Operating Agreement


                       Operating Agreement

                        (English Version)




This Exclusive Consulting and Services Agreement (the "Agreement") is 

entered into as of December 20, 2006, between the following two parties:

 

PARTY A: Longdan International Inc.

Legal Address: Renaissance Trust Ltd, Solomon Building, P. O. Box 636, 

Main Street, Charlestown, Nevis.  




PARTY B: Hubei Longdan Biological Medicine Technology Co. Ltd. 

Legal Address: Floor 21, Jiangtian Building, No. 586 Wuluo Road, 

Wuchang District, Wuhan, Hubei, China, 430070                  




PARTY C: Zhilin Zhang, Chairman and an authorized person to represent  

shareholders of Party B, who collectively own more than 50% of the 

outstanding equity interests in Party B.

Legal Address: No.1, 2nd Floor, 308 Qing Tai Road, Hanyang, Wuhan, 

Hubei China.




WHEREAS, Party A is a business company incorporated under the laws of 

Nevis;

  

WHEREAS, Party B is a company with exclusively domestic capital 

registered in the People's Republic of China, and is engaged in the 

business of Chinese medicine development, manufacturing, sale, and 

pharmacy management distribution network ("Business");




WHEREAS, Party A has established a business relationship with Party B 

by entering into an Exclusive Consulting and Services Agreement dated 

as of the same date hereof ("Consulting Agreement"); 




WHEREAS, Pursuant to the above-mentioned Exclusive Consulting and 

Services Agreement, Party B shall pay certain consulting and services 

fees to Party A; and Party B's daily operations will have a material 

effect on its ability to pay the fees due to Party A;

 

WHEREAS, While Party A desires to be the provider of operating agreement to 

Party B and Part C, Party B and Part C hereby agree to accept operating agreement;




NOW THEREFORE, Party A, Part B and Part C through negotiations hereby agree 

as follows through mutual negotiations:




1.   Guaranteeing and Pledging




     1.1 Party A agrees, during the term of this agreement, subject to 

the satisfaction of the relevant provisions by Party B herein, to 

provide full guarantee the performance of Party B in the contracts, 

agreements or transactions in connection with Party B's operation 

between Party B and any other third party. As further consideration for 

Part A's guarantee of Part B's obligation hereunder, Party B agrees, as 

the counter-guarantee, to pledge the account receivable and the assets 

of company to Party A. Upon Part A's request, Part B will execute its 

further pledge to Part A at any time and from time to time. According 

to the aforesaid guarantee arrangement, Party A wishes to enter into 

written guarantee contracts with Party B's counter-parties thereof to 






assume the guarantee liability as the guarantor when it needs; 

therefore, Party B shall take all necessary actions to carry out the 

arrangement of counter-guarantee to Party A.




     1.2 Party B readily accepts and confirms that if Party B demands 

any guarantee for the operation of any contract, loan or other 

financing transactions, Party B shall first pursue a guarantee from 

Party A. In such case, Party A shall have the right but not the 

obligation to provide the appropriate guarantee to Party B at its 

individual discretion. If Party A decides not to grant such guarantee, 

Party A shall release a written notice to Party B, then Party B may 

consider to seek a guarantee from other third party.




2.   Consent




     In consideration of the requirement of Article 1 herein and 

assuring the performance of the Consulting Agreement and this Agreement 

among Party A, Party B and Part C, Party B agrees that except Party B's 

regular operation for the business contracts, agreements, sell or 

purchase assets, and the lien obtained by relevant counter parties due 

to such agreements, Party B shall not conduct any transaction which may 

materially affects its assets, obligations, rights or the company's 

operation unless the obtainment of a prior written consent from Party 

A. These transactions shall include, but not limit to the following 

contents: 




     2.1 To assume any debt or borrow money from any third party;




     2.2 To sell to or acquire from any third party any assets or 

rights, including but not limited to, any plant, equipment, and any 

intellectual property right;




     2.3 To provide any guarantee for any third party with its assets 

or intellectual property rights;




     2.4 To assign to any third party any agreement related to its 

Business;




     2.5 To engage in any consulting agreement with any third party or 

to engage in any other business activities other than the Business;




     2.6 To pledge any assets or intellectual property rights to any 

third party as security interests.

 

3.   Party B agrees to accept, from time to time, the corporate 

policy advise and guidance provided by Party A in connection with 

company's daily operating and financial management and the employee 

management.




