EXECUTION
      COPY

     

    THIS
      NOTE
      HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL
      (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      “ACT”)
      SHALL
      HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF
      AN
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
      REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
      TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS
      LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS
      NOTE.

     

    CHINA-BIOTICS,
      INC.

     

    4%
      Senior Convertible Promissory Note Due 2010

     

    
      	US$25,000,000	
              December
                11, 2007


            


    

            

    FOR
      VALUE
      RECEIVED, China-Biotics, Inc., a Delaware corporation (the “Company”)
      with
      its principal executive office at No. 999 Ningqiao Road, Jingiao Export
      Processing Zone, Pudong, Shanghai, China 201206, promises to pay to the order
      of
      Pope Investments II LLC (the “Holder”)
      or its
      registered assigns, the principal amount of TWENTY FIVE MILLION U.S. DOLLARS
      (US$25,000,000.00) (the “Principal
      Amount”),
      together
      with accrued interest on the unpaid Principal Amount from time to time
      outstanding from the date hereof until the
      earlier of (i) December 11, 2010 (the “Maturity
      Date”),
      and
      (ii) the date the Holder elects to exercise its right to convert this Note,
      together with accrued and unpaid interest and other fees and obligations
      outstanding under this Note (the “Obligations”),
      in
      accordance with the provisions hereof. This Note may not be prepaid, in whole
      or
      in part, without the prior written consent of the Holder, except as provided
      in
      Section 6. This Note is payable in lawful money of the United States of America
      and in same day funds, without abatement, reduction, deduction, counterclaim,
      recoupment, defense or setoff, to Holder at such account as Holder may
      designate. Interest on the outstanding Principal Amount shall accrue at a rate
      per annum computed in accordance with Section 1 hereof and shall be payable
      to
      the Holder in accordance herewith. 

     

    Unless
      otherwise specifically defined, terms used herein shall have the meaning
      ascribed thereto in the Investment Agreement.

     

    1.    Computation
      of Interest.

     

    A.    Base
      Interest Rate.
      Subject
      to subsections 1B and IC below, until such time that the Holder elects to
      exercise its Conversion Right, the Note shall bear interest at the rate of
      four
      percent (4%) per annum calculated on the basis of the actual number of days
      elapsed and a year of 365 days. Interest shall be payable in cash, quarterly
      in
      arrears, on the last Business Day of each March, June, September and December,
      with the first interest payment date being March 31, 2008. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    B.    Default
      Interest.
      In the
      event the Note is not repaid on the Maturity Date, or upon the occurrence of
      an
      Event of Default (after expiration of any applicable cure periods), the rate
      of
      interest applicable to the unpaid Principal Amount shall be adjusted,
      retroactively to the Closing Date, to ten percent (10%) per annum (the
“Default
      Rate”),
      whether by acceleration or otherwise.

     

    C.    Additional
      Amounts.
      In the
      event:

     

    (i)    the
      Note is
      not converted in full prior to the Maturity Date, then there shall be payable
      by
      the Company to the Holder an additional six percent (6%)
      step-up in the cash coupon rate on such unconverted principal amount of this
      Note, such interest accruing from the Closing Date until paid in full;
      or

     

    (ii)    of
      the
      automatic conversion of the Note prior to the Maturity Date pursuant to Section
      4C hereof, then the Company shall, on the effective date of such automatic
      conversion, make an additional make-whole payment to the Holder equal to the
      aggregate amount of interest that would have accrued on the Note had the Note
      remained outstanding until the Maturity Date at the rate of ten percent (10%)
      per annum.

     

    2.    Covenants
      of Company.
      The
      Company covenants and agrees that, so long as any portion of the Principal
      Amount, accrued but unpaid interest or other Obligations hereunder remain
      outstanding, it will comply with its covenants and other obligations under
      the
      Investment Agreement and the other Transaction Documents (as defined in the
      Investment Agreement). 

     

    2.    Events
      of Default.

     

    A.    Within
      five (5) business days of the occurrence of any one or more of the following
      Events of Default (after any applicable cure period), the Company shall give
      written notice to the Holder of the Event of Default (the “Default
      Notice”).
      After
      receipt of the Default Notice, if such Event of Default shall continue, the
      Holder may, by written notice (the “Acceleration
      Notice”)
      to the
      Company, declare the entire outstanding Principal Amount and accrued but unpaid
      interest and other Obligations, to be immediately due and payable within ten
      (10) Business Days (the “Default
      Notice Period”).
      If
      within the Default Notice Period the Company cures the Event of Default, the
      Acceleration Notice will be deemed rescinded and the Event of Default will
      be
      deemed to no longer exist and any rights and remedies of Holder pertaining
      to
      such Event of Default will be of no further force or effect.

