not jointly to
the Company and each of the Investors as follows:

2.1         Authority Relative to this Agreement.  Such Stockholder has all
necessary power (if such Stockholder is an entity), capacity (if such
Stockholder is an individual) and authority to execute and deliver this
Agreement, to perform his or its obligations hereunder and to consummate the
transactions contemplated hereby.  This Agreement has been duly executed and
delivered by such Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws now or hereafter in effect relating to, or affecting
generally, the enforcement of creditors’ and other obligees’ rights and (b)
where the remedy of specific performance or other forms of equitable relief may
be subject to certain equitable defenses and principles and to the discretion of
the court before which the proceeding may be brought.
 
2.2         No Conflicts.
 
(a)          The execution and delivery of this Agreement by such Stockholder
does not, and the performance of this Agreement by such Stockholder shall not,
(i) conflict with or violate any federal, state, local or foreign law, statute,
ordinance, rule, regulation, order, judgment or decree applicable to such
Stockholder or by which the Shares, owned by such Stockholder are bound or
affected or (ii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the Shares owned by
such Stockholder pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Stockholder is a party or by which such Stockholder is bound.
 
(b)          The execution and delivery of this Agreement by such Stockholder
does not, and the performance of this Agreement by such Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity by such Stockholder, except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended.

 
- 3 -

--------------------------------------------------------------------------------

 

2.3         Title to Shares.  As of the date hereof, each Stockholder owns the
Shares and Convertible Securities listed on Exhibit A hereto, and each
Stockholder is entitled to vote, without restriction, on all matters brought
before holders of capital stock of the Company.  Such Shares are all the
securities of the Company owned, either of record or beneficially, by each
Stockholder.  Such Shares are owned free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on such Stockholder’s voting rights, charges and other encumbrances
of any nature whatsoever (“Encumbrances”).  Except as set forth in this
Agreement, no Stockholder has deposited into a voting trust or entered into a
voting agreement or similar arrangement with respect to any Shares or appointed
or granted any proxy, which appointment or grant is still effective, with
respect to the Shares owned by such Stockholder.
 
3.
Covenants.

 
3.1         No Disposition or Encumbrance of Stock.  Prior to the earlier of the
Closing or the valid termination of the Purchase Agreement pursuant to Section
6.1 thereto, each Stockholder hereby covenants and agrees that except as set
forth in this Agreement, such Stockholder shall not (a) sell, transfer, tender,
assign, hypothecate or otherwise dispose of any Shares, deposit into a voting
trust or enter into a voting agreement or similar arrangement with respect to
any Shares, grant a proxy or power of attorney with respect to any Shares, or
create or permit to exist any Encumbrance with respect to the Shares, (b) commit
or agree to take any of the foregoing actions, (c) directly or indirectly, or
initiate, solicit or encourage any person to take actions which could reasonably
be expected to lead to the occurrence of any of the foregoing actions or (d)
take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing its obligations under
this Agreement.
 
3.2         Company Cooperation.  The Company hereby covenants and agrees that
it will not, and each Stockholder irrevocably and unconditionally acknowledges
and agrees that the Company will not (and waives any rights against the Company
in relation thereto), recognize any Encumbrance or agreement on any of the
Shares subject to this Agreement.
 
3.3         Disclosure.  Stockholder hereby agrees that the Company may publish
and disclose in any registration statement (including all documents and
schedules filed with the United States Securities and Exchange Commission (the
“SEC”)), proxy statement, or prospectus filed with any regulatory authority in
connection with the Transaction and any related documents filed with such
regulatory authority and as otherwise required by applicable law, such
Stockholder’s identity and ownership of Shares and the nature of such
Stockholder’s commitments, arrangements and understandings under this Agreement
and may further file this Agreement as an exhibit to a registration statement or
prospectus or in any other filing made by the Company as required by applicable
law or the terms of the Transaction Documents, including with the SEC or other
regulatory authority, relating to the Transaction.
 
