Document:

Ex-10.1

EXHIBIT 10.1

O’CHARLEY’S INC.

2008 EQUITY AND INCENTIVE PLAN

Section 1. Purpose.

     This plan shall be known as the “O’Charley’s, Inc. 2008 Equity and Incentive Plan” (the
“Plan”). The purpose of the Plan is to promote the interests of O’Charley’s, Inc. (the “Company”)
and its stockholders by (i) attracting and retaining key officers, employees, advisory board
members and directors of, and consultants to, the Company and its Subsidiaries and Affiliates; (ii)
motivating such individuals by means of performance-related incentives to achieve long-range
performance goals; (iii) enabling such individuals to participate in the long-term growth and
financial success of the Company; (iv) encouraging ownership of stock in the Company by such
individuals; and (v) linking their compensation to the long-term interests of the Company and its
stockholders. With respect to any awards granted under the Plan that are intended to comply with
the requirements of “performance-based compensation” under Section 162(m) of the Code, the Plan
shall be interpreted in a manner consistent with such requirements.

Section 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

     (a) “Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the
Company, (ii) any entity in which the Company has a significant equity interest, (iii) an affiliate
of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv)
any entity in which the Company has at least twenty percent (20%) of the combined voting power of
the entity’s outstanding voting securities, in each case as designated by the Board as being a
participating employer in the Plan.

     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Share Award,
Restricted Share Unit, Performance Award, Other Stock-Based Award or other award granted under the
Plan, whether singly, in combination or in tandem, to a Participant by the Committee (or the Board)
pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee (or
the Board) may establish.

     (c) “Award Agreement” shall mean any written agreement, contract or other instrument or
document evidencing any Award, which may, but need not, be executed or acknowledged by a
Participant.

     (d) “Board” shall mean the Board of Directors of the Company.

     (e) “Cause” shall mean, unless otherwise defined in the applicable Award Agreement, (i) a
felony conviction of a Participant or the failure of a Participant to contest prosecution of a
felony or (ii) a Participant’s willful misconduct or dishonesty that is directly and materially
harmful to the business or reputation of the Company or its Subsidiaries or Affiliates. For
purposes of this paragraph, no act, or failure to act, on the Participant’s part shall be
considered “willful” unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that the Participant’s action or omission was in the best interest of the
Company. Any determination of Cause for purposes of the Plan or any Award shall be made by the
Committee in its sole discretion. Any such determination shall be final and binding on a
Participant.

     (f) “Change in Control” shall mean, unless otherwise defined in the applicable Award
Agreement, any of the following events:

     (i) An acquisition (other than directly from the Company) of any voting securities of
the Company (the “Voting Securities”) by any “Person” (as the term Person is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) immediately after which such Person has “Beneficial Ownership” (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of more than thirty percent (30%)
of the combined voting power of the then outstanding Voting Securities; provided, however,
that in determining whether a Change in Control has occurred, Voting Securities which are
acquired in a “Non-Control Acquisition” (as hereinafter defined) shall not

 

 

constitute an acquisition which would cause a Change in Control. A “Non-Control
Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any Subsidiary, or (ii) the Company.

     (ii) During any period of two consecutive years, individuals who at the beginning of
such period were members of the Board cease for any reason to constitute at least a majority
thereof (unless the election, or the nomination for election by the Company’s stockholders,
of each new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period); provided, however, that
no individual shall be considered a member of the Board if (1) such individual initially
assumed office as a result of either an actual or threatened solicitation by a person or
group of persons with respect to the election or removal of directors at any meeting of
shareholders (an “Election Contest”) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including
by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest
or (2) such individual was designated by a Person who has entered into an agreement with the
Company to effect a transaction described in clause (i) or (iii) of this paragraph; or

     (iii) Approval by stockholders of the Company of:

     (A) A merger, consolidation or reorganization involving the Company, unless,

     (1) The stockholders of the Company, immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, more than fifty
percent (50%) of the combined voting power of the outstanding Voting
Securities of the corporation (the “Surviving Corporation”) in substantially
the same proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization; and

     (2) The individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute more than one-half of the members
of the board of directors of the Surviving Corporation;

     (B) A complete liquidation or dissolution of the Company; or

     (C) An agreement for the sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than a transfer to a Subsidiary).

     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount
of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities outstanding, increased the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.

     (g) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

     (h) “Committee” shall mean a committee of the Board composed of not less than two Non-Employee
Directors, each of whom shall be (i) a “non-employee director” for purposes of Exchange Act Section
16 and Rule 16b-3 thereunder, (ii) an “outside director” for purposes of Section 162(m) and the
regulations promulgated

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under the Code, and (iii) “independent” within the meaning of the listing standards of the NASDAQ
Global Select Market, or any other exchange on which the Company’s Shares are traded.

     (i) “Consultant” shall mean any consultant to the Company or its Subsidiaries or Affiliates.

     (j) “Covered Officer” shall mean at any date (i) any individual who, with respect to the
previous taxable year of the Company, was a “covered employee” of the Company within the meaning of
Section 162(m); provided, however, that the term “Covered Officer” shall not include any such
individual who is designated by the Committee, in its discretion, at the time of any Award or at
any subsequent time, as reasonably expected not to be such a “covered employee” with respect to the
taxable year of the Company in which any applicable Award will be paid or vested and (ii) any
individual who is designated by the Committee, in its discretion, at the time of any Award or at
any subsequent time, as reasonably expected to be such a “covered employee” with respect to the
current taxable year of the Company or with respect to the taxable year of the Company in which any
applicable Award will be paid or vested.

     (k) “Director” shall mean a member of the Board.

     (l) “Disability” shall mean, unless otherwise defined in the applicable Award Agreement, a
disability that would qualify as a total and permanent disability under the Company’s then current
long-term disability plan.

     (m) “Early Retirement” means the retirement of an employee, with the express consent of the
Company at or before the time of such retirement, from active employment with the Company and any
Subsidiary or Affiliate prior to age 65, in accordance with any applicable early retirement policy
of the Company then in effect or as may be approved by the Committee.

     (n) “Employee” shall mean a current or prospective officer or employee of the Company or of
any Subsidiary or Affiliate.

     (o) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.

     (p) “Fair Market Value” with respect to the Shares, shall mean, for purposes of a grant of an
Award as of any date, (i) the closing sales price of the Shares on the NASDAQ Global Select
Market, or any other such exchange on which the Shares are traded, on such date, or in the absence
of reported sales on such date, the closing sales price on the immediately preceding date on which
sales were reported or (ii) in the event there is no public market for the Shares on such date, the
fair market value as determined, in good faith, by the Committee in its sole discretion, and for
purposes of a sale of a Share as of any date, the actual sales price on that date.

     (q) “Good Reason” means (i) a material reduction in Participant’s base salary or a material
reduction in the health and welfare insurance, retirement and other benefits available to
Participant from that in effect immediately prior to a Change in Control, except for reductions in
such benefits as shall become in effect for employees of the Company generally; (ii) the
reassignment of Participant to a position resulting in a material diminution in Participant’s
authority, duties or responsibilities; or (iii) the relocation of the office at which the
Participant is to perform a majority of his or her duties to a location more than fifty (50) miles
from the location at which the Participant performed such duties prior to a Change in Control.

     (r) “Incentive Stock Option” shall mean an option to purchase Shares from the Company that is
granted under Section 6 of the Plan and that is intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.

     (s) “Non-Qualified Stock Option” shall mean an option to purchase Shares from the Company that
is granted under Sections 6 or 10 of the Plan and is not intended to be an
Incentive Stock Option.

     (t) “Non-Employee Director” shall mean a member of the Board who is not an officer or employee
of the Company or any Subsidiary or Affiliate.

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     (u) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

     (v) “Option Price” shall mean the purchase price payable to purchase one Share upon the
exercise of an Option.

     (w) “Other Stock-Based Award” shall mean any Award granted under Sections 9 or
10 of the Plan. For purposes of the share counting provisions of Section 4.1
hereof, an Other Stock-Based Award shall be treated as (i) an Option Award if the amounts payable
thereunder will be determined by reference to the appreciation of a Share, and (ii) a Restricted
Share Award if the amounts payable thereunder will be determined by reference to the full value of
a Share.

     (x) “Outside Director” means, with respect to the grant of an Award, a member of the Board
then serving on the Committee.

     (y) “Participant” shall mean any Employee, Director, Consultant or other person who receives
an Award under the Plan.

     (z) “Performance Award” shall mean any Award granted under Section 8 of the Plan.

     (aa) “Person” shall mean any individual, corporation, partnership, limited liability company,
association, joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.

     (bb) “Restricted Share” shall mean any Share granted under Sections 7 to 10 of the Plan.

     (cc) “Restricted Share Unit” shall mean any unit granted under Sections 7 to 10 of the Plan.

     (dd) “Retirement” shall mean, unless otherwise defined in the applicable Award Agreement,
retirement of a Participant from the employ or service of the Company or any of its Subsidiaries or
Affiliates in accordance with the terms of the applicable Company retirement plan or, if a
Participant is not covered by any such plan, retirement on or after such Participant’s
65th birthday.

     (ee) “SEC” shall mean the Securities and Exchange Commission or any successor thereto.

     (ff) “Section 16” shall mean Section 16 of the Exchange Act and the rules promulgated
thereunder and any successor provision thereto as in effect from time to time.

     (gg) “Section 162(m)” shall mean Section 162(m) of the Code and the regulations promulgated
thereunder and any successor provision thereto as in effect from time to time.

     (hh) “Shares” shall mean shares of the common stock, no par value, of the Company.

     (ii) “Stock Appreciation Right” or “SAR” shall mean a stock appreciation right granted under
Sections 6 or 10 of the Plan that entitles the holder to receive, with respect to
each Share encompassed by the exercise of such SAR, the amount determined by the Committee and
specified in an Award Agreement. In the absence of such a determination, the holder shall be
entitled to receive, with respect to each Share encompassed by the exercise of such SAR, the excess
of the Fair Market Value on the date of exercise over the Fair Market Value on the date of grant.

     (jj) “Subsidiary” shall mean any Person (other than the Company) of which a majority of its
voting power or its equity securities or equity interest is owned directly or indirectly by the
Company.

     (kk) “Substitute Awards” shall mean Awards granted solely in assumption of, or in substitution
for, outstanding awards previously granted by a company acquired by the Company or with which the
Company combines.

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Section 3. Administration.

     3.1 Authority of Committee. The Plan shall be administered by the Committee, which shall be
appointed by and serve at the pleasure of the Board; provided, however, with respect to Awards to
Outside Directors, all references in the Plan to the Committee shall be deemed to be references to
the Board. Subject to the terms of the Plan and applicable law, and in addition to other express
powers and authorizations conferred on the Committee by the Plan, the Committee shall have full
power and authority in its discretion to: (i) designate Participants; (ii) determine the type or
types of Awards to be granted to a Participant; (iii) determine the number of Shares to be covered
by, or with respect to which payments, rights or other matters are to be calculated in connection
with Awards; (iv) determine the timing, terms, and conditions of any Award; (v) accelerate the time
at which all or any part of an Award may be settled or exercised; (vi) determine whether, to what
extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or suspended and the method or
methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vii)
determine whether, to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the Committee; (viii) interpret
and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan;
(ix) except to the extent prohibited by Section 6.2, amend or modify the terms of any Award
at or after grant with the consent of the holder of the Award; (x) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (xi) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the Plan, subject to the
exclusive authority of the Board under Section 14 hereunder to amend or terminate the Plan.

     3.2 Committee Discretion Binding. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive, and binding upon all Persons, including the Company, any Subsidiary or
Affiliate, any Participant and any holder or beneficiary of any Award.

     3.3 Action by the Committee. The Committee shall select one of its members as its Chairperson
and shall hold its meetings at such times and places and in such manner as it may determine. A
majority of its members shall constitute a quorum. All determinations of the Committee shall be
made by not less than a majority of its members. Any decision or determination reduced to writing
and signed by all of the members of the Committee shall be fully effective as if it had been made
by a majority vote at a meeting duly called and held. The exercise of an Option or receipt of an
Award shall be effective only if an Award Agreement shall have been duly executed and delivered on
behalf of the Company following the grant of the Option or other Award. The Committee may appoint
a Secretary and may make such rules and regulations for the conduct of its business, as it shall
deem advisable.

     3.4 Delegation. Subject to the terms of the Plan and applicable law, the Committee may
delegate to one or more officers or managers of the Company or of any Subsidiary or Affiliate, or
to a Committee of such officers or managers, the authority, subject to such terms and limitations
as the Committee shall determine, to grant Awards to or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend or terminate Awards held by Participants who are not
officers or directors of the Company for purposes of Section 16 or who are otherwise not subject to
such Section.

     3.5 No Liability. No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted hereunder.

Section 4. Shares Available For Awards.

