CHINA BIOLOGIC PRODUCTS, INC. 3.8% CONVERTIBLE SENIOR SECURED NOTE DUE 2011

Exhibit 4.2

 

CHINA BIOLOGIC PRODUCTS, INC.

3.8% CONVERTIBLE SENIOR SECURED NOTE DUE 2011

NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (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 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.  NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR REFINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

THE REGISTERED HOLDER OF THIS NOTE IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT AND A GUARANTEE AND PLEDGE AGREEMENT (COPIES OF WHICH ARE AVAILABLE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER). THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS IN SECTIONS 7, 9, 12 and 16.6.

 

 

CHINA BIOLOGIC PRODUCTS, INC.

3.8% CONVERTIBLE SENIOR SECURED NOTE DUE 2011

Note Number: 0___

June ___, 2009

CHINA BIOLOGIC PRODUCTS, INC., a Delaware corporation, and any and all successors thereto as provided herein (the “ Company ”), for value received, hereby promises to pay to _____________ (the “ Holder ”), the principal sum of $____________ on June __, 2011 (“ Maturity ”), and to pay interest on any outstanding principal at the interest rate(s) referred to, and at the times required, in the terms of this note (“ Note ”) below.

RECITALS

A.

This Note is one of the Notes delivered pursuant to a Securities Purchase Agreement of even date herewith among the Company, the Controlling Stockholder named therein, and the Purchasers identified therein (the “ Purchase Agreement ”).  Capitalized terms used herein but not defined shall have the meaning given to such terms in the Purchase Agreement.

B.

The Company is delivering this Note in reliance upon an exemption from securities registration afforded by the provisions of Regulation D (“ Regulation D ”) as promulgated by the United States Securities and Exchange Commission (the “ Commission ”) under the Securities Act of 1933, as amended (the “ Securities Act ”).

C.

Contemporaneously with the execution and delivery of this Note, the parties to the Purchase Agreement are executing and delivering (i) a Registration Rights Agreement; (ii) the Warrant; and (iii) the Guarantee and Pledge Agreement.  This Note, the Registration Rights Agreement, the Purchase Agreement, the Warrant and the Guarantee and Pledge Agreement are sometimes hereinafter collectively referred to as the “ Transaction Documents .”

DEFINITIONS

1.

Definitions .  In addition to the terms defined elsewhere in this Note, for all purposes of this Note, the following terms shall have the meanings indicated in this Section 1:

(a)

“ Additional Rights ” has the meaning set forth in Section 10(c)(ii)(E).

(b)

“ 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 (as defined below).

(c)

 “ Alternative Consideration ” has the meaning set forth in Section 10(b).

(d)

“ Authorized EIP ” has the meaning set forth in Section 8.

(e)

“ Board ” means the Board of Directors of the Company.

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(f)

“ Business Day ” means any day except Saturday, Sunday and any day which shall be (i) a federal legal holiday, (ii) a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close, or (iii) a PRC legal holiday.

(g)

 “ Buy-In ” has the meaning set forth in Section 6(f).

(h)

“ Capital Stock ” means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests, and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

(i)

“ Closing Date ” has the meaning set forth in Section 2.1 of the Purchase Agreement.

(j)

“ Co-Selling Member ” has the meaning set forth in Section 9(b)(i).

(k)

“ Commission ” shall have the meaning set forth in Paragraph B of the recitals herein.

(l)

“ Common Stock Equivalents ” means all shares of Common Stock plus warrants, options and rights exercisable for Common Stock or securities convertible into or exchangeable for Common Stock, including, without limitation, the Notes.

(m)

“ Common Stock ” means the Company’s common stock, par value $0.0001 per share.

(n)

“ Company ” has the meaning set forth in the first paragraph of this Note following the restrictive legend.

(o)

“ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto, other than obligations resulting from the endorsement of negotiable instruments for collection in the ordinary course of business.

(p)

“ Conversion Amount ” has the meaning set forth in Section 6(a).

(q)

“ Conversion Event ” has the meaning set forth in Section 6(a).