     

    B.    The
      term
“Event
      of Default”
shall
      mean any of the events set forth in this Section 3B:

     

    (i)    Non-Payment
      of Obligations.
      The
      Company shall default in the payment of the outstanding Principal Amount, and
      accrued but unpaid interest under this Note as and when the same shall become
      due and payable, whether by acceleration or otherwise and such default remains
      uncured for a period of ten (10) days following receipt by the Company of
      written notice from Holder demanding payment of such amount.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    (ii)    Non-Performance
      of Covenants.
      The
      Company shall default in the due observance or performance of any covenant
      set
      forth herein or in the Investment Agreement, which default shall continue
      uncured for a period of ten (10) days following receipt by the Company of
      written notice from the Holder of the Company’s failure to perform such
      covenant.

     

    (iii)    Bankruptcy,
      Insolvency, etc. 

     

    (a)    a
      resolution is passed or an order of a court of competent jurisdiction is made
      that the Company be wound up or dissolved otherwise than for the purposes of,
      or
      pursuant to and followed by a consolidation, amalgamation, merger or other
      corporate reorganization (a “Corporate Transaction”), the terms of which have
      previously been approved in writing by the Holder; 

     

    (b)    a
      resolution is passed or an order of a court of competent jurisdiction is made
      for the winding up or dissolution of any Subsidiary of the Company, except
      (i)
      for the purposes of or pursuant to and followed by a Corporate Transaction
      with
      or into the Company or any other Subsidiary, (ii) for the purposes of or
      pursuant to and followed by a Corporate Transaction (other than as described
      in
      (i) above) the terms of which shall have previously been approved by the Holder,
      or (iii) by way of a voluntary winding up or dissolution where there are surplus
      assets in such subsidiary and such surplus assets attributable to the Company
      and/or any other subsidiary are distributed to the Company and/or any such
      other
      subsidiary; 

     

    (c)    a
      trustee, receiver, or other custodian is appointed over the whole or a
      substantial part of the assets or undertaking of the Company or any
      Subsidiary;

     

    (d)    a
      distress, execution or seizure order before judgment is levied or enforced
      upon
      or sued out against the whole or a substantial part of the property of the
      Company or any Subsidiary (as the case may be) and is not discharged within
      sixty (60) days thereof; 

     

    (e)    the
      Company or any Subsidiary makes a public announcement that it is unable to
      pay
      its debts as and when they fall due, or the Company or any Subsidiary shall
      initiate or consent to proceedings relating to itself under any applicable
      bankruptcy, reorganization or insolvency law or make an assignment for the
      benefit of, or enter into any composition with, its creditors; 

     

    (f)    proceedings
      shall have been initiated against the Company or any Subsidiary under any
      applicable bankruptcy, reorganization or insolvency law and such proceedings
      shall not have been discharged or stayed within a period of sixty (60) days;
      or

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    (g)    the
      Company shall take any corporate or other action authorizing, or in furtherance
      of, any of the foregoing. 

     

    (iv)    Cross
      Default.
      The
      Company or any Subsidiary shall be in default of any other Indebtedness,
      individually or in the aggregate, in excess of $2 Million
      ($2,000,000).

     

    4.    Conversion
      of Note.

     

    A.    Conversion
      Right; Conversion Price.
      Subject
      to the terms and conditions hereof, at any time prior to the Maturity Date,
      while any portion of the Principal Amount is outstanding under this Note, the
      Holder shall have the right, but not the obligation, to convert all or any
      portion of the outstanding Principal Amount (the “Conversion
      Right”),
      into
      shares of Company Common Stock. All accrued and unpaid interest outstanding
      as
      of the time of conversion shall be paid to Holder in cash. The number of shares
      of Company Common Stock the Holder shall be entitled to receive upon exercise
      of
      a Conversion Right shall be the quotient determined by dividing (i) the
      Principal Amount to be converted, as set forth in the “Conversion Notice”
(defined below) by (ii) the “Conversion
      Price”
of
      $12.00 as
      adjusted in accordance with the provisions of this Note.
      

