EXECUTION
      COPY

     

    INVESTMENT
      AGREEMENT

     

    INVESTMENT
      AGREEMENT
      (the
“Agreement”),
      dated
      as of December 11, 2007, by and among China-Biotics, Inc., a Delaware
      corporation, with headquarters located at No. 999 Ningqiao Road, Jinqiao Export
      Processing Zone, Pudong, Shanghai 201206, People’s Republic of China
      (the ”Company”),
      Mr.
      Jinan Song (the “Major
      Shareholder”),
      and
      Pope Investments II LLC, a Delaware limited liability company (“Pope”)
      with
      headquarters located at 5100 Poplar Avenue, Suite 805, Memphis, Tennessee 38137.
      

     

    WHEREAS:

     

    A. The
      Company wishes to sell and Pope wishes to purchase, upon the terms and
      conditions stated in this Agreement, the Company’s 4% senior, guaranteed
      convertible promissory note due 2010 (the “Note”
and
      collectively “Notes”)
      in the
      original aggregate principal amount of Twenty Five Million Dollars ($25,000,000)
      in substantially the form attached hereto as Exhibit
      A,
      convertible into shares of Common Stock (defined herein) at a conversion price
      of $12.00 per share, subject to certain adjustments. The Note shall be
      convertible into shares of Company common stock, par value $0.001 per share
      (“Common
      Stock”)
      upon
      the terms and conditions set forth herein and in the Notes. The shares of Common
      Stock to be issued upon conversion of the Note are referred to herein as the
      “Note
      Shares”.

     

    B. As
      an
      inducement to the purchase of the Note by Pope, the Major Shareholder has agreed
      to personally guarantee the Note pursuant to a personal guarantee in
      substantially the form attached hereto as Exhibit
      B
      (the
“Guarantee”)
      and to
      secure the Guarantee with the pledge of four million (4,000,000) shares of
      Common Stock (the “Guarantee
      Shares”)
      pursuant to a pledge agreement substantially in the form attached hereto as
      Exhibit
      C
      (“Pledge
      Agreement”).

     

    C. The
      Company, the Major Shareholder and Pope are 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 “1933
      Act”),
      and
      Rule 506 of Regulation D (“Regulation D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the 1933 Act. 

     

    D. 
      Contemporaneously with the Closing, the Company and Pope will execute and
      deliver a Registration Rights Agreement, substantially in the form attached
      hereto as Exhibit
      D
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company will agree to provide certain registration rights
      with respect to the Registrable Securities (as defined in the Registration
      Rights Agreement) under the 1933 Act and the rules and regulations promulgated
      thereunder, and applicable state securities laws.

     

    E. The
      Note(s) and the Note Shares into which the Note(s) may be converted collectively
      are referred to herein as the “Securities”.

     

    F. Unless
      specifically defined in the Sections hereof, certain definitions used herein
      are
      set forth in Annex
      I.

     

    NOW,
      THEREFORE,
      the
      Company, the Major Shareholder and Pope hereby agree as follows:

     

    1. PURCHASE
      AND SALE OF NOTE

     

    (a) Purchase
      of Note.

     

    (i) Subject
      to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
      7
      below, the Company shall issue and sell to Pope, and Pope agrees to purchase
      from the Company, the Notes on December 11, 2007 (the “Closing
      Date”).
      The
      Notes shall be issuable in registered form without coupons in denominations
      of
      $500,000 principal amount and integral multiples of $10,000 in excess thereof,
      as directed by Pope at the Closing. Each Note shall be dated the Closing Date.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (ii) Closing.
      The
      time of the Closing shall be 10:00 a.m., Eastern Standard Time, on the Closing
      Date (or such later date as is mutually agreed to by the Company and Pope)
      after
      notification of satisfaction (or waiver) of the conditions to the Closing set
      forth in Sections 6 and 7 below, at the offices of Kirkpatrick & Lockhart
      Preston Gates Ellis LLP in Seattle, Washington. 

     

    (iii) Purchase
      Price.
      The
      purchase price for the Notes (the “Purchase
      Price”)
      shall
      be Twenty Five Million Dollars ($25,000,000).

     

    (b) Form
      of Payment.
      On the
      Closing Date, subject to the satisfaction of the conditions to Closing, (i)
      Pope
      shall deliver by wire transfer to an account designated by the Company, the
      aggregate Purchase Price for the Notes, and (ii) the Company shall deliver
      to Pope the Notes, in the amounts so designated, in each case duly executed
      on
      behalf of the Company and registered in the name of Pope.

     

    2. POPE'S
      REPRESENTATIONS AND WARRANTIES.
      Pope
      represents and warrants that:

     

    (a) No
      Sale or Distribution.
      Pope is
      acquiring the Notes, and upon conversion of any one or more of the Notes, in
      whole or in part, will acquire the Note Shares issuable upon any such full
      or
      partial conversion of the Note for its own account and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof,
      except pursuant to sales registered or exempted under the 1933 Act; provided,
      however,
      that by
      making the representations herein, Pope does not agree to hold any of the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time and from time to time in accordance with
      or pursuant to a registration statement or an exemption under the 1933 Act
      and
      pursuant to the applicable terms of the Transaction Documents (as defined in
      Section 3(b)). Pope is acquiring the Securities hereunder in the ordinary course
      of its business. Pope does not presently have any agreement or understanding,
      directly or indirectly, with any Person to distribute any of the
      Securities.

     

    (b) Accredited
      Investor Status.
      Pope is
      an “accredited investor” as that term is defined in Rule 501(a) of Regulation
      D.

     

    (c) Reliance
      on Exemptions.
      Pope
      understands that the Securities are 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 Pope's compliance with, the representations, warranties,
      agreements, acknowledgments and understandings of Pope set forth herein in
      order
      to determine the availability of such exemptions and the eligibility of Pope
      to
      acquire the Securities.

     

    (d) Speculative
      Investment.
      Pope
      understands that its investment in the Securities involves a high degree of
      risk
      and is able to afford a complete loss of such investment. 

     

    (e) No
      Governmental Review.
      Pope
      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.

     

    (f) Transfer
      or Resale.
      Pope
      understands that except as provided in the Registration Rights Agreement: (i)
      the Securities have not been and are not being registered under the 1933 Act
      or
      any state securities laws, and may not be offered for sale, sold, assigned
      or
      transferred unless (A) subsequently registered thereunder, (B) Pope shall have
      delivered to the Company an opinion of counsel, in a generally acceptable form,
      to the effect that such Securities to be sold, assigned or transferred may
      be
      sold, assigned or transferred pursuant to an exemption from such registration,
      or (C) Pope provides the Company with reasonable assurance that such Securities
      can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
      promulgated under the 1933 Act, as amended (or a successor rule thereto)
      (collectively, “Rule
      144”);
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person (as defined in Section 3(s)) through whom the sale is made)
      may
      be deemed to be an underwriter (as that term is defined in the 1933 Act) may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC thereunder; and (iii) other than with respect to the
      Registration Rights Agreement, neither the Company nor any other Person is
      under
      any obligation to register the Securities under the 1933 Act or any state
      securities laws or to comply with the terms and conditions of any exemption
      thereunder. The Securities may be pledged in connection with a bona fide margin
      account or other loan or financing arrangement secured by the Securities and
      such pledge of Securities shall not be deemed to be a transfer, sale or
      assignment of the Securities hereunder, and should Pope effect a pledge of
      Securities it shall not be required to provide the Company with any notice
      thereof or otherwise make any delivery to the Company pursuant to this Agreement
      or any other Transaction Document (as defined in Section 3(b)), including,
      without limitation, this Section 2(f); provided, that any transfer of such
      pledged Securities, including to the pledge, will require compliance with the
      provisions set forth in this paragraph.

     

    
      
        
        

      

      
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    (g) Legends.
      Pope
      understands that the Notes and, until such time as the resale of the Note Shares
      have been registered under the 1933 Act as contemplated by the Registration
      Rights Agreement, the stock certificates representing the Note Shares, except
      as
      set forth below, shall bear any legend as required by the “blue sky” laws of any
      state and a restrictive legend in substantially the following form (and a
      stop-transfer order may be placed against transfer of such stock
      certificates):

     

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
      LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL,
      IN A
      GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
      OR
      (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
      NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
      WITH
      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THE
      SECURITIES.

     

    (i) The
      legend set forth above shall be removed and the Company shall issue a
      certificate without such legend to the holder of the Securities upon which
      it is
      stamped, if, unless otherwise required by state securities laws, (i) such
      Securities are registered for resale under the 1933 Act, (ii) in connection
      with
      a sale, assignment or other transfer, such holder provides the Company with
      an
      opinion of a law firm reasonably acceptable to the Company (with Wells, Moore,
      Simmons & Hubbard, PLLC being deemed acceptable), in a generally acceptable
      form, to the effect that such sale, assignment or transfer of the Securities
      may
      be made without registration under the applicable requirements of the 1933
      Act,
      or (iii) such holder provides the Company with reasonable assurance that the
      Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
      144A. If the Company shall fail for any reason or for no reason to issue to
      the
      holder of the Securities within ten (10) Trading Days (as defined below) after
      the occurrence of any of (i) through (iii) above, a certificate without such
      legend to the holder or to issue such Securities to such holder by electronic
      delivery at the applicable balance account at DTC or if the Company fails to
      deliver unlegended Securities within three (3) Trading Days of the holder’s
      election to receive such unlegended Securities pursuant to clause (ii) below,
      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 such Securities that the holder anticipated receiving
      without legend from the Company (a “Buy-In”),
      then
      the Company shall, within three (3) Business Days after the holder's request
      for
      payment hereunder, promptly honor its obligation to deliver to the holder such
      unlegended Securities as provided above and pay cash to the holder in an amount
      equal to the excess (if any) of the 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
      exercise

     

    
      
        
        

      

      
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    (h) Organization
      and Qualification.
      Pope is
      duly organized and validly existing and, to the extent legally applicable,
      in
      good standing under the laws of the jurisdiction in which it was formed, and
      has
      the requisite power and authorization to own its properties and to carry on
      its
      business as now being conducted. Pope is duly qualified as a foreign entity
      to
      do business and to the extent legally applicable, is in good standing in every
      jurisdiction in which its ownership of property or the nature of the business
      conducted by it makes such qualification necessary. 

     

    (i) Validity;
      Enforcement.
      The
      Transaction Documents to which Pope is a party have been duly and validly
      authorized, executed and delivered on behalf of Pope and shall constitute the
      legal, valid and binding obligations of Pope enforceable against Pope in
      accordance with their respective terms, except as such enforceability may be
      limited by general principles of equity or to applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors' rights and
      remedies.

     

    (j) No
      Conflicts.
      The
      execution, delivery and performance by Pope of the Transaction Documents to
      which it is a party and the consummation by Pope of the transactions
      contemplated hereby and thereby will not (i) result in a violation of the
      organizational documents of Pope or (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 Pope 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
      Pope, 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 Pope to perform its obligations hereunder.

     

    (k) Residency.
      Pope is
      a resident of the State of Tennessee.