(r)

“ Conversion Price ” has the meaning set forth in Section 6(b).

(s)

“ Conversion Rate ” has the meaning set forth in Section 6(a).

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(t)

“ Conversion Shares ” means shares of Common Stock issuable upon conversion of the Notes.

(u)

“ Convertible Securities ” has the meaning set forth in Section 10(c)(ii)(A).

(v)

“ Covered Members ” has the meaning set forth in Section 9(a).

(w)

“ Covered Securities ” has the meaning set forth in Section 9(a).

(x)

“ Dalin/Huitian Acquisitions ” has the meaning set forth in Section 4(l).

(y)

“ Eligible Member ” has the meaning set forth in Section 9(b).

(z)

“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

(aa)

“ Event of Default ” has the meaning set forth in Section 16(a).

(bb)

“ Exchange Act ” means the Securities Exchange Act of 1934.

(cc)

“ Exercising Member ” has the meaning set forth in Section 9(a)(ii)(C).

(dd)

“ Fundamental Transaction ” means (i) the consummation of a transaction (including, without limitation, any merger or consolidation) the result of which is that any Person or group of Persons acting in concert becomes the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the Company’s issued and outstanding Capital Stock on a fully-diluted basis, or the sale of the Controlling Stockholder of more than one million (1,000,000) shares of Common Stock (ii) the adoption of a plan relating to the liquidation, dissolution or wind-up of the affairs of any member of the Group, (iii) a consolidation or merger of any member of the Group with or into any other Person or Persons (except one in which the holders of capital stock of such Group member immediately prior to such merger or consolidation continue to hold a majority of the outstanding equity securities of the surviving, resulting or consolidated entity), or (iv) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of any member of the Company and its Subsidiaries taken as a whole to any “person” (as that term is used in Section 12(d) of the Exchange Act) or persons.

(ee)

“ GAAP ” means United States generally accepted accounting principles.

(ff)

“ Group ” means the Company and its Subsidiaries.

(gg)

 “ Holder ” has the meaning set forth in the first paragraph of this Note following the restrictive legend.

(hh)

“ Holders ” means the holders of the Notes, including future holders.

(ii)

 “ Included Members ” has the meaning set forth in Section 8.

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(jj)

“ Indebtedness ” of any Person means, without duplication (i) all indebtedness for borrowed money in excess of $500,000 in principal amount, (ii) all obligations in excess of $500,000 issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) "capital leases" in accordance with generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations in excess of $100,000 in principal amount evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness in excess of $500,000 in principal amount created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations in excess of $500,000 in principal amount under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in excess of $500,000 in principal amount in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

(kk)

“ Interest Payment Date ” has the meaning set forth in Section 2(a)(i).

(ll)

“ Interest Rate ” has the meaning set forth in Section 2(a).

(mm)

 “ Material Adverse Effect ” means any material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or in the other Transaction Documents, or on the authority or ability of the Company to perform its obligations under any of the Transaction Documents to which it is a party.

(nn)

“ Maturity ” has the meaning set forth in the first paragraph of this Note following the restrictive legend.

(oo)

“ New Issue Exercising Member ” has the meaning set forth in Section 8(b)(iii).

(pp)

“ New Issue Option Period ” has the meaning set forth in Section 8(b)(i).

(qq)

 “ New Issuance ” has the meaning set forth in Section 8(a).

(rr)

“ New Issuance Notice ” has the meaning set forth in Section 8(a).

(ss)

“ New Note ” has the meaning set forth in Section 13(b).

(tt)

“ New Securities ” has the meaning set forth in Section 8(a).

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(uu)

“ Note ” has the meaning set forth in the first paragraph of this Note following the restrictive legend.

(vv)

“ Note Register ” has the meaning set forth in Section 13(a).

(ww)

“ Notes ” means the Note together with the note issued to the other Purchaser pursuant to the Purchase Agreement.

(xx)

“ Offered Securities ” has the meaning set forth in Section 9(a)(i).

(yy)

“ Officer ” means, with respect to any Person, the Chair of the Board, the Vice Chair of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.