     

    B.    Mechanics
      of Conversion.
      In
      order to exercise its Conversion Right, the Holder shall deliver written notice,
      in the form attached hereto as Exhibit
      A
      (the
“Conversion
      Notice”),
      of
      the Holder's election to convert this Note and surrender the Note to the
      Company. Holder may convert the Note in part, provided that the minimum amount
      converted must be $2.0 million. If the Note is converted in part only, the
      Company shall execute and deliver to the Holder, at the expense of the Company,
      a new Note in Principal Amount equal to the unconverted portion of the Principal
      Amount. On or before the fifth (5th) Business Day following the date on which
      the Company has received the Conversion Notice, the Company shall transmit
      by
      facsimile an acknowledgment of confirmation of receipt of the Conversion Notice
      to the Holder and the Company's transfer agent (the “Transfer
      Agent”).
      On or
      before the tenth (10th) Business Day following the date on which the Company
      has
      received the Conversion Notice (the “Share
      Delivery Date”),
      the
      Company shall issue and dispatch by international delivery service for delivery
      within 2 Business Days to the address as specified in the Conversion Notice,
      a
      certificate, registered in the Company's share register in the name of the
      Holder or its designee, for the number of shares of Common Stock to which the
      Holder is entitled pursuant to such conversion. Upon delivery of the Conversion
      Notice, the Holder shall be deemed for all corporate purposes to have become
      the
      holder of record of the Note Shares with respect to which this Note has been
      converted, irrespective of the date of delivery of the certificates evidencing
      such Note Shares. No fractional shares of Common Stock are to be issued upon
      the
      conversion of this Note, but rather the number of Note Shares to be issued
      shall
      be rounded to the nearest whole number. The Company shall pay any and all taxes
      which may be payable with respect to the issuance and delivery of Note Shares
      upon any conversion of this Note. 

     

    C.    Automatic
      Conversion.
      If, at
      the end of the Company’s fiscal year ended March 31, 2010, the Company has
      achieved $60 Million ($60,000,000) in Consolidated Net Income (as defined in
      the
      Investment Agreement) (the “Automatic
      Conversion Threshold”)
      in
      such fiscal year, the principal amount outstanding under this Note shall
      automatically convert into shares of Common Stock. The Company shall provide
      the
      Holder with ten (10) days advance notice of such automatic conversion and shall
      provide with such notice a copy of the Company’s consolidated financial
      statements prepared in accordance with U.S. generally accepted accounting
      principles (“GAAP”).
      The
      number of shares of Common Stock the Holder shall be entitled to receive upon
      automatic conversion in accordance with this Section 4(C) shall be the quotient
      determined by dividing (i) the principal amount then outstanding by (ii) the
      Conversion Price, as
      adjusted in accordance with the provisions of this Note.
      

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    D.    Company's
      Failure to Timely Deliver Securities.
      If
      within ten (10) Trading Days after the Company's receipt of the facsimile copy
      of a Conversion Notice the Company shall fail to issue and deliver a certificate
      to the Holder and register such Note Shares on the Company's share register
      and
      if on or after such Trading Day the Holder purchases (in an open market
      transaction or otherwise) shares of Common Stock to deliver in satisfaction
      of a
      sale by the Holder of shares of Common Stock issuable upon such Conversion
      that
      the Holder anticipated receiving from the Company (a “Buy-In”),
      then
      the Company shall, within three (3) Business Days after the Holder's request
      promptly honor its obligation to deliver to the Holder a certificate or
      certificates representing such Note Shares and pay cash to the Holder in an
      amount equal to the excess (if any) of an amount equal to the Holder’s total
      purchase price (including brokerage commissions, if any) for the shares of
      Common Stock so purchased (the “Buy-In
      Price”)
      over
      the product of (A) such number of shares of Common Stock, times (B) the Closing
      Bid Price on the date of Conversion.

     

    E.    Disputes.
      In the
      case of a dispute as to the determination of the Conversion Price, the Company
      shall promptly issue to the Holder the number of Note Shares that are not
      disputed and resolve such dispute in accordance with Section 14.

     

    F.    Insufficient
      Authorized Shares.
      If at
      any time while any of the Notes remain outstanding the Company does not have
      a
      sufficient number of authorized and unreserved shares of Common Stock to satisfy
      its obligation to reserve for issuance upon conversion of the Notes at least
      a
      number of shares of Common Stock equal to 150% (the “Required
      Reserve Amount”)
      of the
      number of shares of Common Stock as shall from time to time be necessary to
      effect the conversion of all of the Notes then outstanding (an “Authorized
      Share Failure”),
      then
      the Company shall as promptly as practicable take all action necessary to
      increase the Company's authorized shares of Common Stock to an amount sufficient
      to allow the Company to reserve the Required Reserve Amount for the Notes then
      outstanding. 