     

    (l) Certain
      Trading Activities.
      Other
      than with respect to the transactions contemplated herein, since the time that
      Pope was first contacted by the Company or any other Person regarding this
      investment in the Company, neither Pope nor any Affiliate of Pope which (x)
      had
      knowledge of the transactions contemplated hereby, (y) has or shares discretion
      relating to Pope's investments or trading or information concerning Pope's
      investments and (z) is subject to Pope'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 Pope or its Trading Affiliates, effected or agreed to
      effect any transactions in the securities of the Company. Pope hereby covenants
      and agrees not to, and shall cause its Trading Affiliates not to, engage,
      directly or indirectly, in any transactions in the securities of the Company
      or
      involving the Company's securities during the period from the date hereof until
      such time as (i) the transactions contemplated by this Agreement are first
      publicly announced as described in Section 4(i) hereof or (ii) this Agreement
      is
      terminated in full pursuant to Section 8 hereof. 

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY. Except
      as
      disclosed in reports, schedules, forms, statements and other documents filed
      by
      the Company with the SEC, including the registration statement on form SB-2
      as
      most recently filed (the “SEC
      Documents”),
      the
      Company represents and warrants to Pope that, as of the date hereof and as
      of
      the Closing Date as follows (which representations and warranties shall be
      deemed to apply, as appropriate, to each Subsidiary of the
      Company):

     

    (a) Organization
      and Qualification.
      The
      Company and its Subsidiaries are entities duly organized and validly existing
      and, to the extent legally applicable, in good standing under the laws of the
      jurisdiction in which they are formed, and have the requisite power and
      authorization to own their properties and to carry on their business as now
      being conducted. Each of the Company and its Subsidiaries is duly qualified
      as a
      foreign entity to do business and to the extent legally applicable, is in good
      standing in every jurisdiction in which its ownership of property or the nature
      of the business conducted by it makes such qualification necessary, except
      to
      the extent that the failure to be so qualified or be in good standing would
      not
      reasonably be expected to have a Material Adverse Effect. The Company
      Subsidiaries are set forth in the SEC Documents.

     

    (b) Authorization;
      Enforcement; Validity.
      The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under this Agreement, the Registration Rights Agreement,
      the Notes, and each of the other agreements entered into by the Company in
      connection with the transactions contemplated by this Agreement (collectively,
      the “Transaction
      Documents”)
      and to
      issue the Securities in accordance with the terms hereof and thereof. The
      execution and delivery of the Transaction Documents by the Company and the
      consummation by the Company of the transactions contemplated hereby and thereby,
      including, without limitation, the issuance of the Notes and the reservation
      for
      issuance and the issuance of the Note Shares issuable upon conversion of ay
      one
      or more of the Notes have been duly authorized by the Company's Board of
      Directors and other than as set forth in Section 3(e), no further filing,
      consent, or authorization is required by the Company, its Board of Directors
      or
      its stockholders. This Agreement and the other Transaction Documents of even
      date herewith have been duly executed and delivered by the Company and
      constitute the legal, valid and binding obligations of the Company, enforceable
      against the Company in accordance with their respective terms, except as such
      enforceability may be limited by general principles of equity or applicable
      bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
      laws
      relating to, or affecting generally, the enforcement of applicable creditors'
      rights and remedies.

     

    
      
        
        

      

      
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    (c) Issuance
      of Securities.
      The
      issuance of the Notes has been duly authorized and upon issuance, in accordance
      with the terms of the Transaction Documents, shall be free from all taxes,
      liens
      and charges with respect to the issue thereof. As of the Closing, a number
      of
      shares of Common Stock shall have been duly authorized and reserved for issuance
      which equals or exceeds the sum of 150% of the maximum aggregate number of
      shares of Common Stock issuable upon conversion of the aggregate principal
      amount of Notes. Upon conversion in accordance with the Notes, the Note Shares
      so issued will be validly issued, fully paid and nonassessable and free from
      all
      preemptive or similar rights, taxes, liens and charges with respect to the
      issue
      thereof, with the holders being entitled to all rights accorded to a holder
      of
      Common Stock. Assuming the accuracy of each of the representations and
      warranties set forth in Section 2 of this Agreement, the offer and issuance
      by
      the Company of the Securities is exempt from registration under the Securities
      Act of 1933, as amended (the “1933
      Act”).

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Notes and
      reservation for issuance and issuance of the Note Shares) will not (i) result
      in
      a violation of any certificate of incorporation, certificate of formation,
      any
      certificate of designations or other constituent documents of the Company or
      any
      of its Subsidiaries, any Capital Stock of the Company or any of its Subsidiaries
      or bylaws of the Company or any of its Subsidiaries or (ii) conflict with,
      or
      constitute a default or breach (or an event which with notice or lapse of time
      or both would become a default or breach) in any respect under, or give to
      others any rights of termination, amendment, acceleration or cancellation of,
      any agreement, indenture or instrument to which the Company or any of its
      Subsidiaries is a party, or (iii) result in violation of any law, rule,
      regulation, order, judgment or decree (including foreign, federal and state
      securities laws and regulations and the rules and regulations of the Principal
      Market) applicable to the Company or any of its Subsidiaries or by which any
      property or asset of the Company or any of its Subsidiaries is bound or
      affected, except in the case of clauses (ii) and (iii) above, to the extent
      that
      such violations, conflict, default or right would not reasonably be expected
      to
      have a Material Adverse Effect. 

     

    (e) Consents.
      Neither
      the Company nor any of its Subsidiaries is required to obtain any consent,
      authorization or order of, or make any filing or registration with, any court,
      governmental agency or any regulatory or self-regulatory agency or any other
      Person in order for it to execute, deliver or perform any of its obligations
      under or contemplated by the Transaction Documents, in each case in accordance
      with the terms hereof or thereof, except for the filing of (i) one or more
      Registration Statements with the SEC in accordance with the requirements of
      the
      Registration Rights Agreement (which is not required to be filed before the
      Closing), (ii)  one ore more Current Reports on Form 8-K with the SEC, and
      (iii) one or more Notices of Sales of Securities with the SEC and certain
      states. The Company and its Subsidiaries are unaware of any facts or
      circumstances that might prevent the Company from obtaining or effecting any
      of
      the registration, application or filings pursuant to the preceding sentence.
      

     

    (f) Acknowledgment
      Regarding Pope's Purchase of Securities.
      The
      Company acknowledges and agrees that Pope 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 and that as of the date hereof
      Pope
      is not (i) an officer or director of the Company or (ii) an “affiliate” of the
      Company or any of its Subsidiaries (as defined in Rule 144 of the 1933
      Act) The
      Company further acknowledges that Pope is not acting as a financial advisor
      or
      fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
      with respect to the Transaction Documents and the transactions contemplated
      hereby and thereby, and any advice given by Pope or any of its representatives
      or agents in connection with the Transaction Documents and the transactions
      contemplated hereby and thereby is merely incidental to Pope's purchase of
      the
      Securities. The Company further represents to Pope that the Company's decision
      to enter into the Transaction Documents has been based solely on the independent
      evaluation by the Company and its representatives.

     

    
      
        
        

      

      
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    (g) No
      General Solicitation; Placement Agent's Fees.
      Neither
      the Company, nor any of its Subsidiaries or affiliates, nor any Person acting
      on
      its or their behalf, has engaged in any form of general solicitation or general
      advertising (within the meaning of Regulation D) in connection with the offer
      or
      sale of the Securities. The Company shall be responsible for the payment of
      any
      placement agent's fees, if any, financial advisory fees, or brokers' commissions
      (other than for persons engaged by Pope or its investment advisor) relating
      to
      or arising out of the transactions contemplated hereby. Neither the Company
      nor
      any of its Subsidiaries has engaged any placement agent or other agent in
      connection with the sale of the Securities.

     

    (h) No
      Integrated Offering.
      None of
      the Company, its Subsidiaries, any of their affiliates, and any Person acting
      on
      their behalf has, directly or indirectly, made any offers or sales of any
      security or solicited any offers to buy any security, under circumstances that
      would require registration of any of the Securities under the 1933 Act or cause
      this offering of the Securities to be integrated with prior offerings by the
      Company for purposes of any applicable stockholder approval provisions,
      including, without limitation, under the rules and regulations of any exchange
      or automated quotation system on which any of the securities of the Company
      are
      listed or designated. None of the Company, its Subsidiaries, their affiliates
      and any Person acting on their behalf will take any action or steps referred
      to
      in the preceding sentence that would require registration of any of the
      Securities under the 1933 Act or cause the offering of the Securities to be
      integrated with other offerings.

     

    (i) Dilutive
      Effect.
      The
      Company and the Major Shareholder each understands and acknowledges that the
      number of Note Shares issuable upon conversion of the Notes, will increase
      in
      certain circumstances. The Company and the Major Shareholder each further
      acknowledges that the Company’s obligation to issue the Note Shares upon
      conversion of the Notes in accordance with this Agreement and the Notes is,
      in
      each case, absolute and unconditional regardless of the dilutive effect that
      such issuance may have on the ownership interests of other stockholders of
      the
      Company.

     

    (j) Application
      of Takeover Protections; Rights Agreement.
      The
      Company and its board of directors 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 its Certificate of Incorporation
      or Bylaws or the laws of the state of its incorporation which is or could become
      applicable to Pope as a result of the transactions contemplated by this
      Agreement, including, without limitation, the Company's issuance of the
      Securities and Pope's ownership of the Securities. The Company and its board
      of
      directors have taken all necessary action, if any, in order to render
      inapplicable any stockholder rights plan or similar arrangement relating to
      accumulations of beneficial ownership of Common Stock or a change in control
      of
      the Company.

     

    (k) SEC
      Documents; Financial Statements.
      Since
      March 22, 2006, the Company has filed with the SEC all documents, reports and
      schedules required to be filed by it by the SEC. The Company has delivered
      to
      Pope or its representatives true, correct and complete copies of any SEC
      Documents not available on the EDGAR system. As of their respective filing
      dates, except as the same may have been amended prior to the date hereof the
      SEC
      Documents complied in all material respects with the requirements, to the extent
      applicable, of the 1934 Act and the rules and regulations of the SEC promulgated
      thereunder applicable to the SEC Documents, and except as the same may have
      been
      amended prior to the data hereof, none of the SEC Documents, at the time they
      were filed with the SEC, 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 the light of the circumstances under
      which they were made, not misleading. As of their respective filing dates,
      the
      financial statements of the Company included in the SEC Documents complied
      as to
      form in all material respects with applicable accounting requirements and the
      published rules and regulations of the SEC with respect thereto. Such financial
      statements have been prepared in accordance with generally accepted accounting
      principles, consistently applied, during the periods involved (except (i) as
      may
      be otherwise indicated in such financial statements or the notes thereto, or
      (ii) in the case of unaudited interim statements, to the extent they may exclude
      footnotes or may be condensed or summary statements) and fairly present in
      all
      material respects the financial position of the Company as of the dates thereof
      and the results of its operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). No other information provided by or on behalf of the Company
      to
      Pope which is not included in the SEC Documents, including, without limitation,
      information referred to in Section 2(d) of this Agreement or in any disclosure
      schedules, contains any untrue statement of a material fact or omits to state
      any material fact necessary in order to make the statements therein, in the
      light of the circumstance under which they are or were made not misleading.
      

