Document:

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                                                                    EXHIBIT 10.1

This Note has not been registered under the Securities Act of 1933, as amended
(the "Act'), and is a "restricted security," as that term is defined in Rule 144
under the Act. This Note may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective Registration Statement under the
Act, or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of ANII.

                          SUBORDINATED PROMISSORY NOTE

$250,000                                                 Date:  January 2, 2002
                                                         Due:   January 3, 2003

FOR VALUE RECEIVED, Advanced Nutraceuticals, Inc., a Texas corporation ("ANII")
hereby promises to pay to the order of Cambridge Holdings, Ltd., a Colorado
corporation, ("Cambridge") at 106 S. University Blvd., #14, Denver, Colorado
80209 or such other place of payment as Cambridge may specify from time to time
in writing, in lawful money of the United States of America, the principal
amount of Two Hundred Fifty Thousand And 00/100 Dollars ($250,000) together with
interest at seven percent (7%) per annum from the date of this Subordinated
Promissory Note (the "Note"), such principal and interest to be paid on January
3, 2003.

Payments shall be applied first to accrued interest and then to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each. Prepayment may be made as provided in the
Additional Terms and Conditions which are attached hereto and made a part hereof
by this reference.

ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS
PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE
TERMS OF, THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED JANUARY 2, 2002
(THE "SUBORDINATION AGREEMENT"), AS THE SAME MAY BE AMENDED, MODIFIED OR
OTHERWISE SUPPLEMENTED FROM TIME TO TIME, BY AND AMONG BACTOLAC PHARMACEUTICALS
INC. AND ANI PHARMACEUTICALS, INC., AS BORROWERS, ADVANCED NUTRACEUTICALS, INC.
, AS HOLDING CO., GENERAL ELECTRIC CAPITAL CORPORATION, AS SENIOR LENDER, AND
THE HOLDERS FROM TIME TO TIME OF THE OBLIGATIONS ARISING UNDER THE SUBORDINATED
DOCUMENTS REFERRED TO IN THE SUBORDINATION AGREEMENT, INCLUDING, WITHOUT
LIMITATION, THIS NOTE.

ANII waives presentment and demand for payment, notice of dishonor, protest and
notice of protest and any other notice as permitted under the UCC or any
applicable law.

                     ADVANCED NUTRACEUTICALS, INC.

                     1905 West Valley Vista Dr.
                     Castle Rock, Colorado  80104

                     Signature:
                               ------------------------------------------------
                     Print Name: Jeffrey G. McGonegal
                     Title:      Senior Vice President of Finance and Secretary

<PAGE>

                    SUBORDINATED CONVERTIBLE PROMISSORY NOTE
                      MADE BY ADVANCED NUTRACEUTICALS, INC.
                           TO CAMBRIDGE HOLDINGS, LTD.
                         ADDITIONAL TERMS AND CONDITIONS

         These Additional Terms and Conditions are attached to and shall be made
a part of the Subordinated Promissory Note of Advanced Nutraceuticals, Inc.
("ANII") payable to Cambridge Holdings, Ltd. ("Cambridge") dated January 2, 2002
(the "Note"), as if incorporated therein:

         1. Maturity Date. The Note will mature on January 3, 2003.

         2. Prepayment. The principal amount of this Note may be prepaid by
ANII, in whole or in part, without premium or penalty, at any time upon 30 days
prior notice to Cambridge. Any prepayment shall be applied first to unpaid
accrued interest and then to the unpaid principal balance.