     4.1 Shares Available. Subject to the provisions of Section 4.2 hereof, the maximum
aggregate number of Shares that may be issued pursuant to Awards shall not exceed 1,500,000 Shares
(the “Share Reserve”). Each Share issued pursuant to an Option shall reduce the Share Reserve by
one (1) share. Each Share subject to a redeemed portion of a SAR (whether the distribution upon
redemption is made in cash, stock or a combination of the two) shall reduce the Share Reserve by
one (1) share. Each Share issued pursuant to a Restricted Stock Award, a Restricted Stock

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Unit Award or a Performance Award shall reduce the Share Reserve by one and fifty-three
one-hundreths (1.53) shares. To the extent that a distribution pursuant to an Award is made in
cash, the Share Reserve shall be reduced by the number of Shares subject to the redeemed or
exercised portion of the Award. Notwithstanding the foregoing and subject to adjustment as
provided in Section 4.2, (i) each Option or SAR granted under this Plan, or outstanding
under the 2000 Stock Incentive Plan or the 1990 Employee Stock Plan, (the “Previous Plans”), as of
the effective date of this Plan, but which terminate, expire unexercised, are forfeited or
cancelled without the delivery of cash or Shares under the terms of the applicable Award or
Previous Plan, shall increase the Share Reserve by one (1) share; and (ii) each Restricted Stock
Award, Restricted Stock Unit Award or Performance Award (denominated in Shares) granted under this
Plan, or outstanding under any Previous Plan as of the effective date of this Plan, but which
terminate, expire unexercised, are forfeited or cancelled without the delivery of cash or Shares
under the terms of the applicable Award or Previous Plan, shall increase the Share Reserve by one
and fifty-three one-hundreths (1.53) shares. Notwithstanding the foregoing and subject to
adjustment as provided in Section 4.2 hereof, no Participant may receive Options or SARs
under the Plan in any calendar year that, taken together, relate to more than 400,000 Shares.

     4.2 Adjustments. In the event that any dividend or other distribution (whether in the form of
cash, Shares, other securities or other property and other than regular, recurring dividends),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares, then the Committee
shall, in such manner as it deems equitable and proportionate (and in such manner as is consistent
with any provisions of the Code applicable to such Award): (i) adjust any or all of (1) the
aggregate number of Shares or other securities of the Company or its successor (or number and kind
of other securities or property) with respect to which Awards may be granted under the Plan; (2)
the number of Shares or other securities of the Company or its successor (or number and kind of
other securities or property) subject to outstanding Awards under the Plan; (3) the grant or
exercise price with respect to any Award under the Plan, provided that the number of shares subject
to any Award shall always be a whole number; and (4) the limits on the number of Shares that may be
granted to Participants under the Plan in any calendar year; (ii) subject to Section 13, provide
for an equivalent award in respect of securities of the surviving entity of any merger,
consolidation or other transaction or event having a similar effect; or (iii) make provision for a
cash payment to the holder of an outstanding Award.

     4.3 Substitute Awards. Any Shares issued by the Company as Substitute Awards in connection
with the assumption or substitution of outstanding grants from any acquired corporation shall not
reduce the Shares available for Awards under the Plan.

     4.4 Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may
consist, in whole or in part, of authorized and unissued Shares or of issued Shares which have been
reacquired by the Company.

Section 5. Eligibility.

     Any Employee, Director or Consultant shall be eligible to be designated a Participant;
provided, however, that Outside Directors shall only be eligible to receive Awards granted
consistent with Section 10.

Section 6. Stock Options And Stock Appreciation Rights.

     6.1 Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Participants to whom Options and SARs shall be granted, the number of
Shares subject to each Award, the exercise price and the conditions and limitations applicable to
the exercise of each Option and SAR. An Option may be granted with or without a related SAR. An
SAR may be granted with or without a related Option. The Committee shall have the authority to
grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of
Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time
to time amended, and any regulations implementing such statute. A person who has been granted an
Option or SAR under this Plan may be granted additional Options or SARs under the Plan if the
Committee shall so determine; provided, however, that to the extent the aggregate Fair Market Value
(determined at the time the Incentive Stock Option is granted) of the Shares with respect to which
all Incentive Stock Options are exercisable for the first time by an Employee during any calendar

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year (under all plans described in subsection (d) of Section 422 of the Code of the Employee’s
employer corporation and its parent and Subsidiaries) exceeds $100,000, such Options shall be
treated as Non-Qualified Stock Options.

     6.2 Price. The Committee in its sole discretion shall establish the Option Price at the time
each Option is granted. Except in the case of Substitute Awards, the Option Price of an Option may
not be less than one hundred percent (100%) of the Fair Market Value of the Shares with respect to
which the Option is granted on the date of grant of such Option. Except in connection with a
corporate transaction involving the Company (including, without limitation, any stock dividend,
stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be
amended to reduce the exercise price of outstanding Options or SARs or cancel outstanding Options
or SARS in exchange for cash, other Awards or Options or SARs with an exercise price that is less
than the exercise price of the original Options or SARs without stockholder approval. Except with
respect to Substitute Awards, SARs may not be granted at a price less than the Fair Market Value of
a Share on the date of grant.

     6.3 Term. Subject to the Committee’s authority under Section 3.1 and the provisions
of Section 6.6, each Option and SAR and all rights and obligations thereunder shall expire
on the date determined by the Committee and specified in the Award Agreement. The Committee shall
be under no duty to provide terms of like duration for Options or SARs granted under the Plan.
Notwithstanding the foregoing, no Option or SAR shall be exercisable after the expiration of ten
(10) years from the date such Option or SAR was granted.

     6.4 Exercise.

     (a) Each Option and SAR shall be exercisable at such times and subject to such terms
and conditions as the Committee may, in its sole discretion, specify in the applicable Award
Agreement or thereafter. The Committee shall have full and complete authority to determine,
subject to Section 6.6 herein, whether an Option or SAR will be exercisable in full
at any time or from time to time during the term of the Option or SAR, or to provide for the
exercise thereof in such installments, upon the occurrence of such events and at such times
during the term of the Option or SAR as the Committee may determine.

     (b) The Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal, state or foreign
securities laws or the Code, as it may deem necessary or advisable. The exercise of any
Option granted hereunder shall be effective only at such time as the sale of Shares pursuant
to such exercise will not violate any state or federal securities or other laws.

     (c) An Option or SAR may be exercised in whole or in part at any time, with respect to
whole Shares only, within the period permitted thereunder for the exercise thereof, and
shall be exercised by written notice of intent to exercise the Option or SAR, delivered to
the Company at its principal office, and payment in full to the Company at the direction of
the Committee of the amount of the Option Price for the number of Shares with respect to
which the Option is then being exercised.

     (d) Payment of the Option Price shall be made in cash or cash equivalents, or, at the
discretion of the Committee, (i) by transfer, either actually or by attestation, to the
Company of Shares, valued at the Fair Market Value of such Shares on the date of exercise
(or next succeeding trading date, if the date of exercise is not a trading date), together
with any applicable withholding taxes, such transfer to be upon such terms and conditions as
determined by the Committee, (ii) by a combination of such cash (or cash equivalents) and
such Shares; provided, however, that the optionee shall not be entitled to tender Shares
pursuant to successive, substantially simultaneous exercises of an Option or any other stock
option of the Company, or (iii) by withholding from optionee sufficient Shares, subject to
such Option, having an aggregate Fair Market Value at the time of exercise equal to the
total Option Price. Subject to applicable securities laws and Company policy, the Company
may permit an Option to be exercised by delivering a notice of exercise of the Option and
simultaneously selling the Shares thereby acquired, pursuant to a brokerage or similar
agreement approved in advance by proper officers of the Company, using the proceeds of such
sale as payment of the Option Price, together with any applicable withholding taxes. Until
the optionee has been issued the Shares subject to such exercise, he or she shall possess no
rights as a stockholder with respect to such Shares.

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     (e) At the Committee’s discretion, the amount payable as a result of the exercise of an
SAR may be settled in cash, Shares or a combination of cash and Shares. A fractional Share
shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu
thereof.

     6.6 Ten Percent Stock Rule. Notwithstanding any other provisions in the Plan, if at the time
an Option is otherwise to be granted pursuant to the Plan, the optionee or rights holder owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Shares of the Company
possessing more than ten percent (10%) of the total combined voting power of all classes of Stock
of the Company or its parent or Subsidiary or Affiliate corporations (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee or rights
holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the
Option Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of the
Shares of the Company, and such Option by its terms shall not be exercisable after the expiration
of five (5) years from the date such Option is granted.

Section 7. Restricted Shares And Restricted Share Units.

     7.1 Grant.

     (a) Subject to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Participants to whom Restricted Shares and Restricted Share Units
shall be granted, the number of Restricted Shares and/or the number of Restricted Share
Units to be granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Shares and Restricted Share Units may be forfeited to
the Company, and the other terms and conditions of such Awards. The Restricted Share and
Restricted Share Unit Awards shall be evidenced by Award Agreements in such form as the
Committee shall from time to time approve, which agreements shall comply with and be subject
to the terms and conditions provided hereunder and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.

     (b) Each Restricted Share and Restricted Share Unit Award made under the Plan shall be
for such number of Shares as shall be determined by the Committee and set forth in the Award
Agreement containing the terms of such Restricted Share or Restricted Share Unit Award.
Such agreement shall set forth a period of time during which the grantee must remain in the
continuous employment of the Company in order for the forfeiture and transfer restrictions
to lapse. If the Committee so determines, the restrictions may lapse during such restricted
period in installments with respect to specified portions of the Shares covered by the
Restricted Share or Restricted Share Unit Award. The Award Agreement may also, in the
discretion of the Committee, set forth performance or other conditions that will subject the
Shares to forfeiture and transfer restrictions. The Committee may, at its discretion, waive
all or any part of the restrictions applicable to any or all outstanding Restricted Share
and Restricted Share Unit Awards.

     7.2 Delivery of Shares and Transfer Restrictions. At the time of a Restricted Share Award, a
certificate representing the number of Shares awarded thereunder shall be registered in the name of
the grantee. Such certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of the Plan, and shall
bear such a legend setting forth the restrictions imposed thereon as the Committee, in its
discretion, may determine. Unless otherwise provided in the applicable Award Agreement, the
grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the
right to receive dividends and the right to vote such Shares, subject to the following
restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any other restrictive conditions set
forth in the Award Agreement with respect to such Shares; (ii) none of the Shares may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such
restricted period or until after the fulfillment of any such other restrictive conditions; and
(iii) except as otherwise determined by the Committee at or after grant, all of the Shares shall be
forfeited and all rights of the grantee to such Shares shall terminate, without further obligation
on the part of the Company, unless the grantee remains in the continuous employment of the Company
for the entire restricted period in relation to which such Shares were granted and unless any other
restrictive conditions relating to the Restricted Share Award are met. Unless otherwise provided
in the applicable Award Agreement, any Shares, any other securities of the Company and any other
property (except for cash dividends) distributed with respect to the Shares subject to Restricted
Share Awards shall be subject to the same restrictions, terms and conditions as such Restricted
Shares.

8

 

     7.3 Termination of Restrictions. At the end of the restricted period and provided that any
other restrictive conditions of the Restricted Share Award are met, or at such earlier time as
otherwise determined by the Committee, all restrictions set forth in the Award Agreement relating
to the Restricted Share Award or in the Plan shall lapse as to the restricted Shares subject
thereto, and a stock certificate for the appropriate number of Shares, free of the restrictions and
restricted stock legend, shall be delivered to the Participant or the Participant’s beneficiary or
estate, as the case may be.

     7.4 Payment of Restricted Share Units. Each Restricted Share Unit shall have a value equal to
the Fair Market Value of a Share. Restricted Share Units shall be paid in cash, Shares, other
securities or other property, as determined in the sole discretion of the Committee, upon the lapse
of the restrictions applicable thereto, or otherwise in accordance with the applicable Award
Agreement. Unless otherwise provided in the applicable Award Agreement, a Participant shall
receive dividend rights in respect of any vested Restricted Stock Units at the time of any payment
of dividends to stockholders on Shares. The amount of any such dividend right shall equal the
amount that would be payable to the Participant as a stockholder in respect of a number of Shares
equal to the number of vested Restricted Stock Units then credited to the Participant. Any such
dividend right shall be paid in accordance with the Company’s payment practices as may be
established from time to time and as of the date on which such dividend would have been payable in
respect of outstanding Shares. No dividend equivalents shall be paid in respect of Restricted
Share Units that are not yet vested. Except as otherwise determined by the Committee at or after
grant, Restricted Share Units may not be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of, and all Restricted Share Units and all rights of the grantee
to such Restricted Share Units shall terminate, without further obligation on the part of the
Company, unless the grantee remains in continuous employment of the Company for the entire
restricted period in relation to which such Restricted Share Units were granted and unless any
other restrictive conditions relating to the Restricted Share Unit Award are met.

Section 8. Performance Awards.

     8.1 Grant. The Committee shall have sole and complete authority to determine the Participants
who shall receive a Performance Award, which shall consist of a right that is (i) denominated in
cash or Shares (including but not limited to Restricted Shares and Restricted Share Units), (ii)
valued, as determined by the Committee, in accordance with the achievement of such performance
goals during such performance periods as the Committee shall establish, and (iii) payable at such
time and in such form as the Committee shall determine.

     8.2 Terms and Conditions. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any Performance Award and
the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and
may amend specific provisions of the Performance Award; provided, however, that such amendment may
not adversely affect existing Performance Awards made within a performance period commencing prior
to implementation of the amendment.

