STOCK PURCHASE AGREEMENT

 
By and between
 
Tie LI,

YILI CARBORUNDUM USA, INC.
 
 
and
 
PARAGON SEMITECH USA, INC.
 

dated as of September 2, 2008

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STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT, dated as of September 2, 2008 (the “Agreement”)
by and among Tie LI, an individual residing at 22 Berkshire Way, East Brunswick,
NJ 08816 (“Li”), YILI CARBORUNDUM USA, INC., a Delaware corporation (“Yili US”)
and PARAGON SEMITECH USA, INC., a Delaware corporation (the “Company”).

WHEREAS, Li currently owns 100% of the issued and outstanding capital stock of
C3 Capital, Limited, a BVI Company incorporated under the laws of the British
Virgin Islands (“C3”);
 
WHEREAS, C3 has entered into an Equity Transfer Agreement with Yili Master
Carborundum Production Co., Ltd. (“Yili China”), a corporation incorporated
under the laws of the People’s Republic of China (“PRC”) to acquire all of the
equity interests in Yili China; C3 has also entered into an Equity Transfer
Agreement with Xinjiang Ehe Mining and Metallurgy Co., Ltd. (“Ehe China”), a
corporation incorporated under the laws of the PRC to acquire 90% of the equity
interests in Ehe China; in addition, C3 has entered into a Memorandum of
Understanding (“MOU”) with Mr. Gao Zhiqiang and Mr. Li Ping to acquire all of
the equity interests they are going to have in Xinjiang Paragon Master Mining
Co., Ltd. (“Quartz Mine China”), a corporation to be incorporated under the laws
of the PRC having the quartz mine as identified in the MOU. The transactions
contemplated under the Equity Transfer Agreements and MOU with respect to Yili
China, Ehe China and Quartz Mine China are referred to as “PRC Entity
Restructuring”.
 
WHEREAS, the Company owns 100% of the outstanding capital stock of Yili US;
 
WHEREAS, Li believes it is in his best interests to sell and transfer to Yili US
all of the outstanding capital stock of C3 (the “C3 Shares”) for $10,000 and
each of the Company and Yili US believes it is in its best interests to purchase
the C3 Shares, upon the terms and subject to the conditions set forth in this
Agreement (the “Stock Purchase”);

WHEREAS, it is the intention of the parties that: (i) Yili US shall acquire 100%
of the C3 for a cash purchase price of $10,000; and (ii) said sale and transfer
to Yili US shall qualify as a transaction in securities exempt from registration
or qualification under the Securities Act of 1933, as amended and in effect on
the date of this Agreement (the “Securities Act”);
 
WHEREAS, immediately following the consummation of the Stock Purchase, the
Company intends to enter into a private placement financing transaction with one
or more accredited investors (each an “Investor” and collectively,
the“Investors”) whereby the Company will issue shares of newly-designated Series
A Senior Convertible Preferred Stock, par value $.001 per share, of the Company
and related warrants for cash (the “Financing Transaction”); and

 
 
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NOW, THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the parties hereto hereby agree as follows:
 
ARTICLE I
 
PURCHASE AND SALE OF C3 SHARES
 
Section 1.1 Purchase and Sale. On the Closing Date (as hereinafter defined) and
upon the terms and subject to the conditions set forth in this Agreement, Li
shall sell, assign, transfer, convey and deliver the C3 Shares to Yili US, and
Yili US shall pay to Li in cash, in full consideration for the purchase of the
C3 Shares $10,000 in cash or by wire transfer of immediately available funds.

Section 1.2 Capitalization. On the Closing Date, immediately before the
transactions to be consummated pursuant to this Agreement and the Securities
Purchase Agreement, dated the date hereof by and among the Company and The China
Hand Fund I, LLC (the “Securities Purchase Agreement”; the transactions
contemplated under the Securities Purchase Agreement, the “Series A Financing”),
the Company shall have authorized (a) a total of 100,000,000 shares of Common
Stock, par value $.001 per share, 10,006,000 shares of which are issued and
outstanding, (b) a total of 10,000,000 shares of Preferred Stock, par value
$.001 per share (the “Preferred Stock”), none of which are issued and
outstanding., but 2,000,000 shares shall have been designated as Series A Senior
Convertible Preferred Stock (“Series A Stock”).