         3. Conversion. (a) Cambridge shall have the right at Cambridge's
option, at any time prior to payment of the Note, to convert any unpaid
principal of this Note into such number of fully paid and non-assessable shares
of the common stock (the "Common Stock") of ANII as shall be provided herein.
Cambridge may exercise the conversion right provided in this Section 3 by giving
written notice (the "Conversion Notice") to ANII of the exercise of such right
and stating the address to which the certificates evidencing the Common Stock
shall be delivered. The Conversion Notice shall be accompanied by this Note.
Except as provided below in this Section 3, ANII will issue one share of Common
Stock for each $1.00 of then outstanding principal balance of this Note upon
conversion of the Note (the "Conversion Price"). Conversion shall be deemed to
have been effected on the date the Conversion Notice is given; provided,
however, the conversion privilege of this Note may not be exercised by, and the
Common Stock shall not be issued to, Cambridge if such conversion would be
unlawful. As a condition to conversion, ANII may require Cambridge to sign a
representation letter confirming compliance with applicable federal and state
securities laws and other applicable laws, and ANII shall be entitled to receive
satisfactory assurance that issuance of the Common Stock will not violate law.
Promptly after receipt of the Conversion Notice and confirmation of compliance
with law, ANII shall issue a stock certificate of ANII representing the number
of shares of Common Stock to which Cambridge is entitled and all accrued
interest unpaid on the principal amount of the Note which is the subject of the
Conversion Note up to and including the date of the Conversion Notice shall be
paid to Cambridge on the Maturity Date unless Cambridge has indicated that it
also wishes to convert the accrued interest into shares of Common Stock in which
event the stock certificate shall include the number of shares issued in
conversion of the accrued interest, calculated on the same terms and in the same
manner as the principal converted.

                  (b) If the Common Stock issuable upon conversion of this Note
shall be changed into the same or different number of shares of any other class
or classes of stock, whether by capital reorganization, reclassification or
otherwise, appropriate adjustment shall be made to the conversion rate. Similar
adjustment shall be made in the event of any reorganization, merger or
consolidation.

<PAGE>

         4. Review by Cambridge. Cambridge has had the opportunity to review the
Note, including these Additional Terms and Conditions, with legal counsel and
other advisors, including but not limited to, tax advisors, as he deemed
necessary, prior to ANII's execution of this Note and he has not relied upon any
advice of ANII or Patton Boggs, LLP.

         5. Transferability. No sale or transfer of this Note may be made unless
such sale or transfer has been registered under the Act and applicable state
securities laws or unless ANII has received an opinion of counsel or other
evidence satisfactory to counsel to ANII to the effect that such registration is
not required because an exemption from such registration is available.

         6. Notices. Any notice or other communication given hereunder shall be
given in writing and sent by overnight courier or registered or certified mail,
return receipt requested, addressed to ANII or Cambridge at their respective
addresses as set forth in the Note. Notices shall be deemed to have been given
three business days after the date of mailing or one business day after delivery
to an overnight courier. The address for notices for any party may be changed by
notice given pursuant to this Section 5. For purposes of this Note, "business
day" shall exclude Saturdays, Sundays and legal holidays in the State of
Colorado.<PAGE>

                                                                    EXHIBIT 10.2

         The securities represented by this Warrant and issuable upon exercise
hereof have not been registered under the United States Securities Act of 1933,
as amended (the "1933 Act"), or under the provisions of any applicable state
securities laws, but have been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the 1933
Act, and under any applicable state securities laws. These securities and the
securities issued upon exercise hereof may not be sold, pledged, transferred or
assigned, nor may this Warrant be exercised, except in a transaction which is
exempt under the provisions of the 1933 Act and any applicable state securities
laws or pursuant to an effective registration statement.

               VOID AFTER 3:00 P.M. MOUNTAIN TIME ON JUNE 30, 2004

                WARRANT TO PURCHASE 50,000 SHARES OF COMMON STOCK

                          ADVANCED NUTRACEUTICALS, INC.

No. W-CHL

         FOR VALUE RECEIVED, Advanced Nutraceuticals, Inc. (the "Company"), a
Texas corporation with offices located at 1905 West Valley Vista Drive, Castle
Rock, Colorado 80104, hereby certifies that Cambridge Holdings, Ltd., a Colorado
corporation with offices located at 106 S. University Blvd., Unit 14, Denver, CO
80209 (the "Holder") is entitled, subject to the provisions of this Warrant, to
purchase from the Company, at any time, or from time to time during the period
commencing on the date hereof and expiring at 3:00 p.m. Mountain Time, on June
30, 2004 (the "Expiration Date"), up to Fifty Thousand (50,000) fully paid and
non-assessable shares of the Company's Common Stock (the "Warrant Stock") at a
price of $1.00 per share (the "Exercise Price"). The number of shares of Warrant
Stock and the Exercise Price may be adjusted from time to time as hereinafter
set forth.

         The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.