(zz)

 “ Permitted Businesses ” means any business that is the same as or related, ancillary or complementary to any of the businesses of the Company and its subsidiaries on the original issue date of the Note, including without limitation, any business engaged in the research, development, production, manufacturing and sale of plasma-based biopharmaceutical products, or that manufactures and produces human albumin products and immunoglobulin products for the treatment and prevention of diseases.

(aaa)

 “ 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.

(bbb)

“ Purchase Agreement ” has the meaning set forth in paragraph A of the recitals herein.

(ccc)

“ Record Date ” for purposes of Section 10, shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, security or other property (whether or not such date is fixed by the Board or by statute, contract or otherwise).

(ddd)

“ Redemption Date ” has the meaning set forth in Section 5(a).

(eee)

“ Redemption Notice ” has the meaning set forth in Section 5(a).

(fff)

“ Redemption Price ” has the meaning set forth in Section 5(a).

(ggg)

“ Registrar ” has the meaning set forth in Section 3.

(hhh)

“ Registration Rights Agreement ” has the meaning set forth in paragraph C of the recitals herein.

(iii)

“ Regulation D ” has the meaning set forth in paragraph B of the recitals herein.

(jjj)

 “ ROFR Member ” has the meaning set forth in Section 9(a)(iii).

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(kkk)

“ ROFR Option Period ” has the meaning set forth in Section 9(a)(ii)(A).

(lll)

“ 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.

(mmm)

“ Second New Issue Notice ” has the meaning set forth in Section 8(b)(iii).

(nnn)

“ Second Notice ” has the meaning set forth in Section 9(a)(ii)(C).

(ooo)

“ Securities Act ” has the meaning set forth in paragraph B of the recitals herein.

(ppp)

“ Subscribed Securities ” means the Notes together with the Warrants.

(qqq)

“ Subsidiary ” means any subsidiary, joint venture or any entity in which the Company, directly or indirectly, owns greater than 50% of the capital stock or equity or similar interests.

(rrr)

“ Trading Day ” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, (iii) if the Common Stock is not quoted on any Trading Market or on the OTC Bulletin Board, 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), or (iv) in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, a Business Day.

(sss)

“ Trading Market ” means whichever of the New York Stock Exchange, the NYSE Amex, the Nasdaq Capital Market, the Nasdaq Global Market or The NASDAQ Global Select Market on which the Common Stock is listed or quoted for trading on the date in question.

(ttt)

“ Transaction Documents ” shall have the meaning set forth in paragraph C of the recitals herein.

(uuu)

“ Transfer ” means, the transfer, sale, gift, assignment, hypothecation, pledge, encumbrance or grant of rights title or interest, or other disposition, whether gratuitously or for consideration.

(vvv)

“ Transfer Notice ” has the meaning set forth in Section 9(a)(i).

(www)

“ Transferee” has the meaning set forth in Section 7.

(xxx)

Transferor ” has the meaning set forth in Section 9(a)(i).

(yyy)

“ Underlying Securities ” means the Conversion Shares together with the
Warrant Shares.

(zzz)

“ Warrant ” means the Common Stock purchase warrant issued to the Holder, pursuant to the Purchase Agreement.

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(aaaa)

“ Warrant Shares ” means the Common Stock of the Company issuable upon exercise of the Warrants.

(bbbb)

“ Warrants ” means the Warrant, together with the warrant issued to the other Purchaser pursuant to the Purchase Agreement, and any new warrants issued in connection with the transfer of a portion of the Warrant.

2.

Principal; Interest; and Ranking .

(a)

Principal; Interest .  The Company promises to pay interest on the principal amount of this Note at the rate of 3.8% per annum (the “ Interest Rate ”) from the Closing Date until repayment at Maturity, by acceleration or otherwise.