     8.3 Payment of Performance Awards. Performance Awards may be paid in a lump sum or in
installments following the close of the performance period or, in accordance with the procedures
established by the Committee, on a deferred basis. Termination of employment prior to the end of
any performance period, other than for reasons of death or Disability, will result in the
forfeiture of the Performance Award, and no payments will be made. A Participant’s rights to any
Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of in any manner, except by will or the laws of descent and distribution,
and/or except as the Committee may determine at or after grant.

Section 9. Other Stock-Based Awards.

     The Committee shall have the authority to determine the Participants who shall receive an
Other Stock-Based Award, which shall consist of any right that is (i) not an Award described in
Sections 6 and 7 above and (ii) an Award of Shares or an Award denominated or
payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as deemed by the Committee to
be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable
Award Agreement, the Committee shall determine the terms and conditions of any such Other
Stock-Based Award.

9

 

Section 10. Non-Employee Director And Outside Director Awards.

     10.1 The Board may provide that all or a portion of a Non-Employee Director’s annual retainer,
meeting fees and/or other awards or compensation as determined by the Board, be payable (either
automatically or at the election of a Non-Employee Director) in the form of Non-Qualified Stock
Options, Restricted Shares, Restricted Share Units and/or Other Stock-Based Awards, including
unrestricted Shares. The Board shall determine the terms and conditions of any such Awards,
including the terms and conditions which shall apply upon a termination of the Non-Employee
Director’s service as a member of the Board, and shall have full power and authority in its
discretion to administer such Awards, subject to the terms of the Plan and applicable law.

     10.2 The Board may also grant Awards to Outside Directors pursuant to the terms of the Plan,
including any Award described in Sections 6, 7 and 9 above. With respect
to such Awards, all references in the Plan to the Committee shall be deemed to be references to the
Board.

Section 11. Provisions Applicable To Covered Officers And Performance Awards.

     11.1 Notwithstanding anything in the Plan to the contrary, unless the Committee determines
that a Performance Award to be granted to a Covered Officer should not qualify as
“performance-based compensation” for purposes of Section 162(m), Performance Awards granted to
Covered Officers shall be subject to the terms and provisions of this Section 11.

     11.2 The Committee may grant Performance Awards to Covered Officers based solely upon the
attainment of performance targets related to one or more performance goals selected by the
Committee from among the goals specified below. For the purposes of this Section 11,
performance goals shall be limited to one or more of the following Company, Subsidiary, operating
unit, business segment or division financial performance measures:

	 	(a)	 	earnings before interest, taxes, depreciation and/or
amortization;
	 
	 	(b)	 	operating income or profit;
	 
	 	(c)	 	operating efficiencies;
	 
	 	(d)	 	return on equity, assets, capital, capital employed or
investment;
	 
	 	(e)	 	after tax operating income;
	 
	 	(f)	 	net earnings;
	 
	 	(g)	 	financial ratios, including those measuring liquidity, activity,
profitability or leverage;
	 
	 	(h)	 	earnings per Share;
	 
	 	(i)	 	cash flow(s);
	 
	 	(j)	 	guest counts, average check per customer or same restaurant sales;
	 
	 	(k)	 	stock price or total shareholder return;
	 
	 	(l)	 	guest satisfaction;
	 
	 	(m)	 	dividends;
	 
	 	(n)	 	debt reduction;

10

 

	 	(o)	 	strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business expansion goals,
goals relating to acquisitions or divestitures or goals relating to the
performance of new or remodeled stores; or
	 
	 	(p)	 	any combination thereof.

Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise
employ comparisons based on internal targets, the past performance of the Company or any
Subsidiary, operating unit, business segment or division of the Company and/or the past or current
performance of other companies, and in the case of earnings-based measures, may use or employ
comparisons relating to capital, shareholders’ equity and/or Shares outstanding, or to assets or
net assets. The Committee may appropriately adjust any evaluation of performance under criteria
set forth in this Section 11.2 to exclude any of the following events that occurs during a
performance period: (i) asset impairments and write-downs, (ii) litigation or claim judgments or
settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or
provisions affecting reported results, (iv) accruals for reorganization and restructuring programs
and (v) any extraordinary non-recurring items as described in Accounting Principles Board Opinion
No. 30 and/or in management’s discussion and analysis of financial condition and results of
operations appearing in the Company’s annual report to stockholders for the applicable year.

     11.3 With respect to any Covered Officer, the maximum annual number of Shares in respect of
which all Performance Awards may be granted under Section 8 of the Plan is 400,000 and the
maximum amount of all Performance Awards that are settled in cash and that may be granted under
Section 8 of the Plan in any year is $3,000,000.

     11.4 To the extent necessary to comply with Section 162(m), with respect to grants of
Performance Awards, no later than 90 days following the commencement of each performance period (or
such other time as may be required or permitted by Section 162(m) of the Code), the Committee
shall, in writing, (1) select the performance goal or goals applicable to the performance period,
(2) establish the various targets and bonus amounts which may be earned for such performance
period, and (3) specify the relationship between performance goals and targets and the amounts to
be earned by each Covered Officer for such performance period. Following the completion of each
performance period, the Committee shall certify in writing whether the applicable performance
targets have been achieved and the amounts, if any, payable to Covered Officers for such
performance period. In determining the amount earned by a Covered Officer for a given performance
period, subject to any applicable Award Agreement, the Committee shall have the right to reduce
(but not increase) the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant in its sole discretion to the assessment of
individual or corporate performance for the performance period.

     11.5 Unless otherwise expressly stated in the relevant Award Agreement, each Award granted to
a Covered Officer under the Plan is intended to be performance-based compensation within the
meaning of Section 162(m). Accordingly, unless otherwise determined by the Committee, if any
provision of the Plan or any Award Agreement relating to such an Award does not comply or is
inconsistent with Section 162(m), such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements, and no provision shall be deemed to confer upon the
Committee discretion to increase the amount of compensation otherwise payable to a Covered Officer
in connection with any such Award upon the attainment of the performance criteria established by
the Committee.

Section 12. Termination Of Employment.

     The Committee shall have the full power and authority to determine the terms and conditions
that shall apply to any Award upon a termination of employment with the Company, its Subsidiaries
and Affiliates, including a termination by the Company with or without Cause, by a Participant
voluntarily, or by reason of death, Disability, Early Retirement or Retirement, and may provide
such terms and conditions in the Award Agreement or in such rules and regulations as it may
prescribe.

11

 

Section 13. Change In Control.

     Unless otherwise provided by the Committee at or after grant, upon a Change in Control, all
outstanding Awards (other than Performance Awards) shall vest, become immediately exercisable or
payable, or have all restrictions lifted.

Section 14. Amendment And Termination.

     14.1 Amendments to the Plan. The Board may amend, alter, suspend, discontinue or terminate
the Plan or any portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without stockholder approval if such
approval is necessary to comply with any tax or regulatory requirement for which or with which the
Board deems it necessary or desirable to comply.

     14.2 Amendments to Awards. Subject to the restrictions of Section 6.2, the Committee
may waive any conditions or rights under, amend any terms of or alter, suspend, discontinue, cancel
or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such
waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would
materially and adversely affect the rights of any Participant or any holder or beneficiary of any
Award theretofore granted shall not to that extent be effective without the consent of the affected
Participant, holder or beneficiary.

     14.3 Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The
Committee shall make equitable and proportionate adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4.2 hereof) affecting the Company, any
Subsidiary or Affiliate, or the financial statements of the Company or any Subsidiary or Affiliate,
or of changes in applicable laws, regulations or accounting principles in order to prevent the
dilution or enlargement of the benefits or potential benefits intended to be made available under
the Plan.

Section 15. General Provisions.

     15.1 Limited Transferability of Awards. Except as otherwise provided in the Plan, no Award
shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant, except by will or the laws of descent and distribution and/or as may be provided by
the Committee in its discretion, at or after grant, in the Award Agreement or otherwise. No
transfer of an Award by will or by laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may deem necessary or
appropriate to establish the validity of the transfer.

     15.2 Dividend Equivalents. In the sole and complete discretion of the Committee, an Award may
provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other
securities or other property on a current or deferred basis. All dividend or dividend equivalents
which are not paid currently may, at the Committee’s discretion, accrue interest, be reinvested
into additional Shares, or, in the case of dividends or dividend equivalents credited in connection
with Performance Awards, be credited as additional Performance Awards and paid to the Participant
if and when, and to the extent that, payment is made pursuant to such Award. The total number of
Shares available for grant under Section 4 shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional Shares or credited as Performance Awards.

     15.3. Compliance with Section 409A of the Code. No Award (or modification thereof) shall
provide for deferral of compensation that does not comply with Section 409A of the Code unless the
Committee, at the time of grant, specifically provides that the Award is not intended to comply
with Section 409A of the Code. Notwithstanding any provision of this Plan to the contrary, if one
or more of the payments or benefits received or to be received by a Participant pursuant to an
Award would cause the Participant to incur any additional tax or interest under Section 409A of the
Code, the Committee may reform such provision to maintain to the maximum extent practicable the
original intent of the applicable provision without violating the provisions of Section 409A of the
Code.

     15.4 No Rights to Awards. No Person shall have any claim to be granted any Award, and there
is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each Participant.

12

 

     15.5 Share Certificates. All certificates for Shares or other securities of the Company or
any Subsidiary or Affiliate delivered under the Plan pursuant to any Award or the exercise thereof
shall be subject to such stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations and other requirements of the SEC or any state
securities commission or regulatory authority, any stock exchange or other market upon which such
Shares or other securities are then listed, and any applicable Federal or state laws, and the
Committee may cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

     15.6 Withholding. A Participant may be required to pay to the Company or any Subsidiary or
Affiliate and the Company or any Subsidiary or Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made under any Award or
under the Plan, or from any compensation or other amount owing to a Participant the amount (in
cash, Shares, other securities, other Awards or other property) of any applicable withholding or
other tax-related obligations in respect of an Award, its exercise or any other transaction
involving an Award, or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee may provide for additional cash payments to holders of
Options to defray or offset any tax arising from the grant, vesting, exercise or payment of any
Award.

     15.7 Award Agreements. Each Award hereunder shall be evidenced by an Award Agreement that
shall be delivered to the Participant and may specify the terms and conditions of the Award and any
rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award
Agreement, the terms of the Plan shall prevail. The Committee shall, subject to applicable law,
determine the date an Award is deemed to be granted. The Committee or, except to the extent
prohibited under applicable law, its delegate(s) may establish the terms of agreements or other
documents evidencing Awards under this Plan and may, but need not, require as a condition to any
such agreement’s or document’s effectiveness that such agreement or document be executed by the
Participant, including by electronic signature or other electronic indication of acceptance, and
that such Participant agree to such further terms and conditions as specified in such agreement or
document. The grant of an Award under this Plan shall not confer any rights upon the Participant
holding such Award other than such terms, and subject to such conditions, as are specified in this
Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in
the agreement or other document evidencing such Award.

     15.8 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent
the Company or any Subsidiary or Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of Options, Restricted Shares,
Restricted Share Units, Other Stock-Based Awards or other types of Awards provided for hereunder.

     15.9 No Right to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any Subsidiary or Affiliate.
Further, the Company or a Subsidiary or Affiliate may at any time dismiss a Participant from
employment, free from any liability or any claim under the Plan, unless otherwise expressly
provided in an Award Agreement.

     15.10 No Rights as Stockholder. Subject to the provisions of the Plan and the applicable
Award Agreement, no Participant or holder or beneficiary of any Award shall have any rights as a
stockholder with respect to any Shares to be distributed under the Plan until such person has
become a holder of such Shares. Notwithstanding the foregoing, in connection with each grant of
Restricted Shares hereunder, the applicable Award Agreement shall specify if and to what extent the
Participant shall not be entitled to the rights of a stockholder in respect of such Restricted
Shares.

     15.11 Governing Law. The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall be determined in accordance with the
laws of the State of Tennessee without giving effect to conflicts of laws principles.

     15.12 Severability. If any provision of the Plan or any Award is, or becomes, or is deemed to
be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

13

 

     15.13 Other Laws. The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines that the issuance or
transfer of such Shares or such other consideration might violate any applicable law or regulation
(including applicable non-U.S. laws or regulations) or entitle the Company to recover the same
under Exchange Act Section 16(b), and any payment tendered to the Company by a Participant, other
holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to
the relevant Participant, holder or beneficiary.

     15.14 No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship between the Company or
any Subsidiary or Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Subsidiary or Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured general creditor of the
Company or any Subsidiary or Affiliate.

     15.15 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the
Plan or any Award, and the Committee shall determine whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

     15.16 Headings. Headings are given to the sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.

Section 16. Term Of The Plan.

     16.1 Effective Date. The Plan shall be effective as of May 21, 2008 provided it has been
approved by the Board and by the Company’s stockholders.

     16.2 Expiration Date. No new Awards shall be granted under the Plan after the tenth (10th)
anniversary of the Effective Date. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the
Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after the tenth (10th) anniversary of the
Effective Date.

14Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities  Purchase  Agreement (this  "Agreement") is dated as of
May __,  2008,  among  China  Pharma  Holdings,  Inc.,  a  Delaware  corporation
(collectively with its predecessors, the "Company"), and the investors listed on
the  Schedule  of  Buyers  attached  hereto  as  Annex A and  identified  on the
signature pages hereto (each, an "Investor" and collectively, the "Investors").

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement and pursuant to Section 4(2) of the  Securities Act (as defined below)
and Rule 506  promulgated  thereunder,  the Company desires to issue and sell to
each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain  securities of the Company,  as more fully described in
this Agreement.

         NOW,  THEREFORE,  IN CONSIDERATION of the mutual covenants contained in
this Agreement,  and for other good and valuable  consideration  the receipt and
adequacy of which are hereby  acknowledged,  the Company and the Investors agree
as follows:

ARTICLE 1.
                                   DEFINITIONS

1.1. Definitions.  In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement,  the following terms shall have the meanings
indicated in this Section 1.1:

                  "Action" means any action, suit, inquiry, notice of violation,
proceeding   (including  any  partial   proceeding  such  as  a  deposition)  or
investigation pending or threatened in writing against or affecting the Company,
any  Subsidiary or any of their  respective  properties  before or by any court,
arbitrator,   governmental  or  administrative   agency,   regulatory  authority
(federal,  state,  county,  local or foreign),  stock market,  stock exchange or
trading facility.

                  "Affiliate"  means any Person  that,  directly  or  indirectly
through one or more  intermediaries,  controls or is  controlled  by or is under
common control with a Person, as such terms are used in and construed under Rule
144.

                  "Business Day" means any day except  Saturday,  Sunday and any
day which is a federal legal holiday or a day on which banking  institutions  in
the State of New York are  authorized  or required by law or other  governmental
action to close.

                  "Buy-In" has the meaning set forth in Section 4.1(c).

                  "Closing"  means the closing of the  purchase  and sale of the
Securities pursuant to Article II.

                  "Closing  Date"  means  the  Business  Day on which all of the
conditions set forth in Sections 5.1 and 5.2 hereof are satisfied, or such other
date as the parties may agree.

<PAGE>

                  "Commission" means the Securities and Exchange Commission.

                  "Common  Stock"  means the common  stock of the  Company,  par
value  $0.001 per share,  and any  securities  into which such common  stock may
hereafter be reclassified.

                  "Common Stock Equivalents" means any securities of the Company
or any  Subsidiary  which entitle the holder  thereof to acquire Common Stock at
any time,  including  without  limitation,  any debt,  preferred stock,  rights,
options,  warrants or other  instrument that is at any time  convertible into or
exchangeable  for, or otherwise  entitles the holder thereof to receive,  Common
Stock or other  securities  that  entitle  the holder to  receive,  directly  or
indirectly, Common Stock.

                  "Company Counsel" means King & Wood LLP.

                  "Company  Deliverables"  has the  meaning set forth in Section
2.2(a).

                  "Disclosure  Materials"  has the  meaning set forth in Section
3.1(h).

                  "Effective   Date"  means  the  date  that  the   Registration
Statement required by Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.

                  "Escrow Agreement" means the Escrow Agreement, dated as of the
date hereof,  between the Company, Roth Capital Partners,  LLC and King and Wood
LLP (the "Escrow Agent") set forth therein, in the form of Exhibit C hereto.

                  "Evaluation Date" has the meaning set forth in Section 3.1(s).

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

                  "GAAP" means U.S. generally accepted accounting principles.

                  "Intellectual  Property  Rights"  has the meaning set forth in
Section 3.1(p).

                  "Intellectual  Property Rights  Licensing  Agreements" has the
meaning set forth in Section 3.1(p).

                  "Investment Amount" means, with respect to each Investor,  the
Investment Amount indicated on such Investor's signature page to this Agreement.

                  "Investor  Deliverables"  has the meaning set forth in Section
2.2(b).

                  "Investor Party" has the meaning set forth in Section 4.7.

                  "Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind.

                  "Losses" has the meaning set forth in Section 4.7.

                                       2

<PAGE>
                  "Material  Adverse  Effect"  means any of (i) a  material  and
adverse effect on the legality,  validity or  enforceability  of any Transaction
Document,  (ii) a material  and  adverse  effect on the  results of  operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the  Subsidiaries,  taken as a whole, or (iii) an adverse  impairment to the
Company's  ability  to  perform  on a timely  basis  its  obligations  under any
Transaction Document.

                  "Money  Laundering  Laws" has the meaning set forth in Section
3.1(ee).

                  "New York Courts" means the state and federal  courts  sitting
in the City of New York, Borough of Manhattan.

                  "OFAC" has the meaning set forth in Section 3.1(dd).

                  "Outside  Date"  means  the  thirtieth   (30th)  calendar  day
following the date of this Agreement;  provided, that if such day should fall on
a day that is not a Business  Day, the Outside Date shall be deemed the next day
that is a Business Day.

                  "Per Unit Purchase Price" equals $2.00.

                  "Person"  means an  individual  or  corporation,  partnership,
trust,  incorporated  or  unincorporated  association,  joint  venture,  limited
liability company, joint stock company,  government (or an agency or subdivision
thereof) or other entity of any kind.

                  "PRC"  means the  People's  Republic of China,  not  including
Taiwan, Hong Kong and Macau.

                  "Proceeding" means an action,  claim,  suit,  investigation or
proceeding   (including,   without  limitation,   an  investigation  or  partial
proceeding, such as a deposition), whether commenced or threatened.

                  "Registration  Rights Agreement" means the Registration Rights
Agreement,  dated as of the date of this  Agreement,  among the  Company and the
Investors, in the form of Exhibit B hereto.

                  "Registration   Statement"  means  a  registration   statement
meeting the  requirements  set forth in the  Registration  Rights  Agreement and
covering the resale by the Investors of the Shares and the Warrant Shares.

                  "Rule  144"  means  Rule  144  promulgated  by the  Commission
pursuant to the  Securities  Act, as such Rule may be amended from time to time,
or any similar rule or regulation  hereafter  adopted by the  Commission  having
substantially the same effect as such Rule.

                  "SEC Reports" has the meaning set forth in Section 3.1(h).

                  "Securities"  means the Shares,  the  Warrants and the Warrant
Shares.

                  "Securities Act" means the Securities Act of 1933, as amended.

                                       3
<PAGE>

                  "Share  Delivery  Date" has the  meaning  set forth in Section
4.1(c).

                  "Shares"  means the shares of Common  Stock issued or issuable
to the Investors pursuant to this Agreement.

                  "Short Sales" include,  without limitation,  all "short sales"
as defined in Rule 200 promulgated  under  Regulation SHO under the Exchange Act
and all types of direct and indirect  stock  pledges,  forward  sale  contracts,
options,  puts,  calls,  swaps and similar  arrangements  (including  on a total
return basis), and sales and other transactions through non-US broker dealers or
foreign regulated brokers.

                  "Subsidiary"  means,  as to the Company,  any  "subsidiary" as
defined in Rule 1-02(x) of the  Regulation  S-X  promulgated  by the  Commission
under the Exchange Act.

                  "Trading  Day"  means (i) a day on which the  Common  Stock is
traded on a Trading Market (other than the OTC Bulletin  Board),  or (ii) if the
Common  Stock is not listed on a Trading  Market  (other  than the OTC  Bulletin
Board),  a day on which  the  Common  Stock is  traded  in the  over-the-counter
market,  as reported by the OTC Bulletin  Board, or (iii) if the Common Stock is
not quoted on any Trading  Market,  a day on which the Common Stock is quoted in
the  over-the-counter  market as reported by the Pink Sheets LLC (or any similar
organization  or  agency  succeeding  to its  functions  of  reporting  prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

                  "Trading  Market"  means  whichever  of  the  New  York  Stock
Exchange,  the American Stock  Exchange,  the NASDAQ Global Select  Market,  the
NASDAQ Global  Market,  the NASDAQ Capital Market or OTC Bulletin Board on which
the Common Stock is listed or quoted for trading on the date in question.

                  "Transaction  Documents"  means this Agreement,  the Warrants,
the Registration Rights Agreement,  the Escrow Agreement and any other documents
or  agreements  executed  in  connection  with  the  transactions   contemplated
hereunder.

                  "Warrants"  means the Common  Stock  purchase  warrants in the
form of Exhibit A, which are issuable to the Investors at the Closing.

                  "Warrant  Shares"  means the shares of Common  Stock  issuable
upon exercise of the Warrants.

                                   ARTICLE 2.
                                PURCHASE AND SALE

     2.1.  Closing.  Subject  to the  terms  and  conditions  set  forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor, and
each Investor shall,  severally and not jointly,  purchase from the Company, the
Securities  representing such Investor's  Investment  Amount.  The Closing shall
take  place at the  offices  of Winston & Strawn  LLP,  counsel to Roth  Capital
Partners,  LLC,  200 Park Avenue,  New York,  NY 10166 on the Closing Date or at
such other location or time as the parties may agree.

                                       4
<PAGE>

     2.2. Closing Deliveries.  (a) At the Closing,  the Company shall deliver or
cause  to  be  delivered  to  each   Investor  the   following   (the   "Company
Deliverables"):

               (i) a  certificate  evidencing  a number of Shares  equal to such
Investor's Investment Amount divided by the Per Unit Purchase Price,  registered
in the name of such Investor; and

               (ii) a Warrant, registered in the name of such Investor, pursuant
to which such  Investor  shall have the right to acquire the number of shares of
Common  Stock  equal to 25% of the number of Shares  issuable  to such  Investor
pursuant to Section 2.2(a)(i); and

               (iii) the legal  opinion  of  Company  Counsel,  in agreed  form,
addressed to the Investors.

          (b) By the  Closing,  each  Investor  shall  deliver  or  cause  to be
delivered the agreements  specified in Section 5.2(d),  each duly signed by such
Investor (collectively, the "Investor Deliverables").

          (c) Within one Business Day following the date of this Agreement, each
Investor shall cause to be delivered to the Escrow Agent, its Investment Amount,
in United States dollars and in immediately available funds, by wire transfer to
an account  designated  in writing by the Company for such purpose in accordance
with the terms of the Escrow Agreement.

                                   ARTICLE 3.
                         REPRESENTATIONS AND WARRANTIES

     3.1.  Representations  and  Warranties of the Company.  The Company  hereby
makes the following representations and warranties to each Investor:

          (a) Subsidiaries.  The Company has no direct or indirect  Subsidiaries
other than as  specified  in the SEC  Reports.  Except as  disclosed in Schedule
3.1(a),  the Company owns,  directly or indirectly,  all of the capital stock of
each  Subsidiary  free and clear of any and all  Liens,  and all the  issued and
outstanding  shares of capital stock of each  Subsidiary  are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights.

          (b)  Organization and  Qualification.  The Company and each Subsidiary
are duly  incorporated  or  otherwise  organized,  validly  existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as  applicable),  with the  requisite  power and  authority  to own and use its
properties  and  assets and to carry on its  business  as  currently  conducted.
Neither the Company nor any  Subsidiary is in violation of any of the provisions
of its  respective  certificate  or articles of  incorporation,  bylaws or other
organizational  or charter  documents.  The Company and each Subsidiary are duly
qualified to conduct its  respective  businesses  and are in good  standing as a
foreign  corporation or other entity in each jurisdiction in which the nature of
the  business  conducted  or  property  owned  by it  makes  such  qualification
necessary,  except where the failure to be so qualified or in good standing,  as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.

                                       5
<PAGE>

          (c)  Authorization;   Enforcement.   The  Company  has  the  requisite
corporate  power and authority to enter into and to consummate the  transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations  thereunder.  The execution and delivery of each of the  Transaction
Documents  by  the  Company  and  the  consummation  by it of  the  transactions
contemplated  thereby have been duly  authorized by all necessary  action on the
part of the  Company  and no further  action is  required  by the Company or any
Subsidiary in connection therewith.  Each Transaction Document has been (or upon
delivery  will have been) duly  executed by the Company and,  when  delivered in
accordance  with the  terms  hereof,  will  constitute  the  valid  and  binding
obligation of the Company enforceable against the Company in accordance with its
terms,  except as such  enforceability may be limited by applicable  bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting  generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.

          (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  thereby  do not and  will not (i)  conflict  with or
violate any  provision  of the  Company's  or any  Subsidiary's  certificate  or
articles of incorporation,  bylaws or other organizational or charter documents,
or (ii) conflict  with, or constitute a default (or an event that 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 (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument  (evidencing  a Company or  Subsidiary  debt or  otherwise)  or other
understanding  to which the Company or any Subsidiary is a party or by which any
property  or asset of the Company or any  Subsidiary  is bound or  affected,  or
(iii)  result in a violation  of any law,  rule,  regulation,  order,  judgment,
injunction,  decree or other restriction of any court or governmental  authority
to which the Company or a  Subsidiary  is subject  (including  federal and state
securities  laws and  regulations),  or by which  any  property  or asset of the
Company  or a  Subsidiary  is bound or  affected;  except in the case of each of
clauses (ii) and (iii),  such as could not,  individually  or in the  aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

          (e)  Filings,  Consents  and  Approvals.  Neither  the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or  registration  with, any United States
or PRC court or other federal,  state, local or other governmental  authority or
other Person in connection  with the execution,  delivery and performance by the
Company  of the  Transaction  Documents,  other  than  (i) the  filing  with the
Commission  of one or  more  Registration  Statements  in  accordance  with  the
requirements of the  Registration  Rights  Agreement,  (ii) filings  required by
state  securities  laws,  (iii) the filing of a Notice of Sale of  Securities on
Form D with the Commission  under  Regulation D of the Securities  Act, (iv) the
filings  required in accordance  with Section 4.5 hereof and (v) those that have
been made or obtained prior to the date of this Agreement.