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    (l) Absence
      of Certain Changes.
      Since
      March 31, 2007, there has been no material adverse change and no material
      adverse development in the business, properties, operations, condition
      (financial or otherwise), results of operations or prospects of the Company
      or
      its Subsidiaries. Since March 31, 2007, the Company has not (i) declared or
      paid any dividends, (ii) sold any assets, individually or in the aggregate,
      in
      excess of $100,000 outside of the ordinary course of business or (iii) had
      capital expenditures, individually or in the aggregate, in excess of $5,000,000.
      Neither the Company nor any of its Subsidiaries has taken any steps to seek
      protection pursuant to any bankruptcy law nor does the Company have any
      knowledge or reason to believe that its creditors intend to initiate involuntary
      bankruptcy proceedings or any actual knowledge of any fact that would reasonably
      lead a creditor to do so. The Company and its Subsidiaries, individually and
      on
      a consolidated basis, are not as of the date hereof, and after giving effect
      to
      the transactions contemplated hereby to occur at the Closing, will not be
      Insolvent (as defined below). For purposes of this Section 3(l), “Insolvent”
means,
      with respect to any Person (as defined in Section 3(s)), (i) the present fair
      saleable value of such Person's assets is less than the amount required to
      pay
      such Person's total Indebtedness (as defined in Section 3(s)), (ii) such Person
      is unable to pay its debts and liabilities, subordinated, contingent or
      otherwise, as such debts and liabilities become absolute and matured, (iii)
      such
      Person intends to incur or believes that it will incur debts that would be
      beyond its ability to pay as such debts mature or (iv) such Person has
      unreasonably small capital with which to conduct the business in which it is
      engaged as such business is now conducted and is proposed to be
      conducted.

     

    (m) No
      Undisclosed Events, Liabilities, Developments or Circumstances.
      No
      event, liability, development or circumstance has occurred or exists, or is
      contemplated to occur with respect to the Company, its Subsidiaries or their
      respective business, properties, prospects, operations or financial condition,
      that would be required to be disclosed by the Company under applicable
      securities laws on a registration statement on Form SB-2 filed with the SEC
      relating to an issuance and sale by the Company of its Common Stock and which
      has not been publicly announced.

     

    (n) Conduct
      of Business; Regulatory Permits.
      Neither
      the Company nor any of its Subsidiaries is in material violation of any term
      of
      or in default under its Certificate of Incorporation, any certificate of
      designations of any outstanding series of preferred stock of the Company or
      the
      Bylaws or their organizational charter or bylaws, respectively. Neither the
      Company nor any of its Subsidiaries is in material violation of any judgment,
      decree or order or any statute, ordinance, rule or regulation applicable to
      the
      Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries
      will conduct its business in violation of any of the foregoing, except for
      possible violations which could not, individually or in the aggregate,
      reasonably be expected to have a Material Adverse Effect. The Company and its
      Subsidiaries possess all certificates, authorizations and permits issued by
      the
      appropriate regulatory authorities necessary to conduct their respective
      businesses, except where the failure to possess such certificates,
      authorizations or permits would not have, individually or in the aggregate,
      a
      Material Adverse Effect, and neither the Company nor any such Subsidiary has
      received any notice of proceedings relating to the revocation or modification
      of
      any such certificate, authorization or permit.

     

    (o) Foreign
      Corrupt Practices.
      Neither
      the Company nor any of its Subsidiaries nor any director, officer, agent,
      employee or other Person acting on behalf of the Company or any of its
      Subsidiaries has, in the course of its actions for, or on behalf of, the Company
      or any of its Subsidiaries (i) used any corporate funds for any unlawful
      contribution, gift, entertainment or other unlawful expenses relating to
      political activity; (ii) made any direct or indirect unlawful payment to any
      foreign or domestic government official or employee from corporate funds; (iii)
      violated or is in violation of any provision of the U.S. Foreign Corrupt
      Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    (p) Transactions
      With Affiliates.
      Except
      as set forth in the SEC Documents filed at least ten (10) days prior to the
      date
      hereof, none of the officers, directors or employees of the Company or any
      of
      its Subsidiaries is presently a party to any material transaction with the
      Company or any of its Subsidiaries (other than for ordinary course services
      as
      employees, officers or directors), including any contract, agreement or other
      arrangement providing for the furnishing of services to or by, providing for
      rental of real or personal property to or from, or otherwise requiring payments
      to or from any such officer, director or employee or, to the knowledge of the
      Company or any of its Subsidiaries, any corporation, partnership, trust or
      other
      entity in which any such officer, director, or employee has a substantial
      interest or is an officer, director, trustee or partner.

     

    (q) Equity
      Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of
      110,000,000 shares, of which as of the date hereof, (i) 100,000,000 shares
      are
      designated Common Stock, of which 37,080,000 shares are issued and outstanding
      (20,000,000 of which are treasury shares) and (ii) 10,000,000 shares are
      designated Preferred Stock, of which none are issued and outstanding. All of
      such outstanding shares have been, or upon issuance will be, validly issued
      and
      are fully paid and nonassessable. Except as disclosed in the SEC Documents,
      none
      of the Company's capital stock is 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
      capital stock of the Company or any of its Subsidiaries, or contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      Subsidiaries is or may become bound to issue additional capital stock of the
      Company or any of its Subsidiaries 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
      capital stock of the Company or any of its Subsidiaries; (iii) there are no
      outstanding debt securities, notes, credit agreements, credit facilities or
      other agreements, documents or instruments evidencing Indebtedness of the
      Company or any of its Subsidiaries or by which the Company or any of its
      Subsidiaries 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 or any of its Subsidiaries; (v) there
      are
      no agreements or arrangements under which the Company or any of its Subsidiaries
      is obligated to register the sale of any of their securities under the 1933
      Act
      (except pursuant to the Registration Rights Agreement and the registration
      rights agreement dated as of March 22, 2006); (vi) there are no outstanding
      securities or instruments of the Company or any of its Subsidiaries which
      contain any redemption or similar provisions, and there are no contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      Subsidiaries is or may become bound to redeem a security of the Company or
      any
      of its Subsidiaries; (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 and its Subsidiaries have no liabilities or obligations
      required to be disclosed in the SEC Documents but not so disclosed in the SEC
      Documents, other than those incurred in the ordinary course of the Company's
      or
      its Subsidiaries' respective businesses and which, individually or in the
      aggregate, do not or would not have a Material Adverse Effect. The Company
      has
      furnished to Pope true, correct and complete copies of the Company's Certificate
      of Incorporation, as amended and as in effect on the date hereof (the
“Certificate
      of Incorporation”),
      and
      the Company's Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto.

     

    (r) Indebtedness
      and Other Contracts.
      Except
      as disclosed in the Financial Statements, the SEC Documents or incurred in
      the
      ordinary course of business September 30, 2007, neither the Company nor any
      of
      its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii)
      is a party to any contract, agreement or instrument, the violation of which,
      or
      default under which, by the other party(ies) to such contract, agreement or
      instrument could reasonably be expected to result in a Material Adverse Effect,
      (iii) is in violation of any term of or in default under any contract, agreement
      or instrument relating to any Indebtedness, except where such violations and
      defaults would not result, individually or in the aggregate, in a Material
      Adverse Effect, or (iv) is a party to any contract, agreement or instrument
      relating to any Indebtedness, the performance of which, in the judgment of
      the
      Company's officers, has or is expected to have a Material Adverse Effect. For
      purposes of this Agreement: (x) “Indebtedness”
of
      any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services, including (without limitation) “capital leases” in
      accordance with generally accepted accounting principles (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of property, assets or businesses, (E) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by any Person, even though the Person which
      owns such assets or property has not assumed or become liable for the payment
      of
      such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; (y) “Contingent
      Obligation”
means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto; and (z) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    (s) Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      or, to the knowledge of the Company, threatened against or affecting the Company
      or any of its Subsidiaries, the Common Stock or any of the Company's
      Subsidiaries or any of the Company's or its Subsidiaries' officers or directors,
      except for such actions, suits, proceedings, inquiries or investigations that
      would not, either individually or in the aggregate, reasonably be expected
      to
      result in a Material Adverse Effect. 

     

    (t) Employee
      Relations.
      

     

    (i) Neither
      the Company nor any of its Subsidiaries is a party to any collective bargaining
      agreement or employs any member of a union. The Company and its Subsidiaries
      believe that their relations with their employees are good. No executive officer
      of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
      1933
      Act) has notified the Company or any such Subsidiary that such officer intends
      to leave the Company or any such Subsidiary or otherwise terminate such
      officer's employment with the Company or any such Subsidiary. No executive
      officer of the Company or any of its Subsidiaries, is, or is now expected to
      be,
      in violation of any material term of any employment contract, confidentiality,
      disclosure or proprietary information agreement, non-competition agreement,
      or
      any other contract or agreement or any restrictive covenant, 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.

     

    (ii) The
      Company and its Subsidiaries, to their knowledge, are in compliance with all
      federal, state, local and foreign laws and regulations respecting labor,
      employment and employment practices and benefits, terms and conditions of
      employment and wages and hours, except where failure to be in compliance would
      not, either individually or in the aggregate, reasonably be expected to result
      in a Material Adverse Effect.

     

    (u) Title.
      Except
      as would either, individually or in the aggregate, reasonably be expected to
      result in a Material Adverse Effect, the Company and its Subsidiaries have
      good
      and marketable title to all real property and good and marketable title to
      all
      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 or 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 any of its Subsidiaries. Any real property and facilities held
      under
      lease by the Company and any of its Subsidiaries are held by them under valid,
      subsisting and enforceable leases except for such exceptions that would not,
      either individually or in the aggregate, reasonably be expected to result in
      a
      Material Adverse Effect.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    (v) Intellectual
      Property Rights.
      The
      Company and its Subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, service marks and all applications and registrations therefor,
      trade names, patents, patent rights, copyrights, original works of authorship,
      inventions, trade secrets and other intellectual property rights (“Intellectual
      Property Rights”)
      necessary to conduct their respective businesses as now conducted such
      exceptions that would not, either individually or in the aggregate, reasonably
      be expected to result in a Material Adverse Effect. The Company does not have
      any knowledge of any infringement by the Company or its Subsidiaries of
      Intellectual Property Rights of others. There is no claim, action or proceeding
      being made or brought, or to the knowledge of the Company, being threatened,
      against the Company or its Subsidiaries regarding its Intellectual Property
      Rights. Neither the Company nor any of its Subsidiaries is aware of any facts
      or
      circumstances which might give rise to any of the foregoing infringements or
      claims, actions or proceedings. The Company and its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of all of their Intellectual Property Rights.

     

    (w) Environmental
      Laws.
      The
      Company and its Subsidiaries, to their knowledge, (i) are in compliance with
      any
      and all applicable Environmental Laws (as hereinafter defined), (ii) have
      received all permits, licenses or other approvals required of them under
      applicable Environmental Laws to conduct their respective businesses and (iii)
      are in compliance with all terms and conditions of any such permit, license
      or
      approval where, in each of the foregoing clauses (i), (ii) and (iii), the
      failure to so comply could be reasonably expected to have, individually or
      in
      the aggregate, a Material Adverse Effect. The term “Environmental
      Laws”
means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants, contaminants, or toxic or
      hazardous substances or wastes (collectively, “Hazardous
      Materials”) into
      the
      environment, or otherwise relating to the manufacture, processing, distribution,
      use, treatment, storage, disposal, transport or handling of Hazardous Materials,
      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.

     

    (x) Subsidiary
      Rights.
      The
      Company or one of its Subsidiaries has the unrestricted right to vote, and
      (subject to limitations imposed by applicable law) to receive dividends and
      distributions on, all capital securities of its Subsidiaries as owned by the
      Company or such Subsidiary.

     

    (y) Tax
      Status.
      The
      Company and each of its Subsidiaries (i) has made or 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
      being contested in good faith and (iii) has set aside on its books provision
      reasonably adequate for the payment of all taxes for periods subsequent to
      the
      periods to which such returns, reports or declarations apply. There are no
      unpaid taxes in any material amount claimed to be due by the taxing authority of
      any jurisdiction, and the officers of the Company know of no basis for any
      such
      claim.