4.   Directors and Senior Managers of Part B

     

Part B and Part C agree that the Shareholders of Party B shall 

Appoint, or approve the personnel recommended by Party A as the directors 

of Party B, and Party B shall appoint Party A's senior managers as Party B's President, Chief Financial Officer, and other senior officers. Any replacement of the senior managers of Part B will be recommended by Part A. The person 

or persons recommended by Party A should comply with the requirements 






on the qualifications of directors, President, Chief Financial Officer, 

and other senior officers pursuant to appropriate law.




5.   This agreement shall be governed by, and construed in 

accordance with the laws of the People's Republic of China.




6.   Effective Date And Term

     

     This Agreement shall come into effect as of the date first present 

above. The term of this Agreement is ten (10) years, and shall be 

automatically renewed for additional ten (10) year period upon the 

initial expiration of the initial term hereof or any renewal term, 

except earlier termination happens any time as set forth in Article 7 

of this Agreement     




7.   Termination




     During the initial or any renewal term of this Agreement, Party B 

shall not elect to terminate this Agreement. Notwithstanding the above 

stipulation, Party A shall have the right to terminate this Agreement 

with or without any reason at any time by definitely giving Party B a 

written notice thirty days prior to the termination.    




8.   Language

     

     This Agreement is written in both Chinese and English, and 

executed in English only, and the executed English language Agreement 

shall prevail in all cases. This Agreement is executed in two originals 

and each Party holds one original. Each original has the same legal 

effect. 




9.   Settlement of Dispute




     The parties shall strive to settle any dispute arising from, out 

of or in connection with the interpretation or performance of this 

Agreement through friendly negotiation. In case no settlement can be 

reached through negotiation within six months, each party can submit 

such matter to China International Economic and Trade Arbitration 

Commission (the "CIETAC"). The arbitration shall follow the current 

rules of CIETAC. The arbitration award shall be final and binding upon 

the parties and shall be enforceable in accordance with its terms.




10.  Amendments and Supplementary Agreements 




     Parties may negotiate and enter any amendments of this Agreement, 

or supplementary agreements on matters not agreed upon herein. Any 

amendments of this Agreement, or supplementary agreements shall be 

valid only when made in writing and signed by both parties. Any 

amendments of this Agreement, or supplementary contracts have equal 

effect as this Agreement.

         

11.  Without the prior written approval of Party A, Party B shall 

not assign this Agreement, in part or in whole, to any third party.

   

12.  Capable of Severing




     Any of the provisions of this Agreement will be deemed as capable 






of severing in the jurisdiction where it conflicts with the laws in 

such jurisdiction. The invalid or unenforceable effect of such 

provision in one jurisdiction should not be affected that in other 

jurisdictions.

                




              (A Signature Page Follows)




























































































































































 

                   Signature Page




     IN WITNESS WHEREOF the parties hereto have caused this Agreement 

to be duly executed on their behalf by a duly authorized representative 

as of the date first written above.




Party A:  Longdan International Inc.

          

By: /s/ Zhilin Zhang 

Zhilin Zhang

Chairman







Party B: Hubei Longdan Biological Medicine Technology Co. Ltd.

          

By: /s/ Zhilin Zhang 

Zhilin Zhang

Chairman




Part C: Shareholders of Part B




By: /s/ Zhilin Zhang 

Zhilin Zhang

An authorized representative of the majority shareholders







                 




(An Appendix Page Follows)
































































































Appendix: Form of Agreement Letter for Operating Agreement

             

             Agreement Letter for Operating Agreement

              ( English Version, for Reference only )




To:

 Hubei Longdan Biological Medicine Technology Co. Ltd. and Longdan 

International Inc.

     

     I, as the shareholder of Hubei Longdan Biological Medicine 

Technology Co. Ltd., hereby agree and confirm as follows: 

 

     I have read the full text of Operating Agreement, and I fully 

agree to all contents of this agreement.




     I assign Zhilin Zhang, Chairman of Hubei Longdan Biological 

Medicine Technology Co. Ltd. to represent me with the Common stock 

shares specified at the bottom of this agreement, together with Hubei 

Longdan Biological Medicine Technology Co. Ltd. to sign the Operating 

Agreement with Longdan International Inc.




     I agree to sign or provide necessary documents to perform the 

Operating Agreement.




Signature:                          

Print Name:

Identity Card Number:

Information of Possession of Common Stocks of Hubei Longdan Biological 

Medicine Technology Co. Ltd. :

Class of Common Stocks:                  Number of Shares:

Percentage of Voting Power:

Date: December 20, 2006