          (f)  Issuance  of  the  Securities.  The  Securities  have  been  duly
authorized  and,  when issued and paid for in  accordance  with the  Transaction
Documents,  will be duly and validly issued, fully paid and nonassessable,  free
and clear of all Liens  other than  restrictions  on  transfer  provided  in the
Transaction Documents. The Company has reserved from its duly authorized capital

                                       6
<PAGE>

stock the shares of Common Stock  issuable  pursuant to this  Agreement  and the
Warrants in order to issue the Shares and the Warrant Shares.

          (g)  Capitalization.  The number of shares and type of all authorized,
issued and  outstanding  capital stock of the Company,  and all shares of Common
Stock  reserved for issuance  under the Company's  various  option and incentive
plans, is specified in Schedule 3.1(g).  Except as specified in Schedule 3.1(g),
no securities of the Company are entitled to preemptive or similar  rights,  and
no  Person  has  any  right  of  first  refusal,   preemptive  right,  right  of
participation,   or  any  similar  right  to  participate  in  the  transactions
contemplated  by the  Transaction  Documents.  Except as  specified  in Schedule
3.1(g),  there are no outstanding options,  warrants,  scrip rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments,  understandings  or  arrangements  by  which  the  Company  or  any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights  convertible or  exchangeable  into shares of Common Stock.
The issue and sale of the Securities  will not,  immediately or with the passage
of  time,  obligate  the  Company  to  issue  shares  of  Common  Stock or other
securities  to any Person  (other than the  Investors)  and will not result in a
right of any holder of Company  securities to adjust the  exercise,  conversion,
exchange or reset price under such  securities.  Except as set forth in Schedule
3.1(g), neither the Company nor any Subsidiary has issued any capital stock in a
private placement transaction in the PRC.

          (h) SEC  Reports;  Financial  Statements.  The  Company  has filed all
reports  required to be filed by it under the  Securities  Act and the  Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Company was required by
law to file such reports) (the foregoing  materials being collectively  referred
to  herein  as the  "SEC  Reports"  and,  together  with the  Schedules  to this
Agreement (if any), the "Disclosure  Materials") on a timely basis or has timely
filed a valid  extension  of such  time of  filing  and has  filed  any such SEC
Reports prior to the expiration of any such  extension.  As of their  respective
dates, the SEC Reports  complied in all material  respects with the requirements
of the Securities Act and the Exchange Act and the rules and  regulations of the
Commission  promulgated  thereunder,  and none of the SEC  Reports,  when filed,
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  light  of the  circumstances  under  which  they  were  made,  not
misleading.  The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting  requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial  statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved, except as may be
otherwise  specified in such  financial  statements  or the notes  thereto,  and
fairly  present in all material  respects the financial  position of the Company
and  its  consolidated  Subsidiaries  as of and for the  dates  thereof  and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.

          (i) Press  Releases.  The press releases  disseminated  by the Company
during the twelve months  preceding the date of this Agreement  taken as a whole
do not  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

                                       7
<PAGE>

statements therein, in light of the circumstances under which they were made and
when made, not misleading.

          (j) Material  Changes.  Since the date of the latest audited financial
statements included within the SEC Reports,  except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii)  neither  the Company  nor any  Subsidiary  has  incurred  any  liabilities
(direct,  indirect,  contingent,  or otherwise)  other than (A) trade  payables,
accrued  expenses  and other  liabilities  incurred  in the  ordinary  course of
business  consistent  with past practice and (B)  liabilities not required to be
reflected in the Company's financial  statements pursuant to GAAP or required to
be  disclosed  in filings  made with the  Commission,  (iii) the Company has not
altered  its method of  accounting  or the  identity of its  auditors,  (iv) the
Company has not declared or made any dividend or  distribution  of cash or other
property to its  stockholders  or purchased,  redeemed or made any agreements to
purchase or redeem any shares of its capital stock,  and (v) the Company has not
issued any equity securities to any Company or Subsidiary  officer,  director or
Affiliate,  except pursuant to existing  Company stock option plans. The Company
does not have  pending  before  the  Commission  any  request  for  confidential
treatment of information.

          (k)  Litigation.  There is no Action  which (i)  adversely  affects or
challenges the legality,  validity or  enforceability  of any of the Transaction
Documents or the Securities or (ii) except as specifically  disclosed in the SEC
Reports,  could, if there were an unfavorable  decision,  individually or in the
aggregate,  have or  reasonably  be  expected  to result in a  Material  Adverse
Effect.  Neither  the Company nor any  Subsidiary,  nor any  director or officer
thereof  (in his or her  capacity  as such),  is or has been the  subject of any
Action  involving a claim of violation of or  liability  under  federal or state
securities laws or a claim of breach of fiduciary  duty,  except as specifically
disclosed in the SEC Reports.  There has not been,  and to the  knowledge of the
Company,  there is not pending any investigation by the Commission involving the
Company or any  current or former  director or officer of the Company (in his or
her  capacity as such).  The  Commission  has not issued any stop order or other
order suspending the  effectiveness  of any registration  statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.

          (l) Labor  Relations.  No  material  labor  dispute  exists or, to the
knowledge of the Company,  is imminent  with respect to any of the  employees of
the Company or any Subsidiary.

          (m)  Compliance.  Neither  the Company  nor any  Subsidiary  (i) is in
default  under or in violation  of (and no event has occurred  that has not been
waived that, with notice or lapse of time or both,  would result in a default by
the Company or any  Subsidiary  under),  nor has the  Company or any  Subsidiary
received  notice  of a  claim  that  it is in  default  under  or  that it is in
violation of, any indenture,  loan or credit agreement or any other agreement or
instrument  to which it is a party  or by which it or any of its  properties  is
bound  (whether or not such default or violation  has been  waived),  (ii) is in
violation of any order of any court,  arbitrator or governmental  body, or (iii)
is or  has  been  in  violation  of  any  statute,  rule  or  regulation  of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection,  occupational health

                                       8
<PAGE>

and safety, product quality and safety and employment and labor matters,  except
in each case as could not, individually or in the aggregate,  have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with all effective  requirements of the  Sarbanes-Oxley Act of 2002, as amended,
and the rules and  regulations  thereunder,  that are  applicable  to it, except
where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.

          (n) Regulatory Permits.  The Company and the Subsidiaries  possess all
certificates, authorizations and permits issued by the appropriate United States
and PRC federal,  state,  local or foreign regulatory  authorities  necessary to
conduct  their  respective  businesses  as described in the SEC Reports,  except
where the failure to possess  such  permits  could not,  individually  or in the
aggregate,  have or  reasonably  be  expected  to result in a  Material  Adverse
Effect,  and neither the Company nor any  Subsidiary  has received any notice of
proceedings relating to the revocation or modification of any such permits.

          (o) Title to Assets.  The Company and the Subsidiaries have valid land
use rights for all real property that is material to their respective businesses
and good and  marketable  title in all personal  property  owned by them that is
material  to their  respective  businesses,  in each  case free and clear of all
Liens,  except for Liens as do not materially  affect the value of such property
and do not  materially  interfere  with the use made and  proposed to be made of
such  property  by the  Company  and the  Subsidiaries.  Any real  property  and
facilities held under lease by the Company and the Subsidiaries are held by them
under  valid,  subsisting  and  enforceable  leases of which the Company and the
Subsidiaries  are in  compliance,  except as could not,  individually  or in the
aggregate,  have or  reasonably  be  expected  to result in a  Material  Adverse
Effect.

          (p)  Patents  and  Trademarks.  Schedule  3.1(p) sets forth all of the
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights,  licenses and other similar rights that the Company and
its Subsidiaries owns or has the rights to use (collectively,  the "Intellectual
Property  Rights").  The  Intellectual  Property  Rights  constitute  all of the
patents, patent applications, trademarks, trademark applications, service marks,
trade names,  copyrights,  licenses and other similar  rights that are necessary
for use by the Company and its  Subsidiaries in connection with their respective
businesses  as described in the SEC Reports.  Neither the Company nor any of its
Subsidiaries  has  received  a  written  or oral  notice  that the  Intellectual
Property Rights used by any of them violates or infringes upon the rights of any
Person.  Except as set forth in Schedule 3.1(p), all such Intellectual  Property
Rights are enforceable  and there is no existing  infringement by another Person
of any of the Intellectual  Property Rights. To the knowledge of the Company and
its  Subsidiaries,   no  former  or  current  employee,  no  former  or  current
consultant,   and  no  third-party   joint  developer  of  the  Company  or  its
Subsidiaries has any Intellectual  Property Rights made,  developed,  conceived,
created or written by the aforesaid  employee,  consultant or third-party  joint
developer  during the period of his or her  retention by, or joint venture with,
such Company or Subsidiary  which can be asserted  against any of the Company or
any such Subsidiary.  The Intellectual  Property Rights and the owner thereof or
agreement  through  which  they  are  licensed  to  any of  the  Company  or its
Subsidiaries are set forth on Schedule 3.1(p). By the Closing, the Company shall
have  entered into  agreements  by which it is granted  irrevocable,  exclusive,
royalty-free licenses on all Intellectual Property Rights that are registered to
or  owned  by any  Person  other  than  the  Company  or its  predecessor.  Such
agreements  together  with the  agreements  referenced  in  Schedule  3.1(p) are

                                       9
<PAGE>

collectively  the  "Intellectual  Property  Rights  Licensing  Agreements."  The
Company and its Subsidiaries will take such action as may be required, including
making and  maintaining the filings set forth in Schedule 3.1(p) and shall cause
any such transfers of Intellectual  Property Rights to the Company to be granted
as is required in order for the Company to become the  registered  owner (in its
current  name) of all such  Intellectual  Property  Rights  (including,  without
limitation,  the entering into of any  Intellectual  Property  Rights  Licensing
Agreements as may be necessary and the filing and maintaining of any information
with the  relevant  PRC  authority  which relate to the change of name for those
Intellectual  Property Rights  currently in the name of an entity other than the
Company).

          (q)  Insurance.  The  Company  and the  Subsidiaries  are  insured  by
insurers of recognized  financial  responsibility  against such losses and risks
and in such amounts as are prudent and customary in the  businesses in which the
Company and the Subsidiaries  are engaged.  The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries'  existing  insurance
coverage as and when such coverage  expires or to obtain  similar  coverage from
similar  insurers  as may  be  necessary  to  continue  its  business  on  terms
consistent with market for the Company's and such Subsidiaries' respective lines
of business without a significant increase in cost.

          (r) Transactions With Affiliates and Employees. Except as set forth in
the SEC  Reports,  none of the  officers or directors of the Company and, to the
knowledge  of the Company,  none of the  employees of the Company is presently a
party to any  transaction  with the  Company or any  Subsidiary  (other than for
services  as  employees,  officers  and  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 officer,  director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

          (s) Internal  Accounting  Controls.  The Company and the  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
GAAP and to maintain asset  accountability,  (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded  accountability  for assets is compared with the existing assets at
reasonable  intervals  and  appropriate  action  is taken  with  respect  to any
differences.  The Company has established disclosure controls and procedures (as
defined in  Exchange  Act Rules  13a-15(e)  and  15d-15(e))  for the Company and
designed  such  disclosure  controls  and  procedures  to ensure  that  material
information relating to the Company,  including its Subsidiaries,  is made known
to the certifying officers by others within those entities,  particularly during
the period in which the Company's Form 10-KSB, 10-K, 10-Q or 10-QSB, as the case
may be, is being prepared.  The Company's certifying officers have evaluated the
effectiveness  of the Company's  controls and procedures in accordance with Item
307 of  Regulation  S-K under the Exchange Act for the  Company's  most recently
ended fiscal quarter or fiscal year-end (such date, the "Evaluation  Date"). The
Company  presented  in its most  recently  filed Form  10-KSB or Form 10-QSB the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures  based on their  evaluations as of the Evaluation  Date.

                                       10
<PAGE>

Since the  Evaluation  Date,  there  have  been no  significant  changes  in the
Company's  internal  controls  (as  such  term  is  defined  in Item  308(c)  of
Regulation S-K under the Exchange Act) or, to the Company's knowledge,  in other
factors that could significantly affect the Company's internal controls.

          (t) Solvency.  Based on the  financial  condition of the Company as of
the Closing Date (and assuming that the Closing  shall have  occurred),  (i) the
Company's  fair  saleable  value of its assets  exceeds  the amount that will be
required to be paid on or in respect of the Company's  existing  debts and other
liabilities  (including known contingent  liabilities) as they mature,  (ii) the
Company's  assets do not constitute  unreasonably  small capital to carry on its
business  for the  current  fiscal year as now  conducted  and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements  of the business  conducted by the Company,  and projected  capital
requirements and capital  availability  thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets,  after taking into account all anticipated  uses of
the cash,  would be  sufficient  to pay all amounts on or in respect of its debt
when such amounts are required to be paid.  The Company does not intend to incur
debts  beyond its ability to pay such debts as they mature  (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).