     

    (z) Internal
      Accounting and Disclosure Controls.
      The
      Company and each of its Subsidiaries maintain 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 generally accepted accounting principles 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
      difference. The Company maintains disclosure controls and procedures (as such
      term is defined in Rule 13a-14 under the 1934 Act) that are effective in
      ensuring that information required to be disclosed by the Company in the reports
      that it files or submits to the SEC is recorded, processed, summarized and
      reported, within the time periods specified in the rules and forms of the SEC,
      including, without limitation, controls and procedures designed in to ensure
      that information required to be disclosed by the Company in the reports that
      it
      files or submits to the SEC is accumulated and communicated to the Company's
      management, including its principal executive officer or officers and its
      principal financial officer or officers, as appropriate, to allow timely
      decisions regarding required disclosure. During the twelve months prior to
      the
      date hereof neither the Company nor any of its Subsidiaries have received any
      notice or correspondence from any accountant relating to any potential material
      weakness in any part of the system of internal accounting controls of the
      Company or any of its Subsidiaries.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    (aa) 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 SEC Documents and is not so disclosed or that
      otherwise would be reasonably likely to have a Material Adverse
      Effect.

     

    (bb) Investment
      Company Status.
      The
      Company is not, and upon consummation of the sale of the Securities will not
      be,
      an “investment company,” a company controlled by an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company” as such terms are defined in the Investment Company Act of
      1940, as amended.

     

    (cc) Transfer
      Taxes.
      On the
      Closing Date, all stock transfer or other taxes (other than income or similar
      taxes) which are required to be paid in connection with the sale and transfer
      of
      the Securities to be sold to Pope hereunder will be, or will have been, fully
      paid or provided for by the Company, and all laws imposing such taxes will
      be or
      will have been complied with.

     

    (dd) Manipulation
      of Price.
      The
      Company has not, and to its knowledge no one acting on its behalf has, (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      Securities, or (iii)  paid or agreed to pay to any person any compensation
      for soliciting another to purchase any other securities of the
      Company.

     

    (ee) Disclosure.
      All
      disclosure provided to Pope regarding the Company or any of its Subsidiaries,
      their business and the transactions contemplated hereby, furnished by or on
      behalf of the Company is true and correct and does not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in the light of the circumstances
      under which they were made, not misleading. Each press release issued by the
      Company or any of its Subsidiaries during the twelve (12) months preceding
      the
      date of this Agreement did not at the time of release contain any untrue
      statement of a material fact or omit to state a material fact required to be
      stated therein or necessary in order to make the statements therein, in the
      light of the circumstances under which they were made, not misleading. No event
      or circumstance has occurred or information exists with respect to the Company
      or any of its Subsidiaries or its or their business, properties, prospects,
      operations or financial conditions, which, under applicable law, rule or
      regulation, requires public disclosure or announcement by the Company but which
      has not been so publicly announced or disclosed.

     

    (ff) U.S.
      Real Property Holding Corporation.
      The
      Company is not, nor has it ever been, a U.S. real property holding corporation
      within the meaning of Section 897 of the Internal Revenue Code of 1986, as
      amended, and the Company shall so certify upon any Pope's request.

     

    4. COVENANTS.

     

    (a) Efforts.
      Each
      party shall use commercially reasonable efforts timely to satisfy each of the
      conditions to be satisfied by it as provided in Sections 6 and 7 of this
      Agreement. 

     

    (b) Form
      D
      and Blue Sky.
      The
      Company shall file a Form D (if required due to the fact that an applicable
      exemption under the Securities Act is available) with respect to the Securities
      as required under Regulation D and to provide a copy thereof to Pope promptly
      after such filing. The Company shall, on or before the Closing Date, 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 Pope at the 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 Pope 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.


     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    (c) Reporting
      Status.
      Until
      the date on which all of the Note Shares outstanding have been sold, (the
“Reporting
      Period”),
      the
      Company shall timely file all periodic reports and Current Reports on Form
      8-K
      required to be filed with the SEC pursuant to the 1934 Act.

     

    (d) Use
      of
      Proceeds.
      Subject
      to the discretion of the board of directors of the Company, the Company will
      use
      the proceeds from the sale of the Securities as
      follows: (i) $18 million ($18,000,000) for the construction of a new
      processing facility with at least 150 ton annual production capacity, (ii)
      $7
      million ($7,000,000) for capital expenditures relating to the expansion of
      the
      Company’s existing business through (x) opening new Company operated retail
      outlets, and (y) expanding its operations in the bulk additive business, and
      (iii) if there are any remaining proceeds, for general expansion, capital
      expenditures and such other uses as the Company may from time to time
      designate.

     

    (e) Financial
      Information.
      The
      Company agrees to send the following to the Noteholders during the Reporting
      Period (i) unless the following are filed with the SEC through EDGAR and are
      available to the public through the EDGAR system, within one (1) Business Day
      after the filing thereof with the SEC, a copy of its Annual Reports and
      Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any Current Reports
      on
      Form 8-K and any registration statements (other than on Form S-8) or amendments
      filed pursuant to the 1933 Act, (ii) on the same day as the release thereof,
      facsimile or e-mailed copies of all press releases issued by the Company or
      any
      of its Subsidiaries, and (iii) copies of any notices and other information
      made
      available or given to the stockholders of the Company generally,
      contemporaneously with the making available or giving thereof to the
      stockholders. As used herein, “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.

     

    (f) Fees.
      The
      Company shall be responsible for the payment of any placement agent's fees,
      if
      any, financial advisory fees, or broker's commissions relating to or arising
      out
      of the transactions contemplated hereby. The Company shall pay, and hold Pope
      harmless against, any liability, loss or expense (including, without limitation,
      reasonable attorney's fees and out-of-pocket expenses) arising in connection
      with any claim relating to any such payment. 

     

    (g) Pledge
      of Securities.
      The
      Company acknowledges and agrees that the Securities may be pledged by a
      Noteholder in connection with a bona fide margin agreement or other loan or
      financing arrangement that is secured by the Securities. The pledge of
      Securities shall not be deemed to be a transfer, sale or assignment of the
      Securities hereunder, and should any Noteholder effect a pledge of Securities,
      it shall not be required to provide the Company with any notice thereof or
      otherwise make any delivery to the Company pursuant to this Agreement or any
      other Transaction Document, including, without limitation, Section 2(f) hereof;
      provided that the Noteholders and its pledgee shall be required to comply with
      the provisions of Section 2(f) hereof in order to effect a sale, transfer or
      assignment of Securities to such pledgee. The Company hereby agrees to execute
      and deliver such documentation as a pledgee of the Securities may reasonably
      request in connection with a pledge of the Securities to such pledgee by a
      Noteholder.

     

    (h) Disclosure
      of Transactions and Other Material Information.
      On or
      before 8:30 a.m., New York City time, within four (4) Business Days following
      the Closing Date, the Company shall issue a press release and file a Current
      Report on Form 8-K describing the terms of the transactions contemplated by
      the
      Transaction Documents in the form required by the 1934 Act and attaching the
      material Transaction Documents (including, without limitation, this Agreement,
      the form of Note, the form of the Registration Rights Agreement, the form of
      Guarantee, the form of Investor rights Agreement, and such financial statements
      and other information as required in connection with the Exchange Agreement)
      as
      exhibits to such filing (including all attachments, the “8-K
      Filing”).
      Subject to the foregoing, neither the Company, its Subsidiaries nor Pope shall
      issue any press releases or any other public statements with respect to the
      transactions contemplated hereby; provided, however, that the Company shall
      be
      entitled, without the prior approval of Pope, to make any press release or
      other
      public disclosure with respect to such transactions (i) in substantial
      conformity with the 8-K Filing and contemporaneously therewith and (ii) as
      is
      required by applicable law and regulations (provided that in the case of clause
      (i) Pope shall be consulted by the Company in connection with any such press
      release or other public disclosure prior to its release). Without the prior
      written consent of Pope, neither the Company nor any of its Subsidiaries or
      affiliates shall disclose the name of Pope in any filing, announcement, release
      or otherwise, unless required by law or unless required by any securities
      exchange on which the Company’s stock is traded or upon which the Company is
      applying for trading privileges.

     

    
      
        
        

      

      
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    (i) No
      Senior Indebtedness.
      The
      Company shall not issue any notes, bonds, indentures or similar instruments
      for
      borrowed money with rights to payment senior to that of the Notes. 

     

    (j) Corporate
      Existence.
      The
      Company shall do or cause to be done all things necessary to preserve and keep
      in full force and effect its existence and rights (charter and statutory);
      provided that the Company shall not be required to preserve any such right
      if
      the Company and the Major Shareholder shall determine that the preservation
      thereof is no longer desirable in the conduct of the business of the Company
      and
      that the loss thereof is not disadvantageous in any material respect to the
      Noteholders. Notwithstanding the foregoing, the Company shall not be party
      to
      any Fundamental Transaction (as defined in the Note) unless the Company is
      in
      compliance with the applicable provisions governing Fundamental Transactions
      set
      forth in the Note.

     

    (k) Reservation
      of Shares.
      The
      Company shall take all action necessary to at all times have authorized, and
      reserved for the purpose of issuance, no less than 150% of the maximum number
      of
      shares of Common Stock issuable upon conversion of the Notes then
      outstanding.

     

    (l)  Government
      Approvals and Licenses; Compliance with Law.
      The
      Company shall, and the Company shall cause its Subsidiaries to, (a) obtain
      and
      maintain in full force and effect all Governmental Approvals, authorizations,
      consents, permits, concessions and licenses as are necessary to engage in the
      business of the Company and the Subsidiaries, (b) preserve and maintain good
      and
      valid title to its properties and assets (including land-use rights) free and
      clear of any Liens other than Permitted Liens and (c) comply with all laws,
      regulations, orders, judgments and decrees of any governmental body, except
      to
      the extent that failure so to obtain, maintain, preserve and comply would
      reasonably be expected to have a material adverse effect on (1) the business,
      results of operations or prospects of the Company and its Subsidiaries taken
      as
      a whole or (2) the ability of the Company to perform its obligations under
      the
      Notes and this Agreement. 

     

    (m) Additional
      Issuances of Securities.

     

    (i) For
      purposes of this Section 4(m), the following definitions shall
      apply.

     

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

     

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

     

    (3) “Common
      Stock Equivalents”
means,
      collectively, Options and Convertible Securities.

     

    (ii) For
      so
      long as the Notes remain outstanding, in whole or in part, the Company will
      not,
      directly or indirectly, effect, offer, sell, grant any option to purchase,
      or
      otherwise dispose of (or announce any offer, sale, grant or any option to
      purchase or other disposition of) any of its or its Subsidiaries' equity or
      equity equivalent securities, including without limitation any debt, preferred
      stock or other instrument or security that is, at any time during its life
      and
      under any circumstances, convertible into or exchangeable or exercisable for
      shares of Common Stock or Common Stock Equivalents of the Company or any
      Subsidiary (any such offer, sale, grant, disposition or announcement being
      referred to as a “Subsequent
      Placement”),
      except for grants or issuances with respect to not more than 1,700,000 shares
      of
      Common Stock pursuant to an Approved Stock Plan (as defined in the Note), unless
      the Company shall have first complied with this Section 4(m)(ii). 