     

    G.    Adjustment
      of Conversion Price.
      

     

    i.    Adjustment
      upon Subdivision or Combination of Common Stock.
      If the
      Company at any time on or after the Closing Date subdivides (by any stock split,
      stock dividend, recapitalization or otherwise) one or more classes of its
      outstanding shares of Common Stock into a greater number of shares, the
      Conversion Price in effect immediately prior to such subdivision will be
      proportionately reduced and the number of Note Shares will be proportionately
      increased. If the Company at any time on or after the Closing Date combines
      (by
      combination, reverse stock split or otherwise) one or more classes of its
      outstanding shares of Common Stock into a smaller number of shares, the
      Conversion Price in effect immediately prior to such combination will be
      proportionately increased and the number of Note Shares will be proportionately
      decreased. Any adjustment under this subsection shall become effective at the
      close of business on the date the subdivision or combination becomes
      effective.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    ii.    Other
      Events.
      If any
      event occurs of the type contemplated by the foregoing provisions of this
      Section 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 Conversion Price and the number of Note
      Shares so as to protect the rights of the Holder; provided that no such
      adjustment pursuant to this subsection (3) will increase the Conversion Price
      or
      decrease the number of Note Shares as otherwise determined.

    


     

    5.    Rights
      Upon Distribution of Assets.
      If the
      Company shall declare or make any dividend or other distribution of its assets
      (or rights to acquire its assets) to holders of shares of Common Stock (except
      for those dividends and distributions permitted pursuant to Section 4(t) of
      the
      Investment Agreement), by way of return of capital or otherwise (including,
      without limitation, any distribution of cash, stock or other securities,
      property or options by way of a dividend, spin off, reclassification, corporate
      rearrangement, scheme of arrangement or other similar transaction) (a
“Distribution”),
      at
      any time after the issuance of this Note, then, in each such case:

     

    (A)    any
      Conversion Price in effect immediately prior to the close of business on the
      record date fixed for the determination of holders of shares of Common Stock
      entitled to receive the Distribution shall be reduced, effective as of the
      close
      of business on such record date, to a price determined by multiplying such
      Conversion Price by a fraction of which (i) the numerator shall be the Closing
      Bid Price of the shares of Common Stock on the Trading Day immediately preceding
      such record date minus the value of the Distribution (as determined in good
      faith by the Company's Board of Directors) applicable to one share of shares
      of
      Common Stock, and (ii) the denominator shall be the Closing Bid Price of the
      shares of Common Stock on the Trading Day immediately preceding such record
      date; and

     

    


    (B)    the
      number of
      Note Shares shall be increased to a number of shares equal to the number of
      shares of Common Stock obtainable immediately prior to the close of business
      on
      the record date fixed for the determination of holders of shares of Common
      Stock
      entitled to receive the Distribution multiplied by the reciprocal of the
      fraction set forth in the immediately preceding paragraph (A); provided that
      in
      the event that the Distribution is of shares of Common Stock (or common stock)
      (“Other
      Shares of Common Stock”)
      of a
      company whose common shares are traded on a national securities exchange or
      a
      national automated quotation system, then the Holder may elect to receive a
      Note
      to purchase Other Shares of Common Stock in lieu of an increase in the number
      of
      Note Shares, the terms of which shall be identical to those of this Note, except
      that such Note shall be exercisable into the number of shares of Other Shares
      of
      Common Stock that would have been payable to the Holder pursuant to the
      Distribution had the Holder converted this Note immediately prior to such record
      date and with an aggregate conversion price equal to the product of the amount
      by which the Conversion Price of this Note was decreased with respect to the
      Distribution pursuant to the terms of the immediately preceding paragraph (A)
      and the number of Note Shares calculated in accordance with the immediately
      preceding paragraph (A).

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    6.    
Purchase
      Rights; Fundamental Transactions.
      

     

    (A)    Purchase
      Rights.
      In
      addition to any adjustments pursuant to the sections above, if at any time
      the
      Company grants or issues any Options, Convertible Securities or rights to
      purchase stock, warrants, securities or other property pro rata to the record
      holders of any class of shares of Common Stock other than grants or issuances
      with respect to not more than 1,700,000 shares of Common Stock pursuant to
      an
      Approved Stock Plan (as defined below) (the “Purchase
      Rights”),
      then
      the Holder will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which the Holder could have
      acquired if the Holder had held the number of shares of Common Stock acquirable
      upon complete exercise of this Note (without regard to any limitations on the
      exercise of this Note, if any) immediately before the date on which a record
      is
      taken for the grant, issuance or sale of such Purchase Rights, or, if no such
      record is taken, the date as of which the record holders of shares of Common
      Stock are to be determined for the grant, issue or sale of such Purchase Rights.
      