         1.       Exercise of Warrant.

                  1.1 Exercise Procedures. Subject to the limitations set forth
below in this Section 1 and in Section 6 hereof, this Warrant may be exercised
in whole or in part, during the period expiring at 3:00 p.m. Mountain Time on
the Expiration Date or, if such day is a day on which banking institutions in
Denver, Colorado are authorized by law to close, then on the next succeeding day
that shall not be such a day, by presentation and surrender of this Warrant to
the Company at its principal office, or at the office of its transfer agent, if
any, with the Warrant Exercise Form attached hereto duly executed and
accompanied by payment (either in cash or by certified or official bank check,
payable to the order of the Company) of the Exercise Price for the number of
shares specified in such form and instruments of transfer, if appropriate, duly
executed by the Holder or his or her duly authorized attorney. As soon as
practicable after each such exercise of the Warrants the Company shall issue and

<PAGE>

deliver to the Holder a certificate or certificates for the Warrant Stock,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. Upon receipt by the
Company of this Warrant, together with the Exercise Price, at its office, or by
the transfer agent of the Company, if any, at its office, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Warrant Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Warrant Stock shall not then be actually delivered
to the Holder. The Holder shall pay any and all documentary, stamp or similar
issue or transfer taxes and fees payable in respect of the issue or delivery of
shares of Warrant Stock on exercise of this Warrant.

         1.2      Conversion Right.

         The Holder shall have the right (the "Conversion Right") to convert
this Warrant into shares of the Company's Common Stock as provided in this
Section 1.2 at any time or from time to time prior to the Expiration Date.

                  a. Upon exercise of the Conversion Right with respect to a
particular number of shares of Warrant Stock (the "Conversion Shares"), the
Company shall deliver to the Holder, without payment by the Holder of any
Exercise Price or any cash or other consideration, that number of shares equal
to the quotient obtained by dividing the Net Value (as hereinafter defined) of
the Conversion Shares by the Current Market Price (as hereinafter defined) of a
single Share, determined in each case as of the close of business on the
Conversion Date (as hereinafter defined). The "Net Value" of the Conversion
Shares shall be determined by subtracting the Exercise Price of one share from
the Current Market Price of one share and multiplying the remainder by the
number of Warrants being converted. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the Holder the net amount in cash equal to the Current Market Price
of the resulting fractional share.

                  b. The Conversion Right may be exercised by the Holder by the
surrender of the Warrant at the principal office of the Company or at the office
of the Company's transfer agent, if any, together with a written statement
specifying that the Holder thereby intends to exercise the Conversion Right and
indicating the number of shares of Warrant Stock subject to the Warrant which
are being surrendered (referred to in subparagraph 1.2(a) above as the
Conversion Shares) in exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of the Warrant, or on such later date as
is specified therein (the "Conversion Date"), but not later than the Expiration
Date. Certificates for the shares issuable upon exercise of the Conversion
Right, together with a check in payment of any fractional amount and, in the
case of a partial exercise a new Warrant evidencing the Warrant Stock remaining
subject to the Warrant, shall be issued as of the Conversion Date and shall be
delivered to the Holder within seven days following the Conversion Date.

<PAGE>

                  c.       The "Current Market Price" shall be determined as
follows:

                           (1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange or quoted on either the National Market System or the Small Cap Market
of the automated quotation service operated by The Nasdaq Stock Market, Inc.
("Nasdaq"), the current value shall be the last reported sale price of that
security on such exchange or system on the day for which the current market
price is to be determined or, if no such sale is made on such day, the average
of the highest closing bid and lowest asked price for such day on such exchange
or system; or

                           (2) If the Common Stock is not so listed or quoted or
admitted to unlisted trading privileges, the Current Market Value shall be the
average of the last reported highest bid and lowest asked prices quoted on the
Nasdaq Electronic Bulletin Board, or, if not so quoted, then by the National
Quotation Bureau, Inc. on the last business day prior to the day for which the
Current Market Price is to be determined; or

                           (3) If the Common Stock is not so listed or quoted or
admitted to unlisted trading privileges and bid and asked prices are not
reported, the Current Market Price shall be determined in such reasonable manner
as may be prescribed in good faith from time to time by the Board of Directors
of the Company.

         2. Fractional Shares. The Company shall not be required to issue a
fractional share upon the exercise of this Warrant, but rather the aggregate
number of shares issuable will be rounded up or down to the nearest full share.