     

    (1) The
      Company shall deliver to the Noteholders an irrevocable written notice
      (the ”Offer
      Notice”)
      of any
      proposed or intended issuance or sale or exchange (the ”Offer”)
      of the
      securities being offered (the “Offered
      Securities”)
      in a
      Subsequent Placement, which Offer Notice shall (w) identify and describe the
      Offered Securities, (x) describe the price and other terms upon which they
      are to be issued, sold or exchanged, and the number or amount of the Offered
      Securities to be issued, sold or exchanged, (y) identify the persons or
      entities (if known) to which or with which the Offered Securities are to be
      offered, issued, sold or exchanged and (z) offer to issue and sell to or
      exchange with the Noteholders (a) such portion of the Offered Securities
      (“Pro
      Rata Share”)
      as
      would be necessary for the Noteholders to retain, after the issuance of the
      Offered Securities, its respective pro rata share of Common Stock outstanding
      determined on a fully diluted basis and assuming the issuance of the full amount
      of Offered Securities, and (b) if a Noteholder elects to purchase its Pro Rata
      Share, any additional portion of the Offered Securities offered as the
      Noteholders shall indicate it will purchase or acquire should any remain
      unsubscribed for (the “Undersubscription
      Amount”)
      which
      process shall be repeated until the Noteholders shall have an opportunity to
      subscribe for any remaining Undersubscription Amount.

     

    
      
        
        

      

      
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    (2) To
      accept
      an Offer, in whole or in part, the Noteholder must deliver a written notice
      to
      the Company prior to the end of the tenth (10th)
      Business Day after it's receipt of the Offer Notice (the “Offer
      Period”),
      setting forth the portion of its Pro Rata Share that such Noteholder elects
      to
      purchase and, if a Noteholder shall elect to purchase all of its Pro Rata Share,
      such portion of the Undersubscription Amount, if any, that such Noteholder
      elects to purchase (in either case, the “Notice
      of Acceptance”).
      If
      the aggregate of (i) the Pro Rata Shares subscribed for by Noteholders pursuant
      hereto, plus (ii) the aggregate amount of Offered Securities subscribed for
      by
      other Noteholders be less than the total amount of Offered Securities, then
      if a
      Noteholder has set forth an Undersubscription Amount in its Notice of
      Acceptance, it shall be entitled to purchase, in addition to its initial Pro
      Rata Share subscribed for, its Pro Rata Share of the Undersubscription
      Amount.

     

    (3) The
      Company shall have fifteen (15) Business Days from the expiration of the Offer
      Period above to (i) offer, issue, sell or exchange all or any part of such
      Offered Securities as to which a Notice of Acceptance has not been given by
      Noteholders (the “Refused
      Securities”),
      but
      only to the offerees described in the Offer Notice (if so described therein)
      and
      only upon terms and conditions (including, without limitation, prices and
      interest rates) that are not more favorable to the acquiring person or persons
      or less favorable to the Company than those set forth in the Offer Notice and
      (ii) to publicly announce (a) the execution of such Subsequent Placement
      Agreement, and (b) either (x) the consummation of the transactions contemplated
      by such Subsequent Placement Agreement or (y) the termination of such Subsequent
      Placement Agreement, which shall be filed with the SEC on a Current Report
      on
      Form 8-K with such Subsequent Placement Agreement and any documents contemplated
      therein filed as exhibits thereto.

     

    (4) In
      the
      event the Company shall propose to sell less than all the Refused Securities
      (any such sale to be in the manner and on the terms specified in Section
      4(m)(ii)(3) above), then any Noteholder may, at its sole option and in its
      sole
      discretion, reduce the number or amount of the Offered Securities specified
      in
      its Notice of Acceptance to an amount that shall be not less than the number
      or
      amount of the Offered Securities that such Noteholder elected to purchase
      pursuant to Section 4(m)(ii)(2) above multiplied by a fraction, (i) the
      numerator of which shall be the number or amount of Offered Securities the
      Company actually proposes to issue, sell or exchange (including Offered
      Securities to be issued or sold to Noteholders pursuant to Section 4(m)(ii)(3)
      above prior to such reduction) and (ii) the denominator of which shall be the
      original amount of the Offered Securities. In the event that a Noteholder so
      elects to reduce the number or amount of Offered Securities specified in its
      Notice of Acceptance, the Company may not issue, sell or exchange more than
      the
      reduced number or amount of the Offered Securities unless and until such
      securities have again been offered to Noteholders in accordance with
      Section 4(m)(ii)(1) above.

     

    (5) Upon
      the
      closing of the issuance, sale or exchange of all or less than all of the Refused
      Securities, the Noteholders shall acquire from the Company, and the Company
      shall issue to the Noteholders, the number or amount of Offered Securities
      specified in their respective Notices of Acceptance, as reduced pursuant to
      Section 4(m)(ii)(3) above if the Noteholder has so elected, upon the terms
      and
      conditions specified in the Offer. Notwithstanding anything to the contrary
      contained in this Agreement, if the Company does not consummate the closing
      of
      the issuance, sale or exchange of all or less than all of the Refused Securities
      within fifteen (15) Business Days of the expiration of the Offer Period, the
      Company shall issue to the Noteholders the number or amount of Offered
      Securities specified in their respective Notices of Acceptance, as reduced
      pursuant to Section 4(m)(ii)(4) above if a Noteholder has so elected, upon
      the
      terms and conditions specified in the Offer. The purchase by any Noteholder
      of
      any Offered Securities is subject in all cases to the preparation, execution
      and
      delivery by the Company and the holders of a majority of the principal amount
      of
      then outstanding Notes who have delivered Notices of Acceptance of a purchase
      agreement relating to such Offered Securities reasonably satisfactory in form
      and substance to them.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

       

    

    (6) Any
      Offered Securities not acquired by a Noteholder or other persons in accordance
      with Section 4(m)(ii)(3) above may not be issued, sold or exchanged until they
      are again offered to Noteholders under the procedures specified in this
      Agreement.

     

    (7) The
      Company covenants and agrees that if any Noteholder elects to participate in
      the
      Offer, neither the Subsequent Placement Agreement with respect to such Offer
      nor
      any other transaction documents related thereto (collectively, the “Subsequent
      Placement Documents”)
      shall
      include any term or provisions whereby any Noteholder shall be required to
      agree
      to any restrictions in trading as to any securities of the Company owned by
      such
      Noteholder prior to such Subsequent Placement.

     

    (iii) The
      restrictions contained in subsection (ii) of this Section 4(m) shall not apply
      in connection with the issuance of up to 1,700,000 shares of Common Stock
      pursuant to an Approved Stock Plan (as defined in the Note).

     

    (n) Listing
      on The NASDAQ Capital Market or The American Stock Exchange.
      As soon
      as practicable following qualification therefor, the Company shall file a
      listing application with The NASDAQ Capital Market or The American Stock
      Exchange with respect to the Company's Common Stock and all of the Registrable
      Securities, and the Company shall use commercially reasonable efforts to cause
      such securities to be listed on The NASDAQ Capital Market or The American Stock
      Exchange as soon as practicable thereafter.

     

    (o) Board
      Observer Rights.
      Subject
      to the execution of a non-disclosure agreement, customary in form and substance,
      as requested in good faith by the Company, the Company shall allow one
      representative of Pope, for so long as Pope and its Affiliates beneficially
      own
      in the aggregate at least 1,100,000 shares of Common Stock (including any Notes
      Shares that would be issuable upon conversion of any Notes), subject to
      proportional adjustments to reflect stock-splits, combinations, subdivisions,
      or
      the like, to attend all meetings of the Board and the Audit Committee of the
      Board, in each case in a nonvoting capacity, and in connection with such
      observer’s attendance, the Company shall give such representative copies of all
      notices, minutes, consents and other materials, financial or otherwise, which
      the Company provides to the Board or Audit Committee, as the case may be, prior
      to any such meeting. Pope shall provide the Company with written notice
      identifying the individual who shall exercise board observation rights on behalf
      of Pope from time to time, which individual shall be reasonably acceptable
      to
      the Company. 

     

             Notwithstanding
      the foregoing, the Board reserves the right, in the good faith exercise of
      its
      reasonable business judgment, to exclude any board observer from (1) attending
      any portion(s) of any Board or Audit Committee meeting or (2) receiving
      materials delivered to the rest of the Board or Audit Committee in connection
      with such portion(s) of such Board meeting if
      (x) the Company believes upon advice of counsel that such exclusion is
      reasonably necessary to preserve the attorney-client privilege between the
      Company and its counsel; (y) access to such information or attendance at such
      meeting could create a conflict of interest between Pope or its observer
      representative, on the one hand, and the Company, on the other hand, or (z)
      such
      portion of a meeting is an executive session limited solely to members of the
      Board of Directors and legal counsel;
      provided, however, that notwithstanding the foregoing, the Board may, in the
      exercise of its reasonable business judgment, permit such observer to attend
      such portions of a Board or Audit Committee meeting and receive such materials
      on the condition that such observer does not trade in the Company’s common stock
      based on such information or share the contents of the meeting or the materials
      with any person or entity. The decision of the Board with respect to any such
      exclusion shall be final and binding.

    


    (p) Maintenance
      of Properties.
      The
      Company shall cause all properties used or useful in the conduct of the
      Company’s business or the business of its Subsidiaries to be maintained and kept
      in good condition, repair and working order and supplied with all necessary
      equipment and will cause to be made all necessary repairs, renewals,
      replacements, betterments and improvements thereof, all as in the judgment
      of
      the Company may be necessary so that the business carried on in connection
      therewith may be properly conducted at all times; provided
      that
      nothing in this Section shall prevent the Company from discontinuing the
      operation or maintenance of any of such properties if such discontinuance is,
      in
      the judgment of the Company, desirable in the conduct of its business or the
      business of any Subsidiary and not disadvantageous in any material respect
      to
      the Noteholders.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

       

    

    (q) Payment
      of Taxes and other Claims.
      The
      Company will pay or discharge, or cause to be paid or discharged, before the
      same may become delinquent, (i) all taxes, assessments and governmental charges
      levied or imposed upon the Company or any Subsidiary or upon the income, profits
      or property of the Company or any Subsidiary, (ii) all claims for labor,
      materials and supplies which, if unpaid, might by law become a lien or charge
      upon the property of the Company or any Subsidiary and (iii) all stamp taxes
      and
      other duties, if any, which may be imposed under the laws of any applicable
      jurisdiction in connection with the issuance, transfer, exchange, conversion,
      redemption or repurchase of any Notes or with respect to this Agreement;
provided
      that, in
      the case of clauses (i) and (ii), the Company shall not be required to pay
      or
      discharge or cause to be paid or discharged any such tax, assessment, charge
      or
      claim (A) if the failure to do so will not, in the aggregate, have a Material
      Adverse Effect on the Company, or (B) if the amount, applicability or validity
      is being contested in good faith by appropriate proceedings. 

     

    (r) Stay,
      Extension and Usury Laws.
      The
      Company covenants (to the extent that it may lawfully do so) that it shall
      not
      at any time insist upon, plead, or in any manner whatsoever claim or take the
      benefit or advantage of, any stay, extension or usury law or other law which
      would prohibit or forgive the Company from paying all or any portion of the
      principal of or interest on the Notes as contemplated herein, wherever enacted,
      now or at any time hereafter in force, or which may affect the covenants or
      the
      performance of this Agreement or the Notes, and the Company (to the extent
      it
      may lawfully do so) hereby expressly waives all benefit or advantage of any
      such
      law, and covenants that it will not, by resort to any such law, hinder, delay
      or
      impede the execution of any power herein granted to the Noteholders, but will
      suffer and permit the execution of every such power as though no such law had
      been enacted.