     

    (B)    Fundamental
      Transactions.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      (i)
      the Successor Entity assumes in writing all of the obligations of the Company
      under this Note and the other Transaction Documents in accordance with the
      provisions of this Section (6)(B) pursuant to written agreements in form and
      substance satisfactory to the Holder and approved by the Holder prior to such
      Fundamental Transaction, including agreements to deliver to each holder of
      Notes
      in exchange for such Notes a security of the Successor Entity evidenced by
      a
      written instrument substantially similar in form and substance to this Note,
      including, without limitation, an adjusted exercise price equal to the value
      for
      the shares of Common Stock reflected by the terms of such Fundamental
      Transaction, and exercisable for a corresponding number of shares of capital
      stock equivalent to the shares of Common Stock acquirable and receivable upon
      exercise of this Note (without regard to any limitations on the exercise of
      this
      Note, if any) prior to such Fundamental Transaction, and satisfactory to the
      Holder and (ii)  the Successor Entity (including its Parent Entity) is a
      publicly traded corporation whose common stock is quoted on or listed for
      trading on an Eligible Market (a “Public
      Successor”).
      Upon
      the occurrence of any Fundamental Transaction, the Successor Entity shall
      succeed to, and be substituted for (so that from and after the date of such
      Fundamental Transaction, the provisions of this Note referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right
      and
      power of the Company and shall assume all of the obligations of the Company
      under this Note with the same effect as if such Successor Entity had been named
      as the Company herein. Upon consummation of the Fundamental Transaction, the
      Successor Entity shall deliver to the Holder confirmation that there shall
      be
      issued upon conversion of this Note at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of the Common Stock (or
      other
      securities, cash, assets or other property) issuable
      upon the conversion of the Note prior
      to
      such Fundamental Transaction,
      such
      shares of the publicly traded Common Stock (or its equivalent) of the Successor
      Entity (including its Parent Entity) which the Holder would have been entitled
      to receive upon the happening of such Fundamental Transaction had this Note
      been
      converted immediately prior to such Fundamental Transaction, as adjusted in
      accordance with the provisions of this Note. In addition to and not in
      substitution for any other rights hereunder, prior to the consummation of any
      Fundamental Transaction pursuant to which holders of shares of Common Stock
      are
      entitled to receive securities or other assets with respect to or in exchange
      for shares of Common Stock (a “Corporate
      Event”),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon a conversion of this Note at any
      time
      after the consummation of the Fundamental Transaction but prior to the
      Expiration Date, in lieu of the shares of the Common Stock (or other securities,
      cash, assets or other property) issuable upon the conversion of the Note prior
      to such Fundamental Transaction,
      such
      shares of stock, securities, cash, assets or any other property whatsoever
      (including warrants or other purchase or subscription rights) which the Holder
      would have been entitled to receive upon the happening of such Fundamental
      Transaction had the Note been exercised immediately prior to such Fundamental
      Transaction. Provision
      made pursuant to the preceding sentence shall be in a form and substance
      reasonably satisfactory to the Holder. The provisions of this Section shall
      apply similarly and equally to successive Fundamental Transactions and Corporate
      Events and shall be applied without regard to any limitations on the conversion
      of this Note, if any. 

     

    Notwithstanding
      the foregoing and the provisions above, in the event of a Fundamental
      Transaction where the Successor Entity is not a Public Successor, if the Holder
      has not converted the Note in full prior to the consummation of the Fundamental
      Transaction, then the Company may enter into a Fundamental Transaction pursuant
      to which the Holder shall receive, simultaneously with the consummation of
      the
      Fundamental Transaction, in lieu of the note referred to above, cash in the
      amount equal to the value of the remaining unconverted principal of this Note,
      on the date of such consummation, plus a make-whole payment equal to the amount
      set forth in Section 1(C)(ii) of this Note.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    7.    
Noncircumvention.
      The
      Company hereby covenants and agrees that the Company will not, by amendment
      of
      its Certificate 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 Note or the Transactional
      Documents, and will at all times in good faith carry out all the provisions
      of
      this Note and the Transactional Documents 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 Common Stock receivable upon the conversion of this Note above the Conversion
      Price then in effect, (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 Common Stock upon the conversion of this Note,
      and (iii) shall, so long as any of the Notes are outstanding, take all action
      necessary to reserve and keep available out of its authorized and unissued
      shares of Common Stock, solely for the purpose of effecting the conversion
      of
      the Notes and for effecting the conversion, 150% of the number of shares of
      Common Stock as shall from time to time be necessary to effect the conversion
      of
      all Notes then (without regard to any limitations on exercise, if
      any).

     

    8.    
Holder
      not deemed a Stockholder.
      Except
      as otherwise specifically provided herein, the Holder, solely in such Person's
      capacity as a holder of this Note, shall not be entitled to vote or receive
      dividends or be deemed the holder of share capital of the Company for any
      purpose, nor shall anything contained in this Note be construed to confer upon
      the Holder, solely in such Person's capacity as the Holder of this Note, any
      of
      the rights of a shareholder of the Company or any right to vote, give or
      withhold consent to any corporate action (whether any reorganization, issue
      of
      stock, reclassification of stock, consolidation, merger, conveyance or
      otherwise), receive notice of meetings, receive dividends or subscription
      rights, or otherwise, prior to the issuance to the Holder of the Note Shares
      which such Person is then entitled to receive upon the due conversion of this
      Note. Notwithstanding this Section 8, the Company shall provide the Holder
      with
      copies of the same notices and other information given to the shareholders
      of
      the Company generally, contemporaneously with the giving thereof to the
      shareholders.