(i)

Interest on this Note shall be paid semi-annually in arrears on September 30 and March 31 of each year (each an “ Interest Payment Date ”), commencing September 30, 2009, or if any such day is not a Business Day, on the next succeeding Business Day.  Interest on this Note shall accrue from the Closing Date.  To the extent substitute or additional notes are issued (for whatever reason, including to exchange a new note for the principal amount that was not converted following a partial conversion of the Note or otherwise), interest shall accrue on such substitute or additional notes from the date of issuance of such notes.  Interest on this Note shall be computed (A) for any full semi-annual period for which a particular Interest Rate is applicable on the basis of a 360-day year of twelve 30-day months, (B) for any period for which a particular Interest Rate is applicable shorter than a full semi-annual period for which interest is calculated, on the basis of a 30-day month, and (C) for such periods of less than a month, the actual number of days elapsed over a 30-day month.

(ii)

If the Company shall default in the payment of the principal of or interest on this Note after 10 Business Days of the date due, whether upon Maturity, by acceleration, or otherwise, including without limitation as a result of a bankruptcy case commenced by or against the Company in which it is the debtor, the Company shall on demand and at the election of the Holder either (i) redeem all or a portion of the Note held by the Holder at the Redemption Price (as defined herein) or (ii) from time to time pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (whether before or after judgment) at the rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Interest Rate plus 2.0 percentage points.  It is the intention of the Company and the Holder to comply with applicable usury laws (now or hereafter enacted); accordingly, notwithstanding any provision to the contrary in this Note, and any other document executed in connection herewith, in no event shall this Note or any such other document require the payment or permit the collection of interest in excess of the maximum amount permitted by such laws. If for any circumstances whatsoever, fulfillment of any provision of this Note or of any such other document at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law for the collection or charging of interest, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if for any such circumstances the Holder shall ever receive anything of value as interest or deemed interest by applicable law under this Note or any such other document or otherwise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing under this Note or on account of any other indebtedness of the Company to such Holder, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of such indebtedness, such excess shall be refunded to the Company. In determining whether or not the interest paid or payable with respect to any indebtedness of the Company to the Holder, under any specific contingency, exceeds the highest lawful rate, the Company and such Holder shall, to the maximum extent permitted by applicable law, (A) characterize any non-principal payment as an expense, fee or premium rather than as interest, (B) exclude voluntary prepayments and the effects thereof, (C) amortize, prorate, allocate and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of such interest does not exceed the maximum amount permitted by applicable law, and/or (D) allocate interest between portions of such indebtedness, to the end that no such portion shall bear interest at a rate greater than that permitted by applicable law.

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(b)

Ranking .  The Company’s obligations under this Note are general unsubordinated, secured obligations, ranking equally with all of the Company’s existing and future unsubordinated, senior secured indebtedness.  The Company’s obligations under this Note are secured under the terms of the Guarantee and Pledge Agreement.

(c)

No Repurchases, Redemptions or Prepayments .  There are no repurchases, redemptions or prepayments of this Note except pursuant to Sections 5 and 9(b) herein.

3.

Method of Payment .

The principal and interest on the Notes shall be payable in cash. Interest shall be payable by wire transfer in immediately available funds to an account designated in writing by the Holder and provided to the registrar of the Company (the “ Registrar ”); provided , however , that the Company shall have the option to pay any and all accrued and unpaid interest through the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the such accrued and unpaid interest by (ii) $4.00.  Any fractional shares of Common Stock to which the Holder is entitled under this Section 3 shall be rounded up to the nearest whole share.

4.

Covenants .

For so long as any Notes remain outstanding, the Company shall comply with the following covenants:

(a)

Compliance Certificate .  The Company shall furnish to the Holders, within 90 calendar days after the end of each fiscal year, an Officer’s Certificate, signed by either the Company’s Chief Executive Officer or Chief Financial Officer, stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under the Notes, and further stating that, to his or her knowledge, the Company has kept, observed, performed and fulfilled each and every covenant contained in the Notes, except where such default has been cured, and is not in default in the performance or observance of any of the terms, provisions and conditions of the Notes (or, if a default or Event of Default shall have occurred, describing all such defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto, except where such default has been cured) and that, to the best of his or her knowledge, no event has occurred and remains in existence by reason of which payments on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company or such obligor is taking or proposes to take with respect thereto.