     

    (s) Additional
      Debt.
      The
      Company shall not permit any of its Subsidiaries to incur any additional
      Indebtedness if the proceeds thereof are used, directly or indirectly, to
      refinance any then outstanding Indebtedness of the Company. 

     

    (t) Restricted
      Payments.
      The
      Company shall not, and shall not permit its Subsidiaries to, directly or
      indirectly, make any Restricted Payment if at the time of, and after giving
      effect to, such proposed Restricted Payment,
      (i) the
      Consolidated Net Worth would be less than $25 Million ($25,000,000), or (ii)
      a
      Default or Event of Default (as defined in the Notes) shall have occurred and
      be
      continuing. The term “Restricted
      Payments”
means:
      

     

    (1)
       any
      dividend or distribution (whether made in cash, securities or other Property)
      declared or paid on or with respect to any shares of Capital Stock of the
      Company or any of its Subsidiaries (including any payment in connection with
      any
      merger or consolidation with or into the Company or any of its Subsidiaries)
      in
      an amount in excess of $500,000 annually, except for any dividend or
      distribution that is made solely to the Company or any of its Subsidiaries
      or
      any dividend or distribution payable solely in shares of Capital Stock of the
      Company; or

     

    (2)
       the
      purchase, repurchase, redemption, acquisition or retirement for value of any
      Capital Stock of the Company or any of its Subsidiaries (other than from the
      Company or any of its Subsidiaries) or any securities exchangeable for or
      convertible into any such Capital Stock, including the exercise of any option
      to
      exchange any Capital Stock.

     

    (u)  Asset
      Sales. The
      Company shall not, shall not permit its Subsidiaries to, directly or indirectly,
      consummate any Asset Sale unless approved by Pope or in the ordinary course
      of
      business.  

     

    (v) Affiliate
      Transactions. Except
      in
      the ordinary course of business, the Company shall not, and shall not permit
      its
      Subsidiaries to, directly or indirectly, conduct any business or enter into
      or
      suffer to exist any transaction or series of transactions (including the
      purchase, sale, transfer, assignment, lease, conveyance or exchange of any
      Property or the rendering of any service) with, or for the benefit of, any
      Affiliate of the Company (an “Affiliate
      Transaction”),
      unless:

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

       

    

    (i)
      the
      terms of such Affiliate Transaction are:

     

    (1)
      set
      forth in writing, 

     

    (2)
      in
      the best interest of the Company or such Subsidiary, as the case may be, and
      

     

    (3)
      except as required by Applicable Law, no less favorable to the Company or such
      Subsidiary, as the case may be, than those that could be obtained in a
      comparable arm’s-length transaction with a Person that is not an Affiliate of
      the Company,

     

    (ii)
      if
      any single such Affiliate Transaction or series of related payments comprising
      part of a single transaction (“Related
      Affiliate Transactions”)
      involve or involves total aggregate payments or value in excess of US$2.5
      million, the Board of Directors (including a majority of the disinterested
      members of the Board of Directors) approves such Affiliate Transaction or
      Related Affiliate Transactions and, in its good faith judgment, believes that
      such Affiliate Transaction or Related Affiliate Transactions comply with clauses
      (i)(2) and (3) of this paragraph as evidenced by a Board Resolution promptly
      delivered to the Noteholders, and 

     

    (iii)
      if
      such single such Affiliate Transaction or Related Affiliate Transactions involve
      or involves total aggregate payments or value in excess of US$5.0 million,
      the
      Company obtains a written opinion from an Independent Financial Advisor to
      the
      effect that the consideration to be paid or received in connection with such
      Affiliate Transaction or Related Affiliate Transactions are fair, from a
      financial point of view, to the Company and its Subsidiaries.Notwithstanding
      the foregoing limitation, the Company or any of its Subsidiaries may enter
      into
      or suffer to exist the following:

     

    (a) any
      transaction or series of transactions between the Company and one or more of
      its
      Subsidiaries or between two or more of its Subsidiaries in the ordinary course
      of business, provided
      that no
      more than 10% of the total voting power of the Voting Stock (on a fully diluted
      basis) of any such Subsidiary is owned by an Affiliate of the Company (other
      than any Subsidiary of the Company);

     

    (b) the
      payment of compensation (including amounts paid pursuant to employee benefit
      plans) for the personal services of officers, directors and employees of the
      Company or any of its Subsidiaries, so long as the Board of Directors in good
      faith shall have approved the terms thereof and deemed the services theretofore
      or thereafter to be performed for such compensation to be fair consideration
      therefor; and

     

    (c) loans
      and
      advances to employees made in the ordinary course of business and consistent
      with the past practices of the Company or such Subsidiary, as the case may
      be,
provided
      that
      such
      loans and advances do not exceed US$100,000 in the aggregate at any one time
      outstanding.

     

    (x)
      Pledge
      of Subsidiary Stock.
      The
      Company shall enter into a pledge agreement (the “SGI
      Pledge Agreement”)
      with
      Pope as promptly as reasonably practicable after the Closing in order to provide
      Pope with a security interest in all of the shares of the capital stock (the
      “SGI
      Shares”)
      of
      Sinosmart Group, Inc. (“SGI”),
      a
      wholly-owned subsidiary of the Company. The Company will use commercially
      reasonable efforts to the extent legally practicable to effect such security
      interest in the SGI shares. The SGI Pledge Agreement and any ancillary documents
      shall be in form and substance reasonably satisfactory to the Company.


     

    5. REGISTER;
      TRANSFER AGENT INSTRUCTIONS.

     

    (a) Register.
      The
      Company shall maintain at its principal executive offices (or such other office
      or agency of the Company as it may designate by notice to each holder of
      Securities), a register for the Note in which the Company shall record the
      name
      and address of the Person in whose name the Note has been issued (including
      the
      name and address of each transferee of all or any portion of the Note) and
      the
      number of Note Shares issuable upon conversion of the held by such Person.
      The
      Company shall keep the register open and available at all times during business
      hours for inspection of Pope or its legal representatives.

     

    
      
        
        

      

      
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    6. CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.

     

    The
      obligation of the Company hereunder to issue and sell the Notes to Pope at
      the
      Closing is subject to the satisfaction, at or before the Closing Date, of each
      of the following conditions, provided that these conditions are for the
      Company's sole benefit and may be waived by the Company at any time in its
      sole
      discretion by providing Pope with prior written notice thereof:

     

    (i) Pope
      shall have executed each of the Transaction Documents to which it is a party
      and
      delivered the same to the Company.

     

    (ii) The
      representations and warranties of Pope shall be true and correct in all material
      respects (except for those representations and warranties that are qualified
      by
      materiality or Material Adverse Effect, which shall be true and correct in
      all
      respects) as of the date when made and as of the Closing Date as though made
      at
      that time (except for representations and warranties that speak as of a specific
      date, which shall be true and correct as of such specified date), and Pope
      shall
      have performed, satisfied and complied in all material respects with the
      covenants, agreements and conditions required by this Agreement to be performed,
      satisfied or complied with by Pope at or prior to the Closing Date.

     

    (iii) Pope
      shall have delivered to the Company the Purchase Price.

     

    (iv) All
      governmental, regulatory or third party consents and approvals, if any,
      necessary for the sale of the Securities shall have been obtained.

     

    7. CONDITIONS
      TO POPE'S OBLIGATION TO PURCHASE.

     

    The
      obligation of Pope hereunder to purchase the Note at the Closing is subject
      to
      the satisfaction, at or before the Closing Date, of each of the following
      conditions, provided that these conditions are for Pope's sole benefit and
      may
      be waived by Pope at any time in its sole discretion by providing the Company
      with prior written notice thereof:

     

    (i) The
      Company shall have duly executed and delivered to Pope (i) each of the
      Transaction Documents and (ii) the Notes to be purchased by Pope at the Closing
      pursuant to this Agreement.

     

    (ii) Pope
      shall have received the opinion of Kirkpatrick and Lockhart Preston Gates &
Ellis LLP, the Company’s outside counsel, dated as of the Closing Date.


     

    (iii) The
      Company shall have delivered to Pope a certified copy of the Certificate of
      Incorporation as certified by the Secretary of State of the State of Delaware
      within ten (10) days of the Closing Date. 

     

    (iv) The
      Company shall have delivered to Pope a certificate, executed by the Secretary
      of
      the Company and dated as of the Closing Date in a form reasonably acceptable
      to
      Pope, as to (i) the resolutions consistent with Section 3(b) as adopted by
      the
      Company's board of directors, (ii) the Certificate of Incorporation and (iii)
      the Bylaws, each as in effect at the Closing.

     

    (v) The
      Major
      Shareholder shall have executed and delivered (i) the Guarantee and (ii) the
      Pledge Agreement (and shall have delivered or cause to be delivered, or
      registered, the Guarantee Shares in accordance with the Pledge Agreement, and
      taken such other actions as Pope may reasonably require to perfect its interests
      in the Guarantee Shares).

     

    (vi) The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date, which shall be true and correct as of such specified
      date) and the Company shall have performed, satisfied and complied in all
      material respects with the covenants, agreements and conditions required by
      the
      Transaction Documents to be performed, satisfied or complied with by the Company
      at or prior to the Closing Date. Pope shall have received a certificate,
      executed by the Chief Executive Officer of the Company, dated as of the Closing
      Date, to the foregoing effect in a form reasonably acceptable to
      Pope.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

       

    

    (vii) The
      Company shall have delivered to Pope a letter from the Company's transfer agent
      certifying the number of shares of Common Stock outstanding as of a date within
      five days of the Closing Date.

     

    (viii) The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for the sale of the Securities.

     

    8. TERMINATION.
      In
      the
      event that the Closing shall not have occurred on or before fifteen (15)
      Business Days from the date hereof due to the Company's or Pope's failure to
      satisfy the conditions set forth in Sections 6 and 7 above (and the no breaching
      party's failure to waive such unsatisfied condition(s)), the no breaching party
      shall have the option to terminate this Agreement with respect to such breaching
      party at the close of business on such date without liability of any party
      to
      any other party.

     

    9. MISCELLANEOUS.

     

    (a) Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement 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
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in the State of Delaware, for the adjudication
      of any dispute hereunder or in connection herewith or with any transaction
      contemplated hereby or discussed herein, and hereby irrevocably waives, and
      agrees not to assert in any suit, action or proceeding, any claim that it is
      not
      personally subject to the jurisdiction of any such court, that such suit, action
      or proceeding is brought in an inconvenient forum or that the venue of such
      suit, action or proceeding is improper. Each party hereby irrevocably waives
      personal service of process and consents to process being served in any such
      suit, action or proceeding by mailing a copy thereof to such party at the
      address for such 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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY. 