     

    9.    
Reissuance
      of Notes.

     

    A    Transfer
      of Note.
      If this
      Note is to be transferred, the Holder shall surrender this Note to the Company,
      whereupon the Company will forthwith issue and deliver upon the order of the
      Holder a new Note, registered as the Holder may request, representing the right
      to the Note being transferred by the Holder and, if less then the entire Note
      is
      being transferred, a new Note to the Holder representing the portion of the
      Note
      not being transferred.

     

    B    Lost,
      Stolen or Mutilated Note.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Note, and, in the case of loss,
      theft or destruction, of any indemnification undertaking by the Holder to the
      Company in customary form and, in the case of mutilation, upon surrender and
      cancellation of this Note, the Company shall execute and deliver to the Holder
      a
      new Note in substitution the Note so lost, stolen or mutilated.

     

    C    Issuance
      of New Note.
      Whenever the Company is required to issue a new Note pursuant to the terms
      of
      this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall
      represent, as indicated on the face of such new Note, the Principal Amount
      of
      the old Note (or in the case of a new Note being issued pursuant to Section
      9(A), the portion of the Principal Amount designated by the Holder which, when
      added to the Principal Amount the other new Notes issued in connection with
      such
      issuance, does not exceed the aggregate Principal Amount of this Note), (iii)
      shall have an issuance date, as indicated on the face of such new Note, which
      is
      the same as the date hereof, and (iv) shall have the same rights and conditions
      as this Note.

     

    10.    Notices.
      Whenever notice is required to be given under this Note, unless otherwise
      provided herein, such notice shall be given in accordance with the Investment
      Agreement. The Company shall provide the Holder with prompt written notice
      of
      all actions taken pursuant to this Note, including in reasonable detail a
      description of such action and the reason therefore. Without limiting the
      generality of the foregoing, the Company will give written notice to the Holder
      (i) as promptly as reasonably practicable following any adjustment of the
      Conversion Price, setting forth in reasonable detail, and certifying, the
      calculation of such adjustment and (ii) at least fifteen (15) days prior to
      the
      date on which the Company closes its books or takes a record (A) with respect
      to
      any dividend or distribution upon the shares of Common Stock, (B) with respect
      to any grants, issuances or sales of any Options, Convertible Securities or
      rights to purchase stock, Notes, securities or other property to holders of
      shares of Common Stock, except for grants under an Approved Stock Plan, or
      (C)
      for determining rights to vote with respect to any Fundamental Transaction,
      dissolution or liquidation, provided in each case that such information shall
      be
      made known to the public prior to or in conjunction with such notice being
      provided to the Holder.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    11.    Amendment
      and Waiver.
      Except
      as otherwise provided herein, the provisions of this Note may be amended and
      the
      Company may take any action herein prohibited, or omit to perform any act herein
      required to be performed by it, only if the Company has obtained the written
      consent of the Holder; provided that no such action may increase the Conversion
      Price, require a conversion, reduce the time period in which the Note may be
      converted, or grant prepayment rights to the Company, in any case without the
      written consent of the Holder. No such amendment shall be effective to the
      extent that it applies to less than all of the holders of the Notes then
      outstanding.

     

    12.    Governing
      Law.
      This
      Note shall be governed by and construed and enforced in accor-dance with, and
      all questions concerning the construction, validity, interpretation and
      performance of this Note shall be governed by, the internal laws of the State
      of
      New York, without giving effect to any choice of law or conflict of law
      provision or rule (whether of the State of New York or any other jurisdictions)
      that would cause the application of the laws of any jurisdictions other than
      the
      State of New York.

     

    13.    Construction;
      Headings.
      This
      Note shall be deemed to be jointly drafted by the Company and the Holder and
      shall not be construed against any person as the drafter hereof. The headings
      of
      this Note are for convenience of reference and shall not form part of, or affect
      the interpretation of, this Note.