          (u) Certain  Fees.  Except for fees payable to Roth Capital  Partners,
LLC in  connection  with the  transaction  contemplated  by this  Agreement,  no
brokerage or finder's fees or commissions  are or will be payable by the Company
to any  broker,  financial  advisor  or  consultant,  finder,  placement  agent,
investment  banker,  bank or  other  Person  with  respect  to the  transactions
contemplated  by this  Agreement.  The Investors  shall have no obligation  with
respect  to any fees or with  respect  to any  claims  (other  than such fees or
commissions owed by an Investor pursuant to written agreements  executed by such
Investor  which fees or  commissions  shall be the sole  responsibility  of such
Investor) made by or on behalf of other Persons for fees of a type  contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.

          (v)  Certain  Registration  Matters.  Assuming  the  accuracy  of  the
Investors'  representations and warranties set forth in Section  3.2(b)-(e),  no
registration  under the Securities Act is required for the offer and sale of the
Securities  and Warrants  and the offer of the Warrant  Shares by the Company to
the  Investors  under the  Transaction  Documents.  The  Company is  eligible to
register its Common Stock for resale by the Investors under Form S-1 promulgated
under the Securities  Act. The Company has not granted or agreed to grant to any
Person other than the Investors  pursuant to the  Registration  Rights Agreement
any rights (including  "piggy-back"  registration rights) to have any securities
of  the  Company  registered  with  the  Commission  or any  other  governmental
authority that have not been satisfied.

          (w) Listing and Maintenance  Requirements.  Except as specified in the
SEC Reports,  the Company has not, in the two years  preceding  the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common  Stock on the Trading  Market on which the Common Stock is

                                       11
<PAGE>

currently  listed or quoted.  The issuance and sale of the Securities  under the
Transaction  Documents  does not  contravene  the rules and  regulations  of the
Trading Market on which the Common Stock is currently  listed or quoted,  and no
approval of the  shareholders  of the  Company  thereunder  is required  for the
Company to issue and deliver to the Investors  the  Securities  contemplated  by
Transaction Documents.

          (x)  Investment  Company.  The Company is not, and is not an Affiliate
of, and immediately  following the Closing will not have become,  an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

          (y)  Application  of Takeover  Protections.  The Company has 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 the Company's
Articles of  Incorporation  (or similar  charter  documents)  or the laws of its
state of incorporation  that is or could become applicable to the Investors as a
result  of the  Investors  and  the  Company  fulfilling  their  obligations  or
exercising  their  rights under the  Transaction  Documents,  including  without
limitation the Company's issuance of the Securities and the Investors' ownership
of the Securities.

          (z) No Additional Agreements.  The Company does not have any agreement
or understanding with any Investor with respect to the transactions contemplated
by the  Transaction  Documents  other  than  as  specified  in  the  Transaction
Documents.

          (aa)  Consultation  with  Auditors.  The  Company  has  consulted  its
independent  auditors  concerning the accounting  treatment of the  transactions
contemplated  by the  Transaction  Documents,  and in  connection  therewith has
furnished such auditors complete copies of the Transaction Documents.

          (bb)  Accountants.  There are no  disagreements  of any kind presently
existing,  or  reasonably  anticipated  by the  Company  to arise,  between  the
accountants  formerly  or  presently  employed  by  the  Company,   that  would,
individually or in the aggregate, have or reasonably be expected to result in, a
Material Adverse Effect.

          (cc)  Foreign  Corrupt  Practices  Act.  Neither  the  Company nor any
Subsidiary,  nor to the  knowledge  of the  Company,  any agent or other  person
acting on behalf of any of the  Company  or any  Subsidiary,  has,  directly  or
indirectly,  (i) used any funds,  or will use any proceeds  from the sale of the
Securities,  for unlawful contributions,  gifts, entertainment or other unlawful
expenses  related to  foreign  or  domestic  political  activity,  (ii) made any
unlawful payment to foreign or domestic government  officials or employees or to
any foreign or domestic  political  parties or campaigns from  corporate  funds,
(iii)  failed to  disclose  fully any  contribution  made by the  Company or any
Subsidiary (or made by any Person acting on their behalf of which the Company is
aware)  which is in  violation  of law,  or (iv) has  violated  in any  material
respect any provision of the Foreign Corrupt  Practices Act of 1977, as amended,
and the rules and regulations thereunder.

                                       12
<PAGE>

(dd) PFIC.  Neither  the Company  nor any  Subsidiary  is or intends to become a
"passive foreign  investment  company" within the meaning of Section 1297 of the
U.S. Internal Revenue Code of 1986, as amended.

          (ee)  OFAC.  Neither  the  Company  nor  any  Subsidiary  nor,  to the
knowledge of the Company, any director,  officer, agent, employee,  Affiliate or
Person acting on behalf of the Company or any Subsidiary is currently subject to
any U.S.  sanctions  administered by the Office of Foreign Assets Control of the
U.S.  Treasury  Department  ("OFAC");  and the  Company  will  not  directly  or
indirectly use the proceeds of the sale of the Securities,  or lend,  contribute
or otherwise  make  available  such  proceeds to any  Subsidiary,  joint venture
partner or other  Person or entity,  towards  any sales or  operations  in Cuba,
Iran, Syria,  Sudan,  Myanmar or any other country sanctioned by OFAC or for the
purpose of financing the activities of any Person currently  subject to any U.S.
sanctions administered by OFAC.

          (ff) Money  Laundering Laws. The operations of each of the Company and
any Subsidiary  are and have been conducted at all times in compliance  with the
money laundering statutes of applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines,  issued,
administered or enforced by any applicable  governmental  agency  (collectively,
the "Money Laundering Laws") and no action,  suit or proceeding by or before any
court or governmental agency,  authority or body or any arbitrator involving the
Company  and/or any  Subsidiary  with  respect to the Money  Laundering  Laws is
pending or, to the best knowledge of the Company, threatened.

          (gg) Additional PRC Representations and Warranties.

               (i) All material consents, approvals,  authorizations or licenses
requisite  under PRC law for the due and proper  establishment  and operation of
the Company and the  Subsidiaries  have been duly obtained from the relevant PRC
governmental authorities and are in full force and effect.

               (ii) All  filings  and  registrations  with the PRC  governmental
authorities  required in respect of the Company and the  Subsidiaries  and their
operations including,  without limitation, the registration with the Ministry of
Commerce,   the  State  Administration  of  Industry  and  Commerce,  the  State
Administration  for Foreign  Exchange,  tax bureau and customs  authorities have
been duly completed in accordance  with the relevant PRC rules and  regulations,
except where, the failure to complete such filings and  registrations  does not,
and would not, individually or in the aggregate, have a Material Adverse Effect.

               (iii) The Company and the  Subsidiaries  have  complied  with all
relevant PRC laws and regulations  regarding the contribution and payment of its
registered share capital, the payment schedule of which has been approved by the
relevant PRC governmental  authorities.  There are no outstanding  rights of, or
commitments  made  by the  Company  or  any  Subsidiary  to  sell  any of  their
respective equity interests.

               (iv) Neither the Company nor any  Subsidiary is in receipt of any
letter or notice from any relevant PRC  governmental  authority  notifying it of
the  revocation,  or  otherwise  questioning  the  validity,  of any licenses or
qualifications issued to it or any subsidy granted to it by any PRC governmental

                                       13
<PAGE>

authority for non-compliance with the terms thereof or with applicable PRC laws,
or the need for  compliance  or  remedial  actions in respect of the  activities
carried out by the Company or such  Subsidiary,  except such  revocation as does
not, and would not,  individually or in the aggregate,  have a Material  Adverse
Effect.

               (v)  The  Company  and  the  Subsidiaries  have  conducted  their
respective  business activities within their permitted scope of business or have
otherwise  operated their respective  businesses in compliance with all relevant
legal  requirements  and with all requisite  licenses and  approvals  granted by
competent PRC governmental  authorities other than such  non-compliance  that do
not, and would not,  individually or in the aggregate,  have a Material  Adverse
Effect.  As  to  licenses,  approvals  and  government  grants  and  concessions
requisite  or  material  for  the  conduct  of any  part of the  Company  or any
Subsidiaries' business which is subject to periodic renewal, neither the Company
nor such  Subsidiary  has any  knowledge of any grounds on which such  requisite
renewals will not be granted by the relevant PRC governmental authorities.

               (vi) With regard to  employment  and staff or labor,  the Company
and the Subsidiaries  have complied with all applicable PRC laws and regulations
in all material  respects,  including without  limitation,  laws and regulations
pertaining to welfare  funds,  social  benefits,  medical  benefits,  insurance,
retirement  benefits,  pensions or the like, other than such non-compliance that
do not, and would not, individually or in the aggregate, have a Material Adverse
Effect.

          (hh)  Disclosure.  The Company confirms that neither it nor any Person
acting on its behalf has  provided  any  Investor  or its  respective  agents or
counsel with any information  that the Company  believes  constitutes  material,
non-public  information  concerning  the  Company,  the  Subsidiaries  or  their
respective businesses, except insofar as the existence and terms of the proposed
transactions contemplated hereunder may constitute such information. The Company
understands  and  confirms  that  the  Investors  will  rely  on  the  foregoing
representations  and  covenants in effecting  transactions  in securities of the
Company.  All disclosure  provided to the Investors  regarding the Company,  the
Subsidiaries or their respective  businesses and the  transactions  contemplated
hereby,  furnished  by or on  behalf of the  Company  (including  the  Company's
representations and warranties set forth in this Agreement and any business plan
or investor  presentation  provided  by the Company or any Person  acting on the
Company's  behalf) are true and correct and do 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 light of the circumstances under which they were
made, not misleading.

     3.2. Representations and Warranties of the Investors. Each Investor hereby,
for itself and for no other Investor,  represents and warrants to the Company as
follows:

          (a)  Organization;   Authority.   Such  Investor  is  an  entity  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction  of its  organization  with the requisite  corporate or partnership
power  and  authority  to  enter  into  and  to  consummate   the   transactions
contemplated by the applicable  Transaction Documents and otherwise to carry out
its  obligations  thereunder.  The execution,  delivery and  performance by such
Investor  of the  transactions  contemplated  by this  Agreement  has been  duly

                                       14
<PAGE>

authorized by all necessary corporate or, if such Investor is not a corporation,
such partnership,  limited liability company or other applicable like action, on
the part of such Investor.  Each of this Agreement and the  Registration  Rights
Agreement has been duly executed by such  Investor,  and when  delivered by such
Investor in accordance  with the terms  hereof,  will  constitute  the valid and
legally  binding  obligation  of  such  Investor,   enforceable  against  it  in
accordance  with its  terms,  except as such  enforceability  may be  limited by
applicable bankruptcy,  insolvency,  reorganization,  moratorium, liquidation or
similar laws relating to, or affecting  generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.

          (b)  Investment  Intent.  Such Investor is acquiring the Securities as
principal for its own account for  investment  purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice,  however,  to such Investor's right at all times to sell or otherwise
dispose of all or any part of such  Securities  in  compliance  with  applicable
federal  and  state  securities  laws.  Subject  to  the  immediately  preceding
sentence,  nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time. Such Investor is
acquiring the Securities hereunder in the ordinary course of its business.  Such
Investor does not have any agreement or  understanding,  directly or indirectly,
with any Person to distribute any of the Securities.

          (c)  Investor  Status.  At the time  such  Investor  was  offered  the
Securities,  it was,  and at the date hereof it is, and on each date on which it
exercises  Warrants  it will be, an  "accredited  investor"  as  defined in Rule
501(a) under the Securities Act. Such Investor is not a registered broker-dealer
under  Section 15 of the Exchange  Act.  Such  Investor has such  experience  in
business and financial  matters that it is capable of evaluating  the merits and
risks of an investment in the  Securities.  Such Investor  acknowledges  that an
investment in the Securities is speculative and involves a high degree of risk.

          (d)  General  Solicitation.   Such  Investor  is  not  purchasing  the
Securities  as  a  result  of  any  advertisement,   article,  notice  or  other
communication  regarding the Securities published in any newspaper,  magazine or
similar media or broadcast over  television or radio or presented at any seminar
or any other general solicitation or general advertisement.

          (e) Access to  Information.  Such  Investor  acknowledges  that it has
reviewed the Disclosure  Materials and has been afforded (i) the  opportunity to
ask such questions as it has deemed  necessary of, and to receive  answers from,
representatives  of the  Company  concerning  the  terms and  conditions  of the
offering  of the  Securities  and the  merits  and  risks  of  investing  in the
Securities;  (ii) access to information  about the Company and the  Subsidiaries
and their  respective  financial  condition,  results of  operations,  business,
properties,  management  and  prospects  sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is  necessary  to make an  informed  investment  decision  with  respect  to the
investment.  Neither such inquiries nor any other investigation  conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor's right to rely on the truth,  accuracy and completeness
of the  Disclosure  Materials and the Company's  representations  and warranties
contained in the Transaction Documents.

