Unassociated Document


    Exhibit
      10.5


    CHINA-BIOTICS,
      INC.

     

    INVESTORS’
      RIGHTS AGREEMENT

     

    This
      Investors’ Rights Agreement (the “Agreement”)
      is
      made as of the 22nd day of March, 2006, by and among China-Biotics, Inc., a
      Delaware corporation (the “Company”),
      and
      the investors listed on the signature page hereto (each an “Investor”
and
      collectively the “Investors”).

     

    RECITALS

     

    
      	 	
              A.

            	
              Sinosmart
                Group Inc., a British Virgins Islands corporation (“Sinosmart”)
                and the Investors entered into a subscription agreement (the “Subscription
                Agreement”),
                dated as of the date hereof, for the purchase of ordinary shares
                of
                Sinosmart (the “Private
                Placement”).

            


    

     

    
      	 	
              B.

            	
              In
                connection with the execution of this Agreement, the Company, Sinosmart
                and the shareholders of Sinosmart (the “Sinosmart
                Shareholders”),
                which include the Investors, are entering into and consummating a
                Securities Exchange Agreement (the “Exchange
                Agreement”),
                pursuant to which the Company will acquire all of the shares of Sinosmart
                from the Sinosmart Shareholders in exchange for the issuance of shares
                of
                common stock of the Company (“Common
                Stock”).
                

            


    

     

    AGREEMENT

     

    The
      parties hereby agree as follows:

     

    1. Covenants
      of the Company.
      

     

    1.1 Covenants.
      The
      Company shall not without first obtaining the approval (by vote or written
      consent, as provided by law) of the holders of at least seventy-five percent
      (75%) of the then outstanding shares of Common Stock: 

     

    (a) authorize
      or issue, or obligate itself to issue, any other equity security, including
      any
      security convertible into or exercisable for any equity security, having a
      preference over the Common Stock with respect to voting, dividends, conversion
      or upon liquidation;

     

    (b) amend
      the
      Company’s certificate of incorporation, except as required by law or by decree
      or order of a court;

     

    (c) redeem,
      purchase or otherwise acquire (or pay into or set funds aside for a sinking
      fund
      for such purpose) any share or shares of Common Stock; provided, however, that
      this restriction shall not apply to the repurchase of shares of Common Stock
      from employees, officers, directors, consultants or other persons performing
      services for the Company or any subsidiary pursuant to agreements under which
      the Company has the option to repurchase such shares at cost upon the occurrence
      of certain events, such as the termination of employment, or through the
      exercise of any right of first refusal; 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d) engage,
      or permit any of its subsidiaries to engage, in any line of business other
      than
      that (a) which is the same as or related, ancillary or complementary to any
      of the businesses of the Company and its subsidiaries on the date hereof, or
      (b) which is contemplated in the draft Registration Statement on
      Form SB-2 attached as an exhibit to the Exchange Agreement; 

     

    (e) enter
      into any agreement or transaction to sell all or substantially all of the
      Company’s equity interests in any of its subsidiaries; provided that this
      provision shall not apply to (i) any such agreement or transaction among
      the Company and one or more of its subsidiaries, or among the Company's
      subsidiaries, and (ii) any such agreement or transaction that the Company’s
      board of directors, after consulting with the Company’s legal counsel,
      determines in good faith is necessary for the Company’s board of directors to
      comply with its fiduciary duties imposed by applicable law; or

     

    (f) authorize
      the payment by the Company of any dividends or distributions on the Common
      Stock.

     

    1.2 Notice.
      The
      Company shall give 30 days notice to the Investors prior to the consummation
      of
      any transaction described in Section 1.1(e). Each Investor agrees to treat
      any such information as confidential unless the Company has otherwise publicly
      disclosed such information.