4.
Miscellaneous.

 
4.1         Further Assurances.  Each Stockholder and Investor shall execute and
deliver such further documents and instruments and take all further action as
may be reasonably necessary in order to consummate the transactions contemplated
hereby.

 
- 4 -

--------------------------------------------------------------------------------

 

4.2         Specific Performance.  The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that any Investor (without
being joined by any other Investor) shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity.  Any
Investor shall be entitled to its reasonable attorneys’ fees in any action
brought to enforce this Agreement in which it is the prevailing party.
 
4.3         Entire Agreement.  This Agreement constitutes the entire agreement
among the Company, Investors and Stockholders (other than the Purchase Agreement
and the other Transaction Documents to which the Investors and Stockholders are
parties) with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the Company,
Investors and Stockholders with respect to the subject matter hereof.
 
4.4         Amendment.  This Agreement may be amended or modified (or provisions
of this Agreement waived) only upon the written consent of the Company, OrbiMed,
and the Stockholders holding a majority of the Shares.
 
4.5         Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
4.6         Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without regard to the principles of conflicts of law thereof.  Each party agrees
that all Proceedings (as defined in the Purchase Agreement) concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the courts of the State of New York sitting in New York
County or in the United States of America for the Southern District of New York
(the “New York Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum.  Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY HEREBY
ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PURCHASERS
ENTERING INTO THIS AGREEMENT.

 
- 5 -

--------------------------------------------------------------------------------

 
 
4.7         Termination.  This Agreement shall continue in full force and effect
from the date hereof through the earliest of the following dates, on which date
it shall terminate in its entirety:
 
(a)          ten (10) years from the date of this Agreement;
 
(b)          the date of the closing of an Acquisition or Asset Transfer, as
defined in the Company’s Certificate of Designation, as amended from time to
time;
 
(c)          the date as of which the parties hereto terminate this Agreement by
written consent of the Company, OrbiMed, and the Stockholders holding a majority
of the Shares; or
 
(d)          the date of the valid termination of the Purchase Agreement
pursuant to Section 6.1 thereto.
 
4.8         Successors and Assigns.  The provisions hereof shall inure to the
benefit of, and be binding upon, the parties hereto and their respective
successors, assigns, heirs, executors and administrators and other legal
representatives.
 
4.9         Additional Shares.  In the event that subsequent to the date of this
Agreement any shares or other securities are issued on, or in exchange for, any
of the Shares or Investor Shares by reason of any stock dividend, stock split,
combination of shares, reclassification or the like, such shares or securities
shall be deemed to be Shares or Investor Shares, as the case may be, for
purposes of this Agreement.
 
4.10      Counterparts.  This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one instrument.
 
4.11      Waiver.  No waivers of any breach of this Agreement extended by any
party hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.
 
4.12      Delays or Omissions.  It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance  by another party under this Agreement shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring.  It is
further agreed that any waiver, permit, consent or approval of any kind or
character on any party’s part of any breach, default or noncompliance under this
Agreement or any waiver on such party’s part of any provisions or conditions of
the Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing.  All remedies, either under this
Agreement by law, or otherwise afforded to any party, shall be cumulative and
not alternative.
 
4.13      Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.
 
[Signature Pages Follow]

 
- 6 -

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the parties have duly executed this Voting Agreement as of
the first date written above.

THE COMPANY:
 
Kun Run Biotechnology, Inc.
 
By:
   
Name:
 
Title:
   
Address:

 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have duly executed this Voting Agreement as of
the first date written above.

 
STOCKHOLDERS:
     
Xueyun Cui
         
Address:

 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have duly executed this Voting Agreement as of
the first date written above.

INVESTORS:
 
Caduceus Asia Partners, LP
   
By:
   
Name:
 
Title:
   
Address:

 
 

--------------------------------------------------------------------------------

 

Exhibit A

List of Stockholders
 
Name and Address of Stockholder
 
No. of Shares
 
No. of Options
 
No. of Warrants
Xueyun Cui
  
22,522,500
  
N/A
  
N/A

 
 

--------------------------------------------------------------------------------