                                       15
<PAGE>

          (f) Certain  Trading  Activities.  Such  Investor  has not directly or
indirectly,  nor  has  any  Person  acting  on  behalf  of or  pursuant  to  any
understanding with such Investor,  engaged in any transactions in the securities
of the Company (including,  without  limitations,  any Short Sales involving the
Company's  securities)  since  the  earlier  to occur of (1) the time  that such
Investor  was first  contacted  by the  Company or Roth  Capital  Partners,  LLC
regarding an investment in the Company and (2) the 30th day prior to the date of
this Agreement. Such Investor covenants that neither it nor any Person acting on
its  behalf  or  pursuant  to any  understanding  with  it  will  engage  in any
transactions in the securities of the Company  (including  Short Sales) prior to
the time that the  transactions  contemplated  by this  Agreement  are  publicly
disclosed.

          (g) Independent  Investment Decision.  Such Investor has independently
evaluated  the merits of its  decision  to purchase  Securities  pursuant to the
Transaction Documents,  and such Investor confirms that it has not relied on the
advice of any other  Investor's  business  and/or  legal  counsel in making such
decision.  Such  Investor has not relied on the business or legal advice of Roth
Capital Partners,  LLC or any of its agents, counsel or Affiliates in making its
investment decision  hereunder,  and confirms that none of such Persons has made
any  representations  or  warranties  to such  Investor in  connection  with the
transactions contemplated by the Transaction Documents.

                                   ARTICLE 4.
                         OTHER AGREEMENTS OF THE PARTIES

          4.1. (a) Securities  may only be disposed of in compliance  with state
and federal  securities  laws. In connection with any transfer of the Securities
other than pursuant to an effective registration  statement,  to the Company, to
an Affiliate of an Investor or in connection  with a pledge as  contemplated  in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably  satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred  Securities
under the Securities Act.

          (b)  Certificates  evidencing  the  Securities  (as defined in Section
4.1(c))  will  contain  the  following  legend,  until such time as they are not
required under Section 4.1(c):

          THESE  SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
          AND EXCHANGE  COMMISSION OR THE  SECURITIES  COMMISSION OF ANY
          STATE IN RELIANCE UPON AN EXEMPTION  FROM  REGISTRATION  UNDER
          THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
          AND,  ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
          TO AN EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES
          ACT  OR  PURSUANT  TO AN  AVAILABLE  EXEMPTION  FROM,  OR IN A
          TRANSACTION NOT SUBJECT TO, THE  REGISTRATION  REQUIREMENTS OF
          THE SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE

                                       16
<PAGE>

          SECURITIES  LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
          THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
          REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES MAY BE
          PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN ACCOUNT SECURED
          BY SUCH SECURITIES.

          The Company  acknowledges and agrees that an Investor may from time to
time pledge,  and/or grant a security  interest in some or all of the Securities
pursuant to a bona fide margin  agreement in connection  with a bona fide margin
account  and, if required  under the terms of such  agreement  or account,  such
Investor may transfer  pledged or secured  Securities to the pledgees or secured
parties.  Such a pledge or transfer  would not be subject to approval or consent
of the Company and no legal  opinion of legal  counsel to the  pledgee,  secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required  in  connection  with a  subsequent  transfer  following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor's expense, the Company will execute and
deliver  such  reasonable  documentation  as  a  pledgee  or  secured  party  of
Securities  may  reasonably  request  in  connection  with a pledge or  transfer
thereof  including  the  preparation  and  filing  of  any  required  prospectus
supplement  under  Rule  424(b)(3)  of the  Securities  Act or other  applicable
provision  of the  Securities  Act to  appropriately  amend the list of  selling
stockholders  thereunder.  Except as otherwise  provided in Section 4.1(c),  any
Securities  subject to a pledge or  security  interest as  contemplated  by this
Section  4.1(b)  shall  continue  to bear the legend  set forth in this  Section
4.1(b) and be  subject  to the  restrictions  on  transfer  set forth in Section
4.1(a).

          (c)  Certificates  evidencing  Shares  and  Warrant  Shares  shall not
contain any legend (including the legend set forth in Section 4.1(b)): (i) while
a registration  statement  (including the Registration  Statement) covering such
Shares  and  Warrant  Shares  is then  effective,  or (ii)  following  a sale or
transfer of such Shares or Warrant  Shares  pursuant to Rule 144  (assuming  the
transferee  is not an Affiliate of the  Company),  or (iii) while such Shares or
Warrant  Shares are eligible  for sale by the selling  Investor  without  volume
restrictions  under Rule 144. The Company  agrees that  following  the Effective
Date or such  other time as legends  are no longer  required  to be set forth on
certificates  representing  Shares and Warrant Shares under this Section 4.1(c),
it will, no longer than five Trading Days  following the delivery by an Investor
to the Company or the Transfer Agent of a certificate  representing  such Shares
or  Warrant  Shares  containing  a  restrictive  legend,  deliver or cause to be
delivered  to such  investor  Shares  or  Warrant  Shares  which are free of all
restrictive and other legends. If the Company is then eligible, certificates for
Shares  and  Warrant  Shares  subject  to  legend  removal  hereunder  shall  be
transmitted  by the  Company's  transfer  agent to an Investor by crediting  the
prime  brokerage  account of such  Investor  with the  Depository  Trust Company
System  as  directed  by such  Investor.  If an  Investor  shall  make a sale or
transfer  of Shares or Warrant  Shares  either (x)  pursuant  to Rule 144 or (y)
pursuant to a  registration  statement and in each case shall have  delivered to
the Company or the Company's  transfer agent the  certificate  representing  the
applicable  Shares or Warrant Shares  containing a restrictive  legend which are
the subject of such sale or transfer  and a  representation  letter in customary
form (the date of such sale or  transfer  and Shares or Warrant  Share  delivery
being the "Share  Delivery  Date") and (1) the Company  shall fail to deliver or
cause to be delivered to such Investor a certificate representing such Shares or

                                       17
<PAGE>

Warrant  Shares that is free from all  restrictive or other legends by the third
Trading Day  following  the Share  Delivery  Date and (2)  following  such third
Trading Day after the Share  Delivery  Date and prior to the time such Shares or
Warrant Shares are received free from restrictive legends, the Investor,  or any
third party on behalf of such Investor, purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of such Shares or Warrant Shares (a "Buy-In"), then, in addition to any
other rights  available  to the Investor  under the  Transaction  Documents  and
applicable  law,  the  Company  shall  pay in cash to the  Investor  (for  costs
incurred  either  directly by such  Investor or on behalf of a third  party) the
amount by which the total  purchase  price paid for Common  Stock as a result of
the  Buy-In  (including  brokerage  commissions,  if any)  exceed  the  proceeds
received by such Investor as a result of the sale to which such Buy-In  relates.
The Investor  shall provide the Company  written  notice  indicating the amounts
payable to the  Investor in respect of the Buy-In.  The Company may not make any
notation  on its  records  or give  instructions  to any  transfer  agent of the
Company that enlarge the restrictions on transfer set forth in this Section.

     4.2.  Furnishing  of  Information.   As  long  as  any  Investor  owns  any
Securities,  the  Company  covenants  to timely  file (or obtain  extensions  in
respect  thereof  and file  within the  applicable  grace  period)  all  reports
required  to be filed by the  Company  after  the date  hereof  pursuant  to the
Exchange  Act. As long as any Investor  owns  Securities,  if the Company is not
required to file reports  pursuant to such laws,  it will prepare and furnish to
the Investors and make  publicly  available in accordance  with Rule 144(c) such
information as is required for the Investors to sell the  Securities  under Rule
144. The Company further  covenants that it will take such further action as any
holder of Securities may  reasonably  request,  all to the extent  required from
time to time to enable such Person to sell the Securities  without  registration
under the Securities  Act within the  limitation of the  exemptions  provided by
Rule 144.

     4.3. Integration.  The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall,  sell,  offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities Act of the sale of the Securities to the Investors,  or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the securities to the Investors.

     4.4.  Subsequent  Registrations.  Other than  pursuant to the  Registration
Rights  Agreement,  prior to the first to occur of (a) the  Effective  Date of a
Registration  Statement  resulting in all Registrable  Securities (as defined in
the Registration  Rights  Agreement) being registered for resale pursuant to one
or more effective  Registration  Statements or (b) such time as all  Registrable
Securities may be sold by the Investors without volume restrictions  pursuant to
Rule 144,  the Company may not file any  registration  statement  (other than on
Form S-8) with the Commission with respect to any securities of the Company.

     4.5.  Securities Laws  Disclosure;  Publicity.  By 9:00 a.m. (New York City
time) on the Trading Day following the execution of this Agreement,  and by 9:00
a.m. (New York City time) on the Trading Day  following  the Closing  Date,  the
Company shall issue press  releases  disclosing  the  transactions  contemplated
hereby and the  Closing.  On the Trading Day  following  the  execution  of this
Agreement  the Company  will file a Current  Report on Form 8-K  disclosing  the

                                       18
<PAGE>

material terms of the Transaction  Documents (and attach as exhibits thereto the
Transaction  Documents).  In addition,  the Company will make such other filings
and notices in the manner and time  required by the  Commission  and the Trading
Market on which the Common Stock is listed.  Notwithstanding the foregoing,  the
Company  shall not publicly  disclose the name of any  Investor,  or include the
name  of  any  Investor  in  any  filing  with  the  Commission  (other  than  a
Registration  Statement  and any  exhibits  to  filings  made in respect of this
transaction in accordance with periodic filing  requirements  under the Exchange
Act) or any  regulatory  agency or Trading  Market,  without  the prior  written
consent of such  Investor,  except to the extent such  disclosure is required by
law or Trading Market regulations.

     4.6.  Limitation  on Issuance of Future Priced  Securities.  During the six
months  following  the Closing  Date,  the  Company  shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.

     4.7. Indemnification of Investors. In addition to the indemnity provided in
the  Registration  Rights  Agreement,  the Company will  indemnify  and hold the
Investors and their directors, officers,  shareholders,  partners, employees and
agents  (each,  an  "Investor   Party")   harmless  from  any  and  all  losses,
liabilities,  obligations,  claims, contingencies,  damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys'  fees and costs of  investigation  (collectively,  "Losses") that any
such  Investor  Party  may  suffer or incur as a result  of or  relating  to any
misrepresentation,   breach  or  inaccuracy  of  any  representation,  warranty,
covenant  or  agreement  made by the  Company in any  Transaction  Document.  In
addition to the indemnity  contained  herein,  the Company will  reimburse  each
Investor Party for its reasonable  legal and other expenses  (including the cost
of any investigation,  preparation and travel in connection  therewith) incurred
in connection therewith, as such expenses are incurred.  Except as otherwise set
forth  herein,  the  mechanics  and  procedures  with  respect to the rights and
obligations  under  this  Section  4.7  shall be the same as those  set forth in
Section 5 of the Registration Rights Agreement.

     4.8. Non-Public Information.  The Company covenants and agrees that neither
it nor any other  Person  acting on its behalf will  provide any Investor or its
agents or counsel with any  information  that the Company  believes  constitutes
material non-public  information,  unless prior thereto such Investor shall have
executed  a written  agreement  regarding  the  confidentiality  and use of such
information.  The Company  understands  and confirms that each Investor shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.

     4.9. Listing of Shares and Warrant Shares.  The Company agrees,  (i) if the
Company applies to have the Common Stock traded on any other Trading Market,  it
will include in such  application the Shares and Warrant  Shares,  and will take
such other  action as is  necessary or desirable to cause the Shares and Warrant
Shares to be listed on such other  Trading  Market as promptly as possible,  and
(ii) it will take all action  reasonably  necessary  to continue the listing and
trading of its Common Stock on a Trading  Market and will comply in all material
respects with the Company's  reporting,  filing and other  obligations under the
bylaws or rules of the Trading Market.

     4.10 English Speaking  Executive.  The Company will use its reasonable best
efforts to hire an English speaking senior executive within six months following
the Closing Date.

                                       19
<PAGE>

     4.11 Use of Proceeds.  The Company will use the net proceeds  from the sale
of the  Securities  hereunder  for  working  capital  purposes  and  not for the
satisfaction  of any portion of the Company's  debt (other than payment of trade
payables and accrued  expenses in the ordinary course of the Company's  business
and consistent  with prior  practices),  or to redeem any Common Stock or Common
Stock Equivalents.