     

    1.3 Right
      of First Offer.
      Subject
      to the terms and conditions specified in this Section 1.3, the Company
      hereby grants to each Investor a right of first offer with respect to future
      sales by the Company of any Discounted Shares (as hereinafter defined).
“Discounted
      Shares”
shall
      mean any shares of, or securities convertible into or exercisable for any shares
      of, any class of capital stock of the Company issued or sold by the Company
      at a
      per share purchase price less than (i) if the Common Stock is listed on any
      established stock exchange or traded on the Nasdaq National Market or the Nasdaq
      SmallCap Market, the average closing sale price for the Common Stock (or the
      closing bid, if no sale was reported) for the five trading days prior to the
      effective date of any sale, as quoted on such exchange or market (or the
      exchange or market with the greatest volume of trading in the Common Stock),
      or
      (ii) if the Common Stock is not listed on any established stock exchange or
      traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the average
      bid and ask prices quoted for the Common Stock for the five trading days prior
      to the effective date of any sale; provided, that if no such bid or ask price
      information is available for the prior five trading days, then the average
      shall
      be computed based on the last five trading days for which such information
      is
      available. Each time the Company proposes to offer any Discounted Shares, the
      Company shall first make an offering of such Discounted Shares to each Investor
      in accordance with the following provisions:

     

    (a) The
      Company shall deliver a notice (the “RFO
      Notice”)
      to the
      Investors stating (i) its bona fide intention to offer such Discounted
      Shares, (ii) the number of such Discounted Shares to be offered, and
      (iii) the price and terms, if any, upon which it proposes to offer such
      Discounted Shares.

     

    
      
        
        

      

      
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    (b) Within
      10
      calendar days after delivery of the RFO Notice, the Investor may elect to
      purchase or obtain, at the price and on the same terms as the Discounted Shares
      are purchased by other third party purchasers, up to that portion of such
      Discounted Shares which equals the proportion that the number of shares of
      Common Stock issued and held, or issuable upon conversion and exercise of all
      convertible or exercisable securities then held, by such Investor bears to
      the
      sum of (A) the total number of shares of Common Stock then outstanding
      (assuming full conversion and exercise of all convertible or exercisable
      securities) and (B) shares of Common Stock issuable to employees,
      consultants or directors pursuant to a stock option plan, restricted stock
      plan,
      or other stock plan, agreement or arrangement approved by the Company’s Board of
      Directors. Such purchase shall be completed at the same closing as that of
      any
      third party purchasers or at an additional closing thereunder. The Company
      shall
      promptly, in writing, inform each Investor that purchases all the shares
      available to it (each, a “Fully-Exercising
      Investor”)
      of any
      other Investor’s failure to do likewise. During the 10-day period commencing
      after receipt of such information, each Fully-Exercising Investor shall be
      entitled to obtain that portion of the Discounted Shares for which other
      Investors were entitled to subscribe but which were not subscribed for by such
      Investors that is equal to the proportion that the number of shares of Common
      Stock issued and held, or issuable upon conversion and exercise of all
      convertible or exercisable securities then held, by such Fully-Exercising
      Investor bears to the total number of shares of Common Stock then outstanding
      (assuming full conversion and exercise of all convertible or exercisable
      securities).

     

    (c) The
      Company may, during the 60-day period following the expiration of the period
      provided in subsection 1.3(b) hereof, offer the remaining unsubscribed
      portion of the Discounted Shares to any person or persons at a price not less
      than, and upon terms no more favorable to the offeree than, those specified
      in
      the RFO Notice. If the Company does not enter into an agreement for the sale
      of
      the Discounted Shares within such period, or if such agreement is not
      consummated within 90 days of the execution thereof, the right provided
      hereunder shall be deemed to be revived and such Discounted Shares shall not
      be
      offered unless first reoffered to the Investors in accordance
      herewith.