     

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      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;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    (c) Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

       

    

    (e) Entire
      Agreement; Amendments.
      This
      Agreement and the other Transaction Documents supersede all other prior oral
      or
      written agreements between Pope, the Company, their affiliates and Persons
      acting on their behalf with respect to this transaction and this Agreement,
      the
      other Transaction Documents and the instruments referenced herein and therein
      contain the entire understanding of the parties with respect to the matters
      covered herein and therein and, except as specifically set forth herein or
      therein, neither the Company nor Pope makes any representation, warranty,
      covenant or undertaking with respect to such matters. No provision of this
      Agreement may be amended other than by an instrument in writing signed by the
      Company and the holders of at least a majority of the aggregate number of
      Registrable Securities issued and issuable hereunder, and any amendment to
      this
      Agreement made in conformity with the provisions of this Section 9(e) shall
      be
      binding on Pope and holders of Securities as applicable. No provision hereof
      may
      be waived other than by an instrument in writing signed by the party against
      whom enforcement is sought. No such amendment shall be effective to the extent
      that it applies to less than all of the holders of the applicable Securities
      then outstanding. No consideration shall be offered or paid to any Person to
      amend or consent to a waiver or modification of any provision of any of the
      Transaction Documents unless the same consideration also is offered to all
      of
      the parties to the Transaction Documents. The Company has not, directly or
      indirectly, made any agreements with Pope relating to the terms or conditions
      of
      the transactions contemplated by the Transaction Documents except as set forth
      in the Transaction Documents. Without limiting the foregoing, the Company
      confirms that, except as set forth in this Agreement, Pope has not made any
      commitment or promise or has any other obligation to provide any financing
      to
      the Company or otherwise. 

     

    (f) Notices.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile; or upon receipt, when sent by overnight
      delivery service. The addresses and facsimile numbers for such communications
      shall be:

     

    If
      to the
      Company:

     

    No.
      999
      Ningqiao Road

    Jinqiao
      Export Processing Zone

    Pudong,
      Shanghai 201206

    People’s
      Republic of China

    Telephone: (86
      21)
      5834 9748

    Facsimile: (86-21)
      5031 0691

    Attention:
       Song
      Jinan

     

    with
      a
      copy to:

     

    Kirkpatrick
      & Lockhart Preston Gates Ellis, LLP

    925
      Fourth Avenue, Suite 2900

    Seattle,
      Washington 98104

    Telephone: 
      (206)
      370-7679

    Facsimile: 
      (206)
      370-6240

    Attention:
       Eric
      Simonson

     

    If
      to
      Pope:

     

    5100
      Poplar Avenue, Suite 804

    Memphis,
      Tennessee 38137

    Telephone:
       (901)
      763-4001

    Facsimile: 
      (901)
      763-4229 

    Attention:
       William
      Wells, Manager

    


    with
      a
      copy to:

     

    Wells,
      Moore, Simmons & Hubbard, PLLC

    Highland
      Bluff North, Suite 200

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

       

    

    4450
      Old
      Canton Road

    Jackson,
      Mississippi 39211

    Telephone: 
      (601)
      354-5400 

    Facsimile: 
      (601)
      355-5850

    Attention:
       R.
      Nash
      Neyland, Esq.

     

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such change. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender's facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by an
      overnight courier service shall be rebut table evidence of personal service,
      receipt by facsimile or receipt from an overnight courier service in accordance
      with clause (i), (ii) or (iii) above, respectively.

     

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and permitted assigns. The Company shall not assign
      this Agreement or any rights or obligations hereunder without the prior written
      consent of the holders of at least a majority of the aggregate number of
      Registrable Securities issued and issuable hereunder, including by way of a
      Fundamental Transaction (unless the Company is in compliance with the applicable
      provisions governing Fundamental Transactions set forth in the Note).


     

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    (i) Survival.
      Unless
      this Agreement is terminated under Section 8, the representations and warranties
      of the Company and Pope contained in Sections 2 and 3, and the agreements and
      covenants set forth in Sections 4, 5 and 9 shall survive the Closing.


     

    (j) Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as any other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    (k) Indemnification.
      In
      consideration of Pope's execution and delivery of the Transaction Documents
      and
      acquiring the Securities thereunder and in addition to all of the Company's
      other obligations under the Transaction Documents, the Company shall defend,
      protect, indemnify and hold harmless Pope and each other holder of the
      Securities and all of their stockholders, partners, members, officers,
      directors, employees and direct or indirect investors and any of the foregoing
      Persons' agents or other representatives (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the “Indemnities”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnities is a party to the action for
      which
      indemnification hereunder is sought), and including reasonable attorneys' fees
      and disbursements (the “Indemnified
      Liabilities”),
      incurred by any Indemnities as a result of, or arising out of, or relating
      to
      (a) any misrepresentation or breach of any representation or warranty made
      by
      the Company in the Transaction Documents or any other certificate, instrument
      or
      document contemplated hereby or thereby, (b) any breach of any covenant,
      agreement or obligation of the Company contained in the Transaction Documents
      or
      any other certificate, instrument or document contemplated hereby or thereby
      or
      (c) any cause of action, suit or claim brought or made against such Indemnities
      by a third party (including for these purposes a derivative action brought
      on
      behalf of the Company) and arising out of or resulting from (i) the execution,
      delivery, performance or enforcement of the Transaction Documents or any other
      certificate, instrument or document contemplated hereby or thereby, or (ii)
      any
      transaction financed or to be financed in whole or in part, directly or
      indirectly, with the proceeds of the issuance of the Securities. To the extent
      that the foregoing undertaking by the Company may be unenforceable for any
      reason, the Company shall make the maximum contribution to the payment and
      satisfaction of each of the Indemnified Liabilities that is permissible under
      applicable law. Except as otherwise set forth herein, the mechanics and
      procedures with respect to the rights and obligations under this Section 9(k)
      shall be the same as those set forth in Section 6 of the Registration Rights
      Agreement.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

       

    

    (l) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    (m) Remedies.
      Pope
      and each holder of the Securities shall have all rights and remedies set forth
      in the Transaction Documents and all rights and remedies which such holders
      have
      been granted at any time under any other agreement or contract and all of the
      rights which such holders have under any law. Any Person having any rights
      under
      any provision of this Agreement shall be entitled to enforce such rights
      specifically (without posting a bond or other security), to recover damages
      by
      reason of any breach of any provision of this Agreement and to exercise all
      other rights granted by law. Furthermore, the Company recognizes that in the
      event that it fails to perform, observe, or discharge any or all of its
      obligations under the Transaction Documents, any remedy at law may prove to
      be
      inadequate relief to Pope and any other holder of Securities. The Company
      therefore agrees that Pope and any other holder of Securities shall be entitled
      to seek temporary and permanent injunctive relief in any such case without
      the
      necessity of proving actual damages and without posting a bond or other
      security.

     

    (n) Rescission
      and
      Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever Pope or any
      successive holder of Securities exercises a right, election, demand or option
      under a Transaction Document and the Company does not timely perform its related
      obligations within the periods therein provided, then such Person may rescind
      or
      withdraw, in its sole discretion from time to time upon written notice to the
      Company, any relevant notice, demand or election in whole or in part without
      prejudice to its future actions and rights.

     

    (o) Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to a Noteholder hereunder
      or
      pursuant to any of the other Transaction Documents or a Noteholder enforces
      or
      exercises its rights hereunder or thereunder, and such payment or payments
      or
      the proceeds of such enforcement or exercise or any part thereof are
      subsequently invalidated, declared to be fraudulent or preferential, set aside,
      recovered from, disgorged by or are required to be refunded, repaid or otherwise
      restored to the Company, a trustee, receiver or any other Person under any
      law
      (including, without limitation, any bankruptcy law, foreign, state or federal
      law, common law or equitable cause of action), then to the extent of any such
      restoration the obligation or part thereof originally intended to be satisfied
      shall be revived and continued in full force and effect as if such payment
      had
      not been made or such enforcement or setoff had not occurred.

     

    (p) Independent
      Nature of Pope's Obligations and Rights.
      Nothing
      contained herein or in any other Transaction Document, and no action taken
      by
      any Pope pursuant hereto or thereto, shall be deemed to constitute Pope as,
      and
      the Company acknowledges that Pope does not so constitute, a partnership, an
      association, a joint venture or any other kind of entity, or create a
      presumption that Pope is in any way acting in concert or as a group, and the
      Company will not assert any such claim with respect to such obligations or
      the
      transactions contemplated by the Transaction Documents. The Company acknowledges
      and Pope confirms that it has independently participated in the negotiation
      of
      the transaction contemplated hereby with the advice of its own counsel and
      advisors. Pope shall be entitled to independently protect and enforce its
      rights, including, without limitation, the rights arising out of this Agreement
      or out of any other Transaction Documents.

     

    (q) Agent
      for Service of Process .
      (i) The Company agrees that any document may be effectively served on it in
      connection with any action, suit or proceeding in the United States by service
      on its registered agent in the state of Delaware. 

     

    (ii)
      Any
      document shall be deemed to have been duly served if marked for the attention
      of
      the agent at its address as set forth in this Section 9(q) or such other address
      in the United States as may be notified to the party wishing to serve the
      document and (a) left at the specified address if its receipt is acknowledged
      in
      writing; or (b) sent to the specified address by post, registered mail return
      receipt requested. In the case of (a), the document will be deemed to have
      been
      duly served when it is left and signed for. In the case of (b), the document
      shall be deemed to have been duly served when received and
      acknowledged.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

       

    

    (iii)
      If
      the Company’s agent at any time ceases for any reason to act as such, the
      Company shall promptly appoint a replacement agent having an address for service
      in the United States and shall promptly notify Pope at such time of the name
      and
      address of the replacement agent. Failing such appointment and notification,
      the
      holders of a majority of the Securities at such time shall be entitled by notice
      to the Company to appoint a replacement agent to act on the Company’s behalf.
      The provisions of this Section 9(q) applying to service on an agent apply
      equally to service on a replacement agent.

     

    (r) Currency.
      As used
      herein, “Dollar”, “US Dollar” and “$” each mean the lawful money of the United
      States.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    


    IN
      WITNESS WHEREOF,
      Pope,
      the Company, and the Major Shareholder have caused their respective signature
      page to this Investment Agreement to be duly executed as of the date first
      written above.

     

    
      	 	 	 
	 	COMPANY:
	 	
              CHINA-BIOTICS,
                INC.

            
	 
 	 
 	 
 
	 	By:  	/s/
              Song Jinan
	 	
              
Name:
              Song Jinan
	 	
              Title:
                Chief Executive Officer

            


    

    


    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    


    IN
      WITNESS WHEREOF,
      Pope,
      the Company, and the Major Shareholder have caused their respective signature
      page to this Investment Agreement to be duly executed as of the date first
      written above.

     

    
      	 	 	 
	 	POPE:
	 	
              POPE
                INVESTMENTS II LLC

              
                By:
                  Pope Asset Management, LLC

                Its:
                  Manager

              

            
	 
 	 
 	 
 
	 	By:  	/s/
              William P. Wells
	 	
              
                

              

              Name:
                William P. Wells

            
	 	
              Title:
                Manager

            


    

    


    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      Pope,
      the Company, and the Major Shareholder have caused their respective signature
      page to this Investment Agreement to be duly executed as of the date first
      written above.

     

    
      	 	 	 
	 	MAJOR
              SHAREHOLDER:
	 	
              SONG
                JINAN

            
	 
 	 
 	 
 
	 	/s/
              Song
              Jinan


    

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    


    ANNEX
      1

     

    MISCELLANEOUS
      DEFINITIONS:

     

    The
      terms
      defined in this Annex 1 (except as herein otherwise expressly provided or unless
      the context otherwise requires) for all purposes of this Agreement and the
      Notes
      shall have the respective meanings specified in this Annex. All other terms
      used
      in this Agreement that are defined in the 1933 Act (except as herein otherwise
      expressly provided or unless the context otherwise requires) shall have the
      meanings assigned to such terms in the 1933 Act as in force at the date of
      the
      execution of this Agreement. The words “herein,” “hereof,” “hereunder” and words
      of similar import refer to this Agreement as a whole and not to any


     

    “Affiliate”
of
      any
      specified Person means:

     

    (a)
       any
      other
      Person
      directly or indirectly controlling or controlled by or under direct or indirect
      common control with such specified Person, or 

     

    (b)
       any
      other
      Person who is a director or officer of:

     

    (i)
       such
      specified Person, 

     

    (ii)
       any
      Subsidiary of such specified Person, or

     

    (iii)
       any
      Person described in clause (a) above. 