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(b)

Taxes .  The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders and would not reasonably be expected to result in a Material Adverse Effect.

(c)

Corporate Existence .  Subject to Section 4(e) herein, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however , that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors of the Company or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders and would not reasonably be expected to result in a Material Adverse Effect.

(d)

Insurance .  The Company shall, and shall cause each of its Subsidiaries to, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses.

(e)

Merger or Sale .

(i)

The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, consolidate or merge with or into another Person (whether or not the Company or such Subsidiary is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole in one or more related transactions, to any other Person, unless (A) either the Company or such Subsidiary is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company or such Subsidiary) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (B) the Person formed by or surviving any such consolidation or merger (if other than the Company or such Subsidiary) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made (1) assumes in writing all the obligations of the Company under the Notes, the Registration Rights Agreement, the Warrants and the Purchase Agreement and (2) causes to be delivered to each Holder of any Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Holder, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof, provided, however , that should all the Notes be repurchased pursuant to Section 9 herein in connection with such merger or sale, then such opinion shall not be required, and (C) immediately after such transaction, no default or Event of Default exists.

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The foregoing paragraph in this Section 4(e)(i) shall not apply to (x) a merger of the Company with an Affiliate with no material assets, liabilities or operations solely for the purpose of reincorporating the Company in another jurisdiction; or (y) any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and its Subsidiaries; provided, however , that such consolidation or merger shall comply with subclauses (A) and (B) in the foregoing paragraph.

(ii)

Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company or any of its Subsidiaries permitted by Section 4(e) hereof, the successor corporation formed by such consolidation or into or with which the Company or such Subsidiary is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Note referring to the “Company,” or to a “Subsidiary” shall refer instead to the successor corporation and not to the Company or such Subsidiary, as the case may be), may exercise every right and power of the Company or such Subsidiary under this Note with the same effect as if such successor Person had been named as the Company or a Subsidiary herein and shall be bound by every obligation and liability of the Company or such Subsidiary under this Note, the Purchase Agreement, the Registration Rights Agreement and the Warrant; provided, however , that the predecessor Person shall not be relieved from the obligation to pay the principal of and interest on the Notes, except in the case of a sale of all or substantially all assets that meets the requirements of Section 4(e) hereof and as to which the Holders have reasonably determined such relief would not have an adverse effect on their rights and interests.

(f)

Reservation of Shares .  The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 2,812,500 shares of Common Stock for issuance of the Underlying Securities.

(g)

Reporting Requirements .

(i)

The Company shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would no longer require or otherwise permit such termination, and the Company shall take all actions necessary to maintain its eligibility to register the Conversion Shares for resale by the Holders.

(ii)

The Company agrees to send the following to each Holder (unless the following are available to the public through the EDGAR system): (A) within one Business Day after the filing thereof with the SEC, a copy of its Annual Reports and Quarterly Reports on Form 10-K and 10-Q, respectively, any interim reports or any consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the Securities Act and (B) copies of any notices and other information made available or given to the security holders of the Company generally, contemporaneously with the making available or giving thereof to the security holders.

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(h)

Financial Statements .  Unless the following are available to the public through the EDGAR system within the timeframes specified below, the Company shall furnish the following reports to the Holders:

(i)

As soon as practicable after the end of each fiscal year of the Company, and in any event within 120 calendar days thereafter, a consolidated balance sheet of the Company and its Subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its Subsidiaries, if any, for such year, prepared in accordance with GAAP consistently applied, all in reasonable detail and audited by an independent public accountant of recognized national standing selected by the Board.

(ii)

As soon as practicable after the end of each fiscal quarter but in any event within 50 calendar days after the end of each fiscal quarter, a consolidated balance sheet of the Company and its Subsidiaries, if any, as at the end of such fiscal quarter, and consolidated statements of income and cash flows of the Company and its Subsidiaries, if any, for such fiscal quarter, prepared in accordance with GAAP consistently applied, all in reasonable detail and certified by the principal financial or accounting officer of the Company.