         3. Limitation on Transfer. Subject to the provisions of Sections 6 and
7 hereof, any assignment or transfer of this Warrant shall be made by
presentation and surrender of this Warrant to the Company at its principal
office or at the office of its transfer agent, if any, accompanied by a duly
executed Assignment Form. Upon the presentation and surrender of these items to
the Company, the Company, at its sole expense, shall execute and deliver to the
new Holder a new Warrant, in the name of the new Holder as named in the
Assignment Form, and the Warrant presented or surrendered shall at that time be
cancelled.

         4. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.

         5.       Anti-Dilution Provisions.

                  5.1 Adjustment for Recapitalization. If the Company shall at
any time subdivide all its outstanding shares of Common Stock (or other
securities at the time receivable upon the exercise of the Warrant) by
recapitalization, reclassification or split-up thereof, or if the Company shall
declare a stock dividend or distribute shares of Common Stock to all of its
stockholders without receipt of cash payment or other valid consideration, the
number of shares of Common Stock subject to this Warrant immediately prior to
such subdivision shall be proportionately increased, and if the Company shall at

<PAGE>

any time combine the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of Common Stock
subject to this Warrant immediately prior to such combination shall be
proportionately decreased. Any such adjustment and adjustment to the Exercise
Price pursuant to this Section 5.1 shall be effective at the close of business
on the effective date of such subdivision or combination or if any adjustment is
the result of a stock dividend or distribution then the effective date for such
adjustment based thereon shall be the record date therefor.

                           Whenever the number of shares of Warrant Stock
purchasable upon the exercise of this Warrant is adjusted, as provided in this
Section 5.1, the Exercise Price shall be adjusted to the nearest cent by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of Warrant
Stock purchasable upon the exercise immediately prior to such adjustment, and
(y) the denominator of which shall be the number of shares of Warrant Stock so
purchasable immediately thereafter.

                  5.2 Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
or if the Company (or any such other corporation) shall consolidate with or
merge into another corporation or convey all or substantially all of its assets
to another corporation, then, and in each such case, the Holder of this Warrant
upon the exercise thereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the securities and property receivable upon
the exercise of this Warrant prior to such consummation, the securities or
property to which such Holder would have been entitled upon such consummation if
such Holder had exercised this Warrant immediately prior thereto; in each such
case, the terms of this Warrant shall be applicable to the securities or
property receivable upon the exercise of this Warrant after such consummation.

         6. Restrictions on Exercise Imposed by Federal and State Securities
Laws. Holder hereby acknowledges that neither this Warrant nor any of the
securities that may be acquired upon exercise of this Warrant have been
registered under the 1933 Act or under the securities laws of any state. The
Holder acknowledges that, upon exercise of this Warrant, the securities to be
issued upon such exercise may come under applicable federal and state securities
(or other) laws requiring registration, qualification or approval of
governmental authorities before such securities may be validly issued or
delivered upon notice of such exercise. With respect to any such securities,
this Warrant may not be exercised by, and securities shall not be issued to, any
Holder in which such exercise would be unlawful. As a condition to exercise, the
Company may require the Holder to sign a representation letter confirming
compliance with this Agreement and applicable federal and state securities laws
and other applicable laws.

<PAGE>

         7. Transfer to Comply With the 1933 Act. This Warrant and any Warrant
Stock may not be sold, transferred, pledged, hypothecated or otherwise disposed
of except as follows:

                  (1) To a person who, in the opinion of counsel to the Company,
is a person to whom this Warrant or the Warrant Stock may legally be transferred
without registration and without delivery of a current prospectus under the 1933
Act with respect thereto and then only against receipt of an agreement of such
person to comply with the provisions of this Section 7 with respect to any
resale or other disposition of such securities, or

                  (2) To any person upon delivery of a prospectus then meeting
the requirements of the 1933 Act relating to such securities and the offering
thereof for such sale or disposition, and thereafter to all successive
assignees.