                                   ARTICLE 5.
                         CONDITIONS PRECEDENT TO CLOSING

     5.1.  Conditions  Precedent to the Obligations of the Investors to Purchase
Securities. The obligation of each Investor to acquire Securities at the Closing
is  subject to the  satisfaction  or waiver by such  Investor,  at or before the
Closing, of each of the following conditions:

          (a) Representations and Warranties. The representations and warranties
of the  Company  contained  herein  shall be true and  correct  in all  material
respects as of the date when made and as of the Closing as though made on and as
of such date;

          (b)  Performance.  The Company  shall have  performed,  satisfied  and
complied in all material respects with all covenants,  agreements and conditions
required by the  Transaction  Documents to be  performed,  satisfied or complied
with by it at or prior to the Closing;

          (c) No Injunction.  No statute,  rule,  regulation,  executive  order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by any court or governmental  authority of competent  jurisdiction that
prohibits  the  consummation  of  any of the  transactions  contemplated  by the
Transaction Documents;

          (d) Adverse Changes. Since the date of execution of this Agreement, no
event or series of events  shall have  occurred  that  reasonably  could have or
result in a Material Adverse Effect;

          (e) No Suspensions of Trading in Common Stock; Listing. Trading in the
Common  Stock shall not have been  suspended  by the  Commission  or any Trading
Market  (except for any  suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company) at
any time since the date of  execution  of this  Agreement,  and the Common Stock
shall  have been at all times  since such date  listed for  trading on a Trading
Market;

          (f) Company Agreements. The Company shall have delivered:

               (i) This Agreement, duly executed by the Company;

               (ii) The Closing Escrow  Agreement,  duly executed by the Company
and the Escrow Agent; and

               (iii) The  Registration  Rights  Agreement,  duly executed by the
Company.

                                       20
<PAGE>

          (g) Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a); and

          (h)  Termination.  This Agreement shall not have been terminated as to
such Investor in accordance with Section 6.5.

     5.2.  Conditions  Precedent  to the  Obligations  of the  Company  to  sell
Securities.  The obligation of the Company to sell  Securities at the Closing is
subject to the satisfaction or waiver by the Company,  at or before the Closing,
of each of the following conditions:

          (a) Representations and Warranties. The representations and warranties
of each  Investor  contained  herein  shall be true and correct in all  material
respects as of the date when made and as of the  Closing  Date as though made on
and as of such date;

          (b)  Performance.  Each Investor shall have  performed,  satisfied and
complied in all material respects with all covenants,  agreements and conditions
required by the  Transaction  Documents to be  performed,  satisfied or complied
with by such Investor at or prior to the Closing;

          (c) No Injunction.  No statute,  rule,  regulation,  executive  order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by any court or governmental  authority of competent  jurisdiction that
prohibits  the  consummation  of  any of the  transactions  contemplated  by the
Transaction Documents;

          (d) Investor  Deliverables.  Each Investor  shall have  delivered this
Agreement, the Registration Rights Agreement and the Escrow Agreement, each duly
executed by such Investor; and

          (e)  Termination.  This Agreement shall not have been terminated as to
such Investor in accordance with Section 6.5.

                                   ARTICLE 6.
                                  MISCELLANEOUS

     6.1. Fees and  Expenses.  Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party  incident  to the  negotiation,  preparation,  execution,
delivery and performance of the Transaction Documents. The Company shall pay all
stamp and other taxes and duties levied in  connection  with the issuance of the
Securities.  Notwithstanding  the  foregoing,  at the Closing  the Company  will
reimburse  Guerrilla  Capital for its out of pocket legal  expenses  incurred in
connection with the transactions contemplated by the Transaction Documents.

     6.2.  Entire  Agreement.  The  Transaction  Documents,  together  with  the
Exhibits and Schedules thereto,  contain the entire understanding of the parties
with respect to the subject  matter hereof and  supersede all prior  agreements,
understandings,  discussions and representations,  oral or written, with respect
to such  matters,  which the  parties  acknowledge  have been  merged  into such
documents, exhibits and schedules.

                                       21
<PAGE>

     6.3.  Notices.  Any and all notices or other  communications  or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication  is delivered via  facsimile  (provided the sender
receives a  machine-generated  confirmation of successful  transmission)  at the
facsimile  number  specified in this Section  prior to 6:30 p.m.  (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or  communication  is delivered  via  facsimile at the  facsimile
number  specified  in this  Section on a day that is not a Trading  Day or later
than 6:30 p.m.  (New York City time) on any  Trading  Day,  (c) the  Trading Day
following the date of mailing, if sent by U.S. nationally  recognized  overnight
courier service,  or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and  communications  shall be
as follows:

                  If to the Company:  China Pharma Holdings, Inc.
                                      2nd Floor, No. 17
                                      Jinpan Road
                                      Haikou, Hainan Province
                                      People's Republic of China
                                      Attn: Chief Executive Officer
                                      Facsimile:

                  With a copy to:     King & Wood LLP
                                      40th Floor, Office Tower A
                                      Beijing Fortune Plaza 7
                                      Dongsanhuan Zhonglu
                                      Chaoyang District
                                      Beijing 100020, People's Republic of China
                                      Facsimile:  8610-58785588
                                      Attn.:  Charles Law

                  If to an Investor:  To the address set forth under such
                                      Investor's name on the signature pages
                                      hereof;

or such other  address as may be designated  in writing  hereafter,  in the same
manner, by such Person.

     6.4. Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written  instrument signed by the
Company and the Investors holding a majority of the Securities. No waiver of any
default  with  respect  to any  provision,  condition  or  requirement  of  this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any  subsequent  default  or a  waiver  of any  other  provision,  condition  or
requirement  hereof, nor shall any delay or omission of either party to exercise
any right  hereunder  in any manner  impair the  exercise of any such right.  No
consideration  shall be offered or paid to any Investor to amend or consent to a
waiver or modification  of any provision of any Transaction  Document unless the
same  consideration  is also offered to all Investors who then hold  Securities.
Without the written  consent or the affirmative  vote of each Investor  affected
thereby,  an  amendment  or waiver under this Section 6.4 may not waive or amend
any  Transaction  Document the effect of which would be to permit the Company to

                                       22
<PAGE>

(1) name any Investor as an underwriter in a Registration Statement without such
Investor's  specific written consent thereto, or (2) not include any Registrable
Securities (as defined in the Registration Rights Agreement) of an Investor in a
Registration  Statement  due to their  refusal  to be  named  as an  underwriter
therein.

     6.5. Termination. This Agreement may be terminated prior to Closing:

          (a) by written  agreement of the Investors and the Company,  a copy of
which shall be provided to the Escrow Agent; and

          (b) by the Company or an Investor (as to itself but no other Investor)
upon written  notice to the other and to the Escrow Agent,  if the Closing shall
not have taken place by 6:30 p.m.  Eastern time on the Outside  Date;  provided,
that the right to terminate this  Agreement  under this Section 6.5(b) shall not
be available to any Person whose  failure to comply with its  obligations  under
this  Agreement  has been the cause of or resulted in the failure of the Closing
to occur on or before such time.

     In the event of a termination  pursuant to this Section,  the Company shall
promptly notify all non-terminating  Investors. Upon a termination in accordance
with this  Section 6.5, the Company and the  terminating  Investor(s)  shall not
have any  further  obligation  or  liability  (including  as  arising  from such
termination)  to the other and no Investor  will have any liability to any other
Investor under the Transaction Documents as a result therefrom.

     6.6.  Construction.  The headings herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. 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. This Agreement
shall be construed as if drafted  jointly by the parties,  and no presumption or
burden of proof shall arise favoring or  disfavoring  any party by virtue of the
authorship  of any  provisions  of  this  Agreement  or  any of the  Transaction
Documents.

     6.7. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written consent of the Investors.  Any Investor may assign any
or all of its rights under this  Agreement  to any Person to whom such  Investor
assigns or transfers any Securities,  provided such transferee agrees in writing
to be bound,  with  respect to the  transferred  Securities,  by the  provisions
hereof that apply to the "Investors."

     6.8. No  Third-Party  Beneficiaries.  This  Agreement  is intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other  Person,  except as otherwise set forth in Section 4.7 (as to each
Investor Party) and that Roth Capital Partners, LLC is a third party beneficiary
of the Company's representations and warranties contained herein.

     6.9.  Governing Law. All questions  concerning the construction,  validity,
enforcement  and  interpretation  of this  Agreement  shall be  governed  by and
construed and enforced in accordance  with the internal laws of the State of New
York,  without regard to the principles of conflicts of law thereof.  Each party

                                       23
<PAGE>

agrees that all  Proceedings  concerning the  interpretations,  enforcement  and
defense  of the  transactions  contemplated  by this  Agreement  and  any  other
Transaction  Documents (whether brought against a party hereto or its respective
Affiliates,  employees or agents) shall be commenced exclusively in the New York
Courts.   Each  party  hereto  hereby  irrevocably   submits  to  the  exclusive
jurisdiction  of the  New  York  Courts  for  the  adjudication  of any  dispute
hereunder or in connection herewith or with any transaction  contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents),  and hereby irrevocably waives, and agrees not to assert
in  any  Proceeding,  any  claim  that  it is  not  personally  subject  to  the
jurisdiction  of any such New  York  Court,  or that  such  Proceeding  has been
commenced  in an  improper  or  inconvenient  forum.  Each party  hereto  hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such  Proceeding  by  mailing a copy  thereof  via  registered  or
certified  mail or overnight  delivery (with evidence of delivery) to such party
at the address in effect for 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  hereto  hereby
irrevocably  waives,  to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions  contemplated  hereby.  If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document,  then
the prevailing  party in such Proceeding  shall be reimbursed by the other party
for its reasonable  attorneys'  fees and other costs and expenses  incurred with
the investigation, preparation and prosecution of such Proceeding.

     6.10. Survival. The representations,  warranties,  agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities.

     6.11.   Execution.   This   Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together 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,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

     6.12.  Severability.  If any  provision  of  this  Agreement  is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

     6.13.  Rescission and  Withdrawal  Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction Documents, whenever any Investor 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 Investor
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.

                                       24
<PAGE>

     6.14.   Replacement  of  Securities.   If  any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such  replacement  Securities.  If a replacement
certificate  or  instrument  evidencing  any  Securities  is requested  due to a
mutilation  thereof,   the  Company  may  require  delivery  of  such  mutilated
certificate  or  instrument  as a  condition  precedent  to  any  issuance  of a
replacement.

     6.15.  Remedies.  In  addition to being  entitled  to  exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Investors  and the Company  will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

     6.16.  Payment Set Aside. To the extent that the Company makes a payment or
payments to any  Investor  pursuant to any  Transaction  Document or an Investor
enforces or exercises its rights 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, 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.

     6.17.   Independent  Nature  of  Investors'  Obligations  and  Rights.  The
obligations of each Investor under any Transaction  Document are several and not
joint with the  obligations  of any other  Investor,  and no  Investor  shall be
responsible  in any way for the  performance  of the  obligations  of any  other
Investor  under any  Transaction  Document.  The  decision  of each  Investor to
purchase Securities pursuant to the Transaction  Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction  Document,  and no action  taken by any Investor  pursuant  thereto,
shall be deemed to constitute the Investors as a partnership,  an association, a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Investors  are in any way acting in  concert or as a group with  respect to such
obligations or the transactions  contemplated by the Transaction Documents. Each
Investor  acknowledges  that no other  Investor  has  acted  as  agent  for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such  Investor  in  connection  with  monitoring  its
investment  in the  Securities  or enforcing  its rights  under the  Transaction
Documents.  Each Investor shall be entitled to independently protect and enforce
its  rights,  including  without  limitation  the  rights  arising  out of  this
Agreement  or  out of the  other  Transaction  Documents,  and it  shall  not be
necessary  for any other  Investor  to be joined as an  additional  party in any
proceeding for such purpose. The Company acknowledges that each of the Investors

                                       25
<PAGE>

has been provided with the same Transaction Documents for the purpose of closing
a  transaction  with  multiple  Investors  and not  because it was  required  or
requested to do so by any Investor.  Each Investor  represents  that it has been
represented by its own separate legal counsel in its review and  negotiations of
this Agreement and the Transaction Documents.

     6.18.  Limitation  of  Liability.  Notwithstanding  anything  herein to the
contrary,  the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly,  under any Transaction Document of any and every
nature  whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such  Investor or any  investor,  shareholder  or holder of shares of beneficial
interest of such a Investor  shall be personally  liable for any  liabilities of
such Investor.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW]

                                       26
<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto  have caused this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

                           CHINA PHARMA HOLDINGS, INC.

                           By:
                              --------------------------------------------------
                              Name:
                              Title:

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES FOR INVESTORS FOLLOW]

                                       27
<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto  have caused this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

                               NAME OF INVESTOR

                               -------------------------------------------------

                               By:
                                  ----------------------------------------------
                                    Name:
                                    Title:

                               Investment Amount:  $
                                                    ----------------------------

                               Tax ID No.:
                                          --------------------------------------

                               ADDRESS FOR NOTICE

                               c/o:
                                   ---------------------------------------------

                               Street:
                                      ------------------------------------------

                               City/State/Zip:
                                              ----------------------------------

                               Attention:
                                         ---------------------------------------

                               Tel:
                                    --------------------------------------------
                               Fax:
                                    --------------------------------------------

                               DELIVERY INSTRUCTIONS
                                    (if different from above)

                               c/o:
                                   ---------------------------------------------

                               Street:
                                      ------------------------------------------

                               City/State/Zip:
                                              ----------------------------------

                               Attention:
                                         ---------------------------------------

                               Tel:
                                    --------------------------------------------

                                       28
<PAGE>

                                     Annex A

                               SCHEDULE OF BUYERS

                        (1)                          (2)

                                                 Address and
                       Buyer                  Facsimile Number
              --------------------------------------------------------

               -------------------------------------------------------

                                       29

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