(i)

Transactions with Affiliates .  Except for transactions contemplated by the Transaction Documents or as otherwise approved by the Board, the Company shall not, and shall cause its Subsidiaries not to enter into any transaction with any director, officer, employee or holder of more than five percent of the outstanding capital stock of any class or series of capital stock of the Company or any Subsidiary, member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or member of the family of any such person, is a director, officer, trustee, partner or holder of more than five percent of the outstanding capital stock thereof.

(j)

Notice of Known Events of Default .  The Company shall furnish to the Holders a notice of any occurrence of and imminent occurrence of an Event of Default, and what action the Company is taking or proposes to take with respect thereto, promptly after such Event of Default or the imminent occurrence of such Event of Default becomes known to an Officer. For purposes of this clause (j) the occurrence of an Event of Default shall be considered imminent if in the reasonable judgment of any Company Officer, there are sufficient facts known to conclude an Event of Default will occur.

(k)

Pari Passu and Pro Rata Treatment of Holders .  The Company acknowledges that this Note is one of an issue of 3.8% Convertible Senior Secured Notes Due 2011 issued by the Company pursuant to the Purchase Agreement on the Closing Date.  Each Note ranks equally and ratably with the other Notes without priority over one another.  No payment shall be made hereunder unless payment is made with respect to the other Notes in an amount which bears the same ratio to the then unpaid principal and accrued and unpaid interest on such other Notes as the payment made hereon bears to the then unpaid principal and accrued and unpaid interest under this Note.  Nothing contained herein shall be interpreted or construed to limit the obligation of the Company, which is absolute, to make payment in full of all amounts due under the Notes.

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(l)

Use of Proceeds .  The proceeds from the sale of the Notes contemplated hereby shall be used by the Company to finance the acquisition of up to a 100% equity interest in Chongqing Dalin Biologic Technologies Co., Ltd. and up to a 100% equity interest in Xi’an Huitian Blood Products Co., Ltd. (together, the “ Dalin/Huitian Acquisitions ”) by members of the Group, including repayment of any debt incurred for payment of any installment of the purchase price of the Dalin/Huitian Acquisitions, or be used for the general operations of the Group.

(m)

Line of Business .  Except as otherwise approved by the Board, the Company shall not conduct any business other than the Permitted Businesses.

(n)

Compliance with Laws .  The Company shall comply with all laws, rules, regulations and orders applicable to the Company, where the failure to so comply would result in a Material Adverse Effect.

(o)

Further Assurances .  The Company shall execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this Note and to consummate the transactions contemplated herein.

5.

Redemption at the Option of the Holder .

(a)

The Holder may, at its option, require the Company to redeem this Note or any portion of the outstanding principal and interest due on this Note at any time or in part from time to time (the “ Redemption Date ”), upon four (4) weeks’ prior written notice to the Company (the “ Redemption Notice ”), at a redemption price, payable in cash, equal to the outstanding principal amount of the Note, plus an amount equal to two years of interest payments (compounded semi-annually at the Interest Rate) on such principal amount, less any amount of interest actually and previously paid on such outstanding principal amount (the “ Redemption Price ”), upon any of the following events:

(i)

an Event of Default specified in subclauses (i) and (ii) of Section 15(a) of this Note;

(ii)

a Fundamental Transaction of the Company;

(iii)

the liquidation, dissolution or wind-up of the affairs of any member of the Group;

(iv)

the amendment, alteration or repeal of any provision of the Certificate of Incorporation or bylaws of any member of the Group in a manner that materially adversely affects the rights or preferences of the Holder (including but not limited to increasing or decreasing the authorized number of members of the board of directors of any member of the Group without the consent of the Holders);

(v)

the failure to complete any of the following post-closing conditions of the Dalin/Huitian Acquisitions, as set forth in attached Schedule A , within six months of the Closing Date; or

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(vi)

the failure of the Company to cause a Mandatory Shelf Registration Statement (as defined in the Registration Rights Agreement) to become effective and/or the failure to maintain effectiveness of such registration statement such that the Holder is unable to proceed with the public sale of the Registrable Securities in the United States within nine months of the Closing Date (or in the event of a deferred filing at the option of the Holder, within four months after the Filing Date).