     

    (d) The
      right
      of first offer in this Section 1.3 shall not be applicable to (i) the
      issuance of securities in connection with stock dividends, stock splits or
      similar transactions; (ii) the issuance or sale of shares of capital stock
      (or options therefor) to employees, consultants and directors of the Company,
      directly or pursuant to a stock option plan, restricted stock purchase plans
      or
      other stock plan; (iii) the issuance of securities to financial
      institutions, equipment lessors, brokers or similar persons in connection with
      commercial credit arrangements, equipment financings, commercial property lease
      transactions or similar transactions; (iv) the issuance of securities in
      connection with bona fide acquisition, merger or similar transaction;
      (v) the issuance of Common Stock in a Qualified Public Offering; or
      (vi) the issuance of securities to an entity as a component of any business
      relationship with such entity primarily for the purpose of (A) joint
      venture, technology licensing or development activities, (B) distribution,
      supply or manufacture of the Company’s products or services or (C) any
      other arrangements involving corporate partners that are primarily for purposes
      other than raising capital. “Qualified
      Public Offering”
means
      a
      firm commitment underwritten public offering by the Company of shares of its
      Common Stock pursuant to a registration statement under the Securities Act
      of
      1933, as amended, which results in aggregate cash proceeds to the Company of
      at
      least $15,000,000 (net of underwriting discounts and commissions). In addition
      to the foregoing, the right of first offer in this Section 1.3 shall not be
      applicable with respect to any Investor and any subsequent securities issuance,
      if (i) at the time of such subsequent securities issuance, the Investor is
      not an “accredited investor,” as that term is then defined in Rule 501(a)
      under the Securities Act, and (ii) such subsequent securities issuance is
      otherwise being offered only to accredited investors.

     

    
      
        
        

      

      
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    2. Miscellaneous.

     

    2.1 Termination.
      This
      Agreement shall terminate, and have no further force and effect, on the earlier
      to occur of (a) such time as the Investors as a group hold less than
      twenty-five percent (25%) of the then outstanding shares of Common Stock,
      (b) two years from the date hereof, and (c) the date the put right set
      forth in Section 1 of the Put Agreement, dated as of the date hereof, by
      and among Sinosmart, and the persons and entities listed on the signature pages
      thereto, is exercised pursuant to the terms thereof.

     

    2.2 Entire
      Agreement.
      This
      Agreement, and any schedules and exhibits hereto and other writings referred
      to
      in this Agreement or any such exhibit or other writing are part of this
      Agreement, together they embody the entire agreement and understanding of the
      parties hereto in respect of the transactions contemplated by this Agreement
      and
      together they are referred to as this “Agreement” or the “Agreement.” There are
      no restrictions, promises, warranties, agreements, covenants or undertakings,
      other than those expressly set forth or referred to in this Agreement. This
      Agreement supersedes all prior agreements and understandings between the parties
      with respect to the transaction or transactions contemplated by this
      Agreement.

     

    2.3 Successors
      and Assigns.
      This
      Agreement and all of the provisions hereof shall be binding upon and inure
      to
      the benefit of the parties hereto and their respective successors and permitted
      assigns, but neither this Agreement nor any of the rights, interests or
      obligations hereunder shall be assigned (whether voluntarily, involuntarily,
      by
      operation of law or otherwise) by any Investor without the prior written consent
      of the Company.

     

    2.4 Amendments
      and Waivers.
      Any
      term of this Agreement may be amended or waived only with the written consent
      of
      the Company and the holders of at least a majority of the then outstanding
      shares of Common Stock acquired in the Private Placement and held by the
      Investors. Any amendment or waiver effected in accordance with this paragraph
      shall be binding upon each party to the Agreement, whether or not such party
      has
      signed such amendment or waiver.

     

    2.5 Notices.
      All
      notices, requests, demands and other communications required or permitted
      hereunder shall be made in writing and shall be deemed to have been duly given
      and effective: (i) on the date of delivery, if delivered personally;
      (ii) on the date of transmission, if sent by facsimile, telecopy, telex or
      other similar telegraphic communications equipment; (iii) one business day
      after delivery to an overnight delivery courier service for next-business day
      delivery; or (iv) on the fifth business day following the date of mailing,
      if sent by registered mail, return receipt requested, postage prepaid, and
      in
      each case addressed to such party at the address set forth in the Exchange
      Agreement, or to such other person or address as such party shall furnish to
      the
      other parties hereto in writing.