         8. Legend. Unless the shares of Warrant Stock have been registered
under the 1933 Act, upon exercise of any of the Warrants and the issuance of any
of the shares of Warrant Stock, all certificates representing shares shall bear
on the face thereof substantially the following legend, as well as any other
legends necessary to comply with applicable state and federal laws for the
issuance of such shares:

                  The shares represented by this Certificate have not been
         registered under the United States Securities Act of 1933, as amended
         ("the 1933 Act") or any state securities laws and are "restricted
         securities" as that term is defined in Rule 144 under the 1933 Act. The
         shares may not be offered for sale, sold, pledged, hypothecated or
         otherwise transferred except pursuant to an effective registration
         statement under the 1933 Act or pursuant to an exemption from
         registration under the 1933 Act the availability of which is to be
         established to the satisfaction of the Company.

         9. Notices. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, sent by facsimile, delivered personally
or within three days after mailing when mailed by certified or registered mail,
return receipt requested, at the address of such party as set forth on the first
page, or at such other address of which the Company or Holder has been advised
by notice hereunder.

         10. Applicable Law. This Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Colorado.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.

                                          ADVANCED NUTRACEUTICALS, INC., a Texas
                                          corporation

Dated:  January 2, 2002                   By:
                                             ----------------------------------
                                                       Authorized Officer

<PAGE>

                              WARRANT EXERCISE FORM

         The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _________ shares of Advanced Nutraceuticals,
Inc., a Texas corporation, and hereby makes payment of $__________ in payment
therefor. The undersigned understands that exercise of the within Warrant is
subject to, among other things, the limitations provided in Section 1 and
compliance with Section 6 of the within Warrant.

                                          -------------------------------------
                                          Signature

                                          -------------------------------------
                                          Social Security or Taxpayer
                                          Identification Number

                                          -------------------------------------
                                          Date

<PAGE>

                                 ASSIGNMENT FORM

         FOR VALUE RECEIVED, _______________________, hereby sells, assigns and
transfers unto

         Name:
              -----------------------------------------------------------------
                          (Please type or print in block letters)

         Address:
                 --------------------------------------------------------------

the right to purchase Common Stock of Advanced Nutraceuticals, Inc. represented
by this Warrant to the extent of ____ Shares as to which such right is
exercisable and does hereby irrevocably constitute and appoint
_________________________ Attorney to transfer the same on the books of the
Company with full power of substitution in the premises. The undersigned
understands that assignment of this Warrant is subject to compliance with
Section 7 of the Warrant and the Assignee's acknowledgement of the provisions
and restrictions of the Warrant.

         Signature:                                   Date:
                   ------------------------------          --------------------

Notice:  The signature on this Assignment must correspond with the name as it
         appears upon the face of this Warrant in every particular, without
         alteration or enlargement or any change whatever.

<PAGE>

                        WARRANT CONVERSION EXERCISE FORM

TO:      Advanced Nutraceuticals, Inc.

         Pursuant to Section 1.2 of the Warrant Agreement, the Holder hereby
irrevocably elects to convert Warrants into shares of the Company's Common
Stock. The undersigned understands that exercise of the Warrant is subject to,
among other things, the limitations provided in Section 1 and compliance with
Section 6 of the Warrant. A conversion calculation is attached hereto.

         The undersigned requests that certificates for such shares be issued as
follows:

         Name:
              -----------------------------------------------------------------

         Address:
                 --------------------------------------------------------------

         Deliver to:
                    -----------------------------------------------------------

and that a new Warrant Certificate for the balance remaining of the Warrants, if
any, subject to the Warrant be registered in the name of, and delivered to, the
undersigned at the address stated above.

         Signature:                                   Date:
                   ------------------------------          --------------------

<PAGE>

                        CALCULATION OF WARRANT CONVERSION

                       Net Value of the Conversion Shares
                              Current Market Price

<Table>
<S>                                  <C>
Current Market Price Per Share       $
                                      ---------------------------------

Net Value of the Conversion Shares   (Current Market Price Per Share - Exercise
                                     Price) Number of Shares of Warrant Stock

                                     $                           - $                       =
                                     --------------------------    ----------------------   ---------------

                                                                 x                         =
                                     ---------------------------   -----------------------   ---------------

Shares to be Issued
                                     ----------------------------------

Cash in Lieu of Fractional Shares   $                                  (1)
                                     ----------------------------------
</Table>

(1)      Advanced Nutraceuticals, Inc. to pay for fractional shares in cash @
         Current Market Price Per Share.

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