     

    For
      the
      purposes of this definition, “control,” when used with respect to any Person,
      means the power to direct the management and policies of such Person, directly
      or indirectly, whether through the ownership of voting securities, by contract
      or otherwise; and the terms “controlling” and “controlled” have meanings
      correlative to the foregoing. Notwithstanding the foregoing, in no event shall
      either Pope Investments, LLC or Pope Asset Management, LLC or any of its or
      their Affiliates be considered an Affiliate of the Company.

     

    “Asset
      Sale”
means
      any sale, lease, transfer, issuance or other disposition (or series of related
      sales, leases, transfers, issuances or dispositions) by the Company or any
      of
      its Subsidiaries, including any disposition by means of a merger, consolidation
      or similar transaction (each referred to for the purposes of this definition
      as
      a “disposition”), of 

     

    (a)
       any
      shares of Capital Stock of a Subsidiary of the Company (other than directors’
qualifying shares), or

     

    (b)
       any
      other
      property
      of the
      Company or any of its Subsidiaries outside of the ordinary course of business
      of
      the Company or such Subsidiary, 

     

    other
      than, in the case of clause (a) or (b) above, 

     

    (1)
       any
      disposition by a Subsidiary of the Company to the Company or by the Company
      or
      one of its Subsidiaries to a Subsidiary, 

     

    (2)
       any
      disposition of inventory of the Company or any of its Subsidiaries in the
      ordinary course of business, or inventory or other property that in the
      reasonable judgment of the Company have become uneconomic, obsolete or worn
      out,

     

    (3)
       the
      sale
      or discount of accounts receivable in connection with the compromise or
      collection thereof in the ordinary course of business, or

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

       

    

    (3)
       any
      disposition in a single transaction or a series of related transactions of
      assets for aggregate consideration of less than US$5.0 million.

     

    “Capital
      Stock”
means,
      with respect to any Person, any shares or other equivalents (however designated)
      of any class of corporate stock or partnership interests or any other
      participations, rights, warrants, options or other interests in the nature
      of an
      equity interest in such Person, including preferred stock, but excluding any
      debt security convertible or exchangeable into such equity
      interest.

     

    “Consolidated
      Net Income”
means
      the consolidated net income of the Company determined in accordance with GAAP
      as
      reflected in the SEC Documents. 

    


    “Consolidated
      Net Worth”
      means
      the
      consolidated net worth of the Company determined in accordance with GAAP as
      reflected in the SEC Documents.

    


    “Fiscal
      Quarter”
means
      each of the three month periods ending on March 31, June 30, September 30 and
      December 31.

     

    “Intangible
      Assets” shall
      mean as of the date of any determination thereof the total amount of all assets
      of the Company and its Subsidiaries classified as goodwill, patents, trade
      names, trademarks, copyrights, franchises, experimental expense, organization
      expense, unamortized debt discount and expense, deferred assets other than
      prepaid insurance and prepaid taxes, the excess of cost of shares acquired
      over
      book value of related assets and such other assets as are properly classified
      as
“intangible
      assets”
in
      accordance with GAAP.

    


     “Lien”
means,
      with respect to any property of any Person, any mortgage or deed of trust,
      pledge, hypothecation, assignment, deposit arrangement, security interest,
      lien,
      charge, easement (other than any easement not materially impairing usefulness
      or
      marketability), encumbrance, preference, priority or other security agreement
      or
      preferential arrangement of any kind or nature whatsoever on or with respect
      to
      such property. 

     

    “Noteholder”
or
      “holder”
as
      applied to any Note, or other similar terms (but excluding the term “Beneficial
      Holder”), means any Person in whose name at the time a particular Note is
      registered on the Registrar’s books.

     

    “Permitted
      Liens”
      means:

     

    (a)
       Liens
      in
      favor of the Company;

     

    (b)
       Liens
      securing, or created for the benefit of securing, the Notes or the
      Guarantee;

     

    (c)
       Liens
      securing debt of a Subsidiary, provided
      that any
      such Lien is limited to the property of such Subsidiary;

     

    (d) leases,
      licenses, subleases and sublicenses of assets (including, without limitation,
      real property and intellectual property rights) which do not materially
      interfere with the ordinary conduct of the business of the Company or any of
      the
      Subsidiaries;

     

    (e) Liens
      for
      taxes, assessments or governmental charges or levies on the property of the
      Company or any of its Subsidiaries if the same shall not at the time be
      delinquent or thereafter can be paid without penalty, or are being contested
      in
      good faith and by appropriate proceedings promptly instituted and diligently
      concluded, provided
      that any
      reserve or other appropriate provision that shall be required in conformity
      with
      GAAP shall have been made therefor; 

     

    (f)
       Liens
      imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other
      similar Liens, on the property of the Company or any of its Subsidiaries arising
      in the ordinary course of business and securing payment of obligations that
      are
      not more than 60 days past due or are being contested in good faith and by
      appropriate proceedings;

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

       

    

    (g)
       Liens
      on
      the property of the Company or any of its Subsidiaries incurred in the ordinary
      course of business to secure performance of obligations with respect to
      statutory or regulatory requirements, performance or return-of-money bonds,
      surety bonds or other obligations of a like nature and incurred in a manner
      consistent with industry practice, in each case which are not incurred in
      connection with the borrowing of money, the obtaining of advances or credit
      or
      the payment of the deferred purchase price of property and which do not in
      the
      aggregate impair in any material respect the use of property in the operation
      of
      the business of the Company and its Subsidiaries taken as a whole;

     

    (h)
       Liens
      on
      property at the time the Company or any of its Subsidiaries acquired such
      property, including any acquisition by means of a merger or consolidation with
      or into the Company or any of its Subsidiaries; provided,
      however,
      that
      any such Lien may not extend to any other property of the Company or any of
      its
      Subsidiaries; provided
      further, that
      such
      Liens shall not have been incurred in anticipation of or in connection with
      the
      transaction or series of transactions pursuant to which such property was
      acquired by the Company or any of its Subsidiaries; 

     

    (i)
       Liens
      on
      the property of a Person at the time such Person becomes a Subsidiary of the
      Company; provided,
      however,
      that
      any such Lien may not extend to any other property of the Company or any other
      Subsidiary of the Company that is not a direct Subsidiary of such Person;
provided
      further, that
      any
      such Lien was not incurred in anticipation of or in connection with the
      transaction or series of transactions pursuant to which such Person became
      a
      Subsidiary of the Company; 

     

    (j)
       Pledges
      or deposits by the Company or any of its Subsidiaries under workers’
compensation laws, unemployment insurance laws or similar legislation, or good
      faith deposits in connection with bids, tenders, contracts (other than for
      the
      payment of debt) or leases to which the Company or any of its Subsidiaries
      is
      party, or deposits to secure public or statutory obligations of the Company,
      or
      deposits for the payment of rent, in each case Incurred in the ordinary course
      of business; 

     

    (k)
       utility
      easements, building restrictions and such other encumbrances or charges against
      real property as are of a nature generally existing with respect to properties
      of a similar character;

     

    (l)
       Liens
      existing on the Closing Date not otherwise described in clauses (a) through
      (h)
      above;

     

    (m)
       Liens
      on
      the property of the Company or any of its Subsidiaries to secure any
      refinancing, in whole or in part, of any debt secured by Liens referred to
      in
      clause (h), (i) or (l) above; provided,
      however,
      that
      any such Lien shall be limited to all or part of the same property that secured
      the original Lien (together with improvements and accessions to such property),
      and the aggregate principal amount of debt (and other obligations thereunder)
      that is secured by such Lien shall not be increased to an amount greater than
      the sum of:

     

    (i)
       the
      outstanding principal amount, or, if greater, the committed amount, of the
      debt
      (and other obligations thereunder) secured by Liens described under clause
      (h),
      (i) or (l) above, as the case may be, at the time the original Lien became
      a
      Permitted Lien under this Agreement, and 

     

    (ii)
       an
      amount
      necessary to pay any fees and expenses, including premiums and defeasance costs,
      incurred by the Company or such Subsidiary in connection with such
      refinancing; 

     

    (n)
       judgment
      Liens not giving rise to an Event of Default so long as such Lien is adequately
      bonded and any appropriate legal proceedings which may have been duly initiated
      for the review of such judgment have not been finally terminated or the period
      within which such proceedings may be initiated has not expired.

     

    “Senior
      Debt”
of
      the
      Company means:

     

    (a)
       all
      obligations consisting of the principal, premium, if any, and accrued and unpaid
      interest (including interest accruing on or after the filing of any petition
      in
      bankruptcy or for reorganization relating to the Company whether or not such
      post-filing interest is allowed in such proceeding) in respect of:

     

    
      
        
        

      

      
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    (i)
       debt
      of
      the Company for borrowed money, and

     

    (ii)
       debt
      of
      the Company evidenced by notes, debentures, bonds or other similar instruments
      permitted under this Indenture for the payment of which the Company is
      responsible or liable; 

     

    (b)
       all
      obligations of the Company: 

     

    (i)
       for
      the
      reimbursement of any obligor on any letter of credit, banker’s acceptance or
      similar credit transaction, or 

     

    (ii)
       issued
      or
      assumed as the deferred purchase price of property and all conditional sale
      obligations of the Company and all obligations under any title retention
      agreement permitted under this Agreement; and

     

    (c)
       all
      obligations of other Persons of the type referred to in clauses (a), (b) and
      (c)
      for the payment of which the Company is responsible or is liable for as
      guarantor;

     

     provided,
      however,
      that
      Senior Debt shall not include:

     

    (1)
       debt
      of
      the Company that is by its terms subordinate in right of payment to the Notes;
      

     

    (2)
       accounts
      payable or any other obligations of the Company to trade creditors created
      or
      assumed by the Company in the ordinary course of business in connection with
      the
      obtaining of materials or services (including guarantees thereof or instruments
      evidencing such liabilities); 

     

    (3)
       any
      liability for federal, state, national, provincial, local, foreign or other
      taxes owed or owing by the Company; 

     

    (4)
       any
      obligation of the Company to any of its Subsidiaries; or

     

    (5)
       any
      obligations with respect to any Capital Stock of the Company. 

     

    To
      the
      extent that any payment of Senior Debt (whether by or on behalf of the Company
      as proceeds of security or enforcement or any right of setoff or otherwise)
      is
      declared to be fraudulent or preferential, set aside or required to be paid
      to a
      trustee, receiver or other similar party under any bankruptcy, insolvency,
      receivership or similar law, then if such payment is recovered by, or paid
      over
      to, such trustee, receiver or other similar party, the Senior Debt or part
      thereof originally intended to be satisfied shall be deemed to be reinstated
      and
      outstanding as if such payment had not occurred.

     

    
      
        
        

      

      
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    EXHIBITS

     

    
      	Exhibit A	Form of Note
	Exhibit B	Form of Guarantee
	Exhibit C 	Form of Major Shareholder Pledge
              Agreement
	Exhibit D 	Form of Registration Rights
              Agreement


    

     

    
      
        
        

      

      
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