     

    
      
        
        

      

      
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    2.6 Severability.
      The
      provisions of this Agreement will be deemed severable and the invalidity or
      unenforceability of any provision will not affect the validity or enforceability
      of the other provisions hereof; provided that if any provision of this
      Agreement, as applied to any party hereto or to any circumstance, is adjudged
      by
      an Authority, arbitrator, or mediator not to be enforceable in accordance with
      its terms, the parties hereto agree that the Authority, arbitrator, or mediator
      making such determination will have the power to modify the provision in a
      manner consistent with its objectives such that it is enforceable, and/or to
      delete specific words or phrases, and in its reduced form, such provision will
      then be enforceable and will be enforced.

     

    2.7 Governing
      Law.
      This
      Agreement and the legal relations among the parties hereto shall be governed
      by
      and construed in accordance with the internal substantive laws of Delaware
      (without regard to the laws of conflict that might otherwise apply) as to all
      matters, including matters of validity, construction, effect, performance and
      remedies.

     

    2.8 Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument.

     

    2.9 Headings.
      The
      table of contents and the headings of the sections and subsections of this
      Agreement are inserted for convenience only and shall not constitute a part
      hereof.

     

    2.10 No
      Third Party Beneficiaries.
      Nothing
      in this Agreement shall entitle any person or entity (other than a party hereto
      and his, her or its respective successors and assigns permitted hereby) to
      any
      claim, cause of action, remedy or right of any kind. 

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
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    The
      parties have executed this Investors’ Rights Agreement as of the date first
      above written.

     

    
      	 	 	 	 COMPANY:
	 	 	 	 
	 	 	 	 CHINA-BIOTICS,
              INC.
	 	 	 	 
	 	 	 	/s/ Song
              Jinan
	
            	 	 	
              

              Name: Song
                Jinan

              Title: Chief
                Executive Officer and President

            


    

     

    
      	 INVESTORS:	 	 	 
	 	 	 	 
	 Chinamerica
              Fund, L.P.	 	 	 Chinamerica
              Sino-biotics Acquisition, LLC
	 

              By: Chinamerica
                Partners, LP

              Its
                General Partner

              By: Chinamerica
                Holdings, LLC

              Its
                General Partner

            	 	 	 

              By: Chinamerica
                Partners, LP

              Its
                General Partner

              By: Chinamerica
                Holdings, LLC

              Its
                General Partner

            
	 	 	 	 
	/s/ Beau
              Johnson  	 	 	/s/ Beau
              Johnson
	
              

              Name:
                Beau Johnson

              Title:
                Manager

            	 	 	
              

              Name:
                Beau Johnson

              Title:
                Manager

            


    

     

    
      	 Pope
              Investments LLC	 	 	 Matt
              Hayden
	 Pope
              Asset Management, LLC, Manager	 	 	 
	 	 	 	 
	/s/ William
              P. Wells	 	 	/s/ Matt
              Hayden
	
              

              Name: William
                P. Wells

              
                Title: Member

              

            	 	 	
              

            


    

     

    
      	
              BFS
                US Special Opportunities Trust PLC

            	 	 	 Renaissance
              US Growth Investment Trust PLC
	 	 	 	 
	/s/ Russell
              Cleveland	 	 	/s/ Russell
              Cleveland
	
              
                

              

              Name:
                Russell Cleveland

              Title:
                President

            	 	 	
              
                

              

              Name:
                Russell Cleveland

              Title:
                President

            


    

     

    
      	 Halter/Pope
              USX China Fund	 	 	 
	 	 	 	 
	/s/ Stephen
              Parr	 	 	 
	
              

              Name: 
                Stephen Parr 

              Title:  President 

              Address:
                5100 Poplar Avenue, Suite 512

              Memphis,
                TN 38137

              Facsimile
                No: 
                901-763-4229

            	 	 	
            


    

     

    
      
         

      

      
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