     

    14.    Dispute
      Resolution.
      In the
      case of a dispute as to the determination of the Conversion Price or the
      arithmetic calculation of the Note Shares, the Company shall submit the disputed
      determinations or arithmetic calculations via facsimile within two Business
      Days
      of receipt of the Conversion Notice giving rise to such dispute, as the case
      may
      be, to the Holder. If the Holder and the Company are unable to agree upon such
      determination or calculation of the Conversion Price or the Note Shares within
      three Business Days of such disputed determination or arithmetic calculation
      being submitted to the Holder, then the Company shall, within two Business
      Days
      submit via facsimile (a) the disputed determination of the Conversion Price
      to
      an independent, reputable investment bank selected by the Company and approved
      by the Required Holder Majority or (b) the disputed arithmetic calculation
      of
      the Note Shares to the Company's independent, outside accountant. The Company
      shall cause at its expense the investment bank or the accountant, as the case
      may be, to perform the determinations or calculations and notify the Company
      and
      the Holder of the results no later than ten (10) 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, shall be binding
      upon all parties absent demonstrable error.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    15.    Remedies,
      Other Obligations, Breaches and Injunctive Relief.
      The
      remedies provided in this Note shall be cumulative and in addition to all other
      remedies available under this Note and the other Transaction Documents, 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 right to pursue
      actual damages for any failure by the Company to comply with the terms of this
      Note.  

     

    16.    Transfer.
      This
      Note may be offered for sale, sold, transferred or assigned without the consent
      of the Company, subject to the limitations set forth in the Investment
      Agreement.

     

    17.    Miscellaneous.

     

    A.    Parties
      in Interest.
      All
      covenants, agreements and undertakings in this Note binding upon the Company
      or
      the Holder shall bind and inure to the benefit of the successors and permitted
      assigns of the Company and the Holder, respectively, whether so expressed or
      not.

     

    B.    Costs
      and Expenses.
      Company
      agrees to pay on demand all costs and expenses, if any, including counsel fees
      and expenses, in connection with the enforcement (whether through negotiations,
      legal proceedings or otherwise) of this Note. 

     

    C.    Waiver.
      Except
      as otherwise provided for in this Note, and to the fullest extent permitted
      by
      applicable law, Company waives: (a) presentment, notice, demand and protest,
      and
      notice of presentment, dishonor, intent to accelerate, acceleration, protest,
      default, nonpayment, maturity, release, compromise, settlement, extension or
      renewal of this Note at any time held by Holder on which Company may in any
      way
      be liable, and hereby ratifies and confirms whatever Holder may do in this
      regard; (b) all rights to notice and a hearing prior to Holder’s taking
      possession or control of, or to Holder’s replevy, attachment or levy upon, any
      property, real or personal, tangible or intangible of Company or any bond or
      security which might be required by any court prior to allowing Holder to
      Conversion any of its remedies; and (c) the benefit of all valuation, appraisal
      and exemption laws.

     

    D.    Maximum
      Payments.
      Nothing
      contained herein shall be deemed to establish or require the payment of a rate
      of interest or other charges in excess of the maximum permitted by applicable
      law. In the event that the rate of interest required to be paid or other charges
      hereunder exceed the maximum permitted by such law, any payments in excess
      of
      such maximum shall be credited against amounts owed by the Borrower to the
      Holder and the remainder, if any, refunded to the Borrower.

     

    E.    Certain
      Definitions.
      For
      purposes of this Note, the following terms shall have the following
      meanings:

    


     

    “Approved
      Stock Plan”
means
      any written employee benefit plan which has been approved by the Board of
      Directors of the Company on any such approval date, pursuant to which Options
      may be issued to any employee, officer or director of the Company or its
      Subsidiaries to purchase or otherwise acquire shares of Common Stock at a
      purchase or exercise price which the Board of Directors (or duly appointed
      committee thereof) determines that, as of the date of issuance of such Option,
      is not less than the fair market value of Common Stock of the
      Company.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    “Bloomberg”
means
      Bloomberg Financial Markets.

     

    “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    “Closing
      Bid Price”
and
      “Closing
      Sale Price”
means,
      for any security as of any date, the last closing bid price and last closing
      trade price, respectively, for such security on the Principal Market, as
      reported by Bloomberg, or, if the Principal Market begins to operate on an
      extended hours basis and does not designate the closing bid price or the closing
      trade price, as the case may be, then the last bid price or last trade price,
      respectively, of such security prior to 4:00 p.m., New York time, as reported
      by
      Bloomberg, or, if the Principal Market is not the principal securities exchange
      or trading market for such security, the last closing bid price or last trade
      price, respectively, 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 bid price or last trade
      price, respectively, 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 or last trade price, respectively, is reported for such
      security by Bloomberg, the average of the bid prices, or the ask prices,
      respectively, 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 or the Closing Sale Price cannot be calculated for a
      security on a particular date on any of the foregoing bases, the Closing Bid
      Price or the Closing Sale Price, as the case may be, 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 14. All such determinations to be appropriately adjusted for any stock
      dividend, stock split, stock combination or other similar transaction during
      the
      applicable calculation period.