 (b)

The Redemption Notice shall set forth (i) the Redemption Date; and (ii) the Redemption Price as of the Redemption Date.

(c)

On and after the Redemption Date, interest shall cease to accrue on the Note or portion of Note called for redemption, unless the Company defaults in the payment of the Redemption Price.

(d)

The Redemption Notice shall be delivered by the Holder to the Company in the manner provided in Section 5(a).

(e)

Any Note repurchased or redeemed by the Company as permitted hereunder shall be cancelled.

6.

Conversion Rights .

(a)

The Holder shall be entitled at any time and from time to time, before the close of business on the Business Day immediately preceding Maturity, to convert all or any portion of the outstanding principal and interest due on this Note (such amount, the “ Conversion Amount ”) into duly authorized, fully paid and nonassessable shares of Common Stock (a “ Conversion Event ”) at the conversion rate (the “ Conversion Rate ”) equal to the quotient obtained by dividing (i) the Conversion Amount by (ii) the Conversion Price.  

(b)

The “ Conversion Price ” shall be $ 4.00 per share, to be adjusted appropriately for any recapitalizations, stock combinations, stock dividends, stock splits and other antidilution events, in each event, in the manner contemplated by Section 10.

(c)

Following, but not prior to, the consummation of a Conversion Event, the Conversion Price shall be subject to adjustment in accordance with Section 10.

(d)

To exercise the conversion right, the Holder must surrender the original Note duly endorsed or assigned to the Company or in blank, at the office of the Company, accompanied by a duly signed conversion notice to the Company, in the form attached hereto as Exhibit A .

(e)

Any fractional shares of Common Stock to which the Holder is entitled will be rounded up to the nearest whole share.

(f)

If by on or after the fifth Business Day after the Holder has properly requested the conversion of this Note the Company fails to deliver the required number of certificates for such Conversion Shares to the Holder, and if after such fifth Trading Day and prior to the receipt of such Conversion Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of such Conversion Shares that the Holder anticipated receiving from the Company upon such request (a “ Buy-In ”), then the Company shall, within 5 Business Days after the Holder’s written request indicating the amounts payable to the Holder in respect of the Buy-In (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased, (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Conversion Shares that the Company was required to deliver to the Holder in connection with the request at issue by (B) the closing bid price of the Common Stock on the date of such request and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of Conversion Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.

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(g)

If a Holder converts a Note, the Company shall pay any documentary, stamp, or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion.  However, the Holder shall pay any such tax which is due because the Holder requests the securities to be issued in a name other than the Holder’s name.  Nothing herein shall preclude any tax withholding required by law or regulation.

7.

Transfer Restrictions Applicable to the Notes

Except as expressly permitted by Section 9 and 11, the Holder shall not, whether directly or indirectly, Transfer any right, title or interest on this Note to any person (in each such case, a “ Transferee ”), provided , however , that the foregoing restriction shall not apply to a Transfer to the Holder’s direct or indirect wholly-owned Subsidiaries or a pledge of this Note to a bona fide margin account or lending arrangement entered into in compliance with law. Any attempt to Transfer all or any portion of this Note in violation of Section 9 shall be null and void, and the Company shall not register any such Transfer. Nothing in this Note, however, shall restrict the Holder from engaging in derivative transactions with respect to securities of the Company.

8.

Preemptive Right of Holders

The Holder shall have a preemptive right to participate with all holders of the Notes and the Warrants in the subscription of any securities proposed to be issued by the Company, occurring on or before the one year anniversary of the Closing Date, except for the issuance of securities issued or issuable pursuant to an Exempt Issuance (as defined below). The Company undertakes that it will not issue any securities unless the procedures set forth in this subsection have been complied with.  For purposes of this Section 8, “ Included Members ” means all holders of the Notes and the Warrants. “ Exempt Issuance ” means the issuance of  (a) shares in connection with an underwritten public offering; (b) shares of Common Stock or options to employe