     

    “Common
      Stock”
means
      (i) the Company's shares of Common Stock, par value $0.001 per share, and
      (ii) any share capital into which such Common Stock shall have been changed
      or any share capital resulting from a reclassification of such Common
      Stock.

     

    “Convertible
      Securities”
means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exercisable or exchangeable for shares of Common Stock.

     

    “Dollar”,
      “US
      Dollar”
and
      “$”
each
      mean the lawful money of the United States.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    “Eligible
      Market”
means
      the Principal Market, The New York Stock Exchange, Inc., the American Stock
      Exchange, The NASDAQ Global Market, The NASDAQ Capital Market or The NASDAQ
      Global Select Market.

     

    “Fundamental
      Transaction”
means
      that the Company shall, directly or indirectly, in one or more related
      transactions, (i) consolidate or merge with or into (whether or not the Company
      is the surviving corporation) another Person, or (ii) sell, assign, transfer,
      convey or otherwise dispose of all or substantially all of the properties or
      assets of the Company to another Person, or, or (iii) consummate a stock
      purchase agreement or other business combination (including, without limitation,
      a reorganization, recapitalization, spin-off or scheme of arrangement) with
      another Person whereby such other Person acquires more than the 50% of the
      outstanding shares of Common Stock (not including any shares of Common Stock
      held by the other Person or other Persons making or party to, or associated
      or
      affiliated with the other Persons making or party to, such stock purchase
      agreement or other business combination),.

     

    “Options”
means
      any rights, warrants or options to subscribe for or purchase shares of Common
      Stock or Convertible Securities.

     

    “Parent
      Entity”
of
      a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization, any other entity and
      a
      government or any department or agency thereof.

     

    “Principal
      Market”
means
      the NASD OTC Bulletin Board.

     

    “Successor
      Entity”
means
      the Person (or, if so elected by the Holder, the Parent Entity) formed by,
      resulting from or surviving any Fundamental Transaction or the Person (or,
      if so
      elected by the Holder, the Parent Entity) with which such Fundamental
      Transaction shall have been entered into.

     

    “Trading
      Day”
means
      any day on which the Common Stock are traded on the Principal Market, or, if
      the
      Principal Market is not the principal trading market for the Common Stock,
      then
      on the principal securities exchange or securities market on which the Common
      Stock are then traded; provided that “Trading Day” shall not include any day on
      which the Common Stock are scheduled to trade on such exchange or market for
      less than 4.5 hours or any day that the Common Stock are suspended from trading
      during the final hour of trading on such exchange or market (or if such exchange
      or market does not designate in advance the closing time of trading on such
      exchange or market, then during the hour ending at 4:00:00 p.m., New York
      time).

     

    [Signature
      Page Follows]

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      the
      Company has caused this Note to be duly executed as of the date set out
      above.

     

    
      
        	 	 	 
	 	CHINA-BIOTICS,
                INC.
	 
 	 
 	 
 
	 	By:  	/s/
                Song Jinan
	 	Name:	Song Jinan
	 	Title:	Chief Executive Officer
	 	
                

              
	 	Title 


      

       

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

    


    CONVERSION
      NOTICE

     

    TO
      BE EXECUTED BY THE REGISTERED HOLDER TO CONVERT THIS

    NOTE
      INTO COMMON STOCK

     

    CHINA-BIOTICS,
      INC.

     

    The
      undersigned holder hereby exercises the right to convert _____________________of
      the Note into shares of Common Stock (“Note
      Shares”)
      of
      China-Biotics, Inc., a Delaware corporation (the “Company”),
      evidenced by the attached Note (the “Note”).
      Capitalized terms used herein and not otherwise defined shall have the
      respective meanings set forth in the Note.

    


    1.
      Delivery of Note Shares. The Company shall deliver to the holder __________
      Note
      Shares in accordance with the terms of the Note.

     

    
      	Date:	_______________
              __, ______
	 	 
	 	
            	
            
	Name
              of Holder
	 	 
	 	 	
            
	By:	 	
            
	 	Name:	
            
	 	Title:	 


    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    


    ACKNOWLEDGMENT

     

    The
      Company hereby acknowledges this Conversion Notice and hereby
      directs______________________________________ to issue the above indicated
      number of shares of Common Stock in accordance with the Transfer Agent
      Instructions dated _____________from the Company and acknowledged and agreed
      to
      by ________________________.

     

    
      
        	 	 	 
	 	CHINA-BIOTICS,
                INC.
	 
 	 
 	 
 
	 	By:  	 
	 	Name:	 
	 	Title:	 


      

       

    

    
      
        
        

      

      
        15