Section 1.3 Closing. The closing of the Stock Purchase to be made pursuant to
this Agreement (the "Closing") shall take place at 5:00 p.m. E.D.S.T. on the day
the conditions to closing set forth in Articles V and VI have been satisfied or
waived, or at such other time and date as the parties hereto shall agree in
writing (the "Closing Date"), at the offices of Guzov Ofsink, LLC, 600 Madison
Avenue, 14th Floor, New York, New York 10022. At the Closing, Li shall deliver
to Yili US the stock certificates representing 100% of the C3 Shares, duly
endorsed in blank for transfer or accompanied by appropriate stock powers duly
executed in blank. In full consideration for the purchase of the C3 Shares, Yili
US shall pay to Li $10,000 in cash or by wire transfer of immediately available
funds.
 
ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents, warrants and agrees that the statements in the
following paragraphs of this Section 2 are all true and complete as of the date
hereof, and will, except as contemplated by this Agreement, be true and complete
as of the Closing Date as if first made on such date:
 
 
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Section 2.1 Corporate Organization

a. Each of the Company and Yili US is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has all requisite
corporate power and authority to own its properties and assets and to conduct
its business as now conducted and is duly qualified to do business in good
standing in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification and
being in good standing necessary, except where the failure to be so qualified
and in good standing will not have a material adverse effect on the business,
operations, properties, assets, condition or results of operation of the Company
(a "Company Material Adverse Effect");

b. Copies of the Certificate of Incorporation and By-laws of the Company as well
as the Certificate of Designation of the Series A Stock, with all amendments
thereto to the date hereof, have been furnished to Li, and such copies are
accurate and complete as of the date hereof. The minute books of the Company and
Yili US are current as required by law, contain the minutes of all meetings of
the Board of Directors and shareholders of the Company and Yili US from their
dates of incorporation to the date of this Agreement, and adequately reflect all
material actions taken by the Board of Directors and shareholders of the Company
and Yili US.

Section 2.2 Authorization and Validity of Agreements. Each of the Company and
Yili US has all corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and Yili US and the consummation by the Company and Yili US of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Company, and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.

Section 2.3 No Conflict or Violation. The execution and delivery by each of the
Company and Yili US of this Agreement does not, and the performance by the
Company and Yili US of their obligations under this Agreement and the
consummation of the transactions contemplated hereby will not, conflict with or
result in a violation or breach of any of the terms, conditions or provisions of
any other agreement to which the Company or Yili US is a party. Neither the
Company, Yili US nor any subsidiary, is in violation of, in conflict with, in
breach of or in default under any term or provision of, and no right of any
party to accelerate, terminate, modify or cancel has come into existence under,
(i) its articles of incorporation or by-laws (each as may have been amended,
supplemented or restated), (ii) any provision of any judgment, writ, injunction,
decree or order to which the any of them is a party; or (iii) any law, statute,
rule or regulation applicable to any of them.

Section 2.4 Consents and Approvals. No consent, waiver, authorization or
approval of any governmental or regulatory authority, domestic or foreign, or of
any other person, firm or entity, is required in connection with the execution
and delivery of this Agreement by the Company or Yili US or the performance by
the Company or Yili US of its obligations hereunder.
 
Section 2.5 Survival. Each of the representations and warranties set forth in
this Article II shall be deemed represented and made by the Company at the
Closing as if made at such time and shall survive the Closing for a period
terminating on the second anniversary of the date of this Agreement.
 
 
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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF LI

Li represents, warrants and agrees, that the statements in the following
paragraphs of this Section 3 are all true and complete as of the date hereof,
and will, except as contemplated by this Agreement, be true and complete as of
the Closing Date as if first made on such date:

Section 3.1 Corporate Organization of C3. C3 is a company organized as a BVI
Business Company under the laws of the British Virgin Islands, is duly
organized, validly existing and in good standing under the laws of the British
Virgin Islands and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being or currently planned to be conducted. Li is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders (“Approvals”) necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, and to consummate the transactions
contemplated under this Agreement, except where the failure to have such
Approvals would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the business, operations, properties, assets,
condition or results of operation of C3. Li has delivered to the Company
complete and correct copies of the Memorandum of Association and Articles of
Association or similar governing, organization or charter documents of C3
(collectively referred to herein as "Charter Documents"). C3 is not in violation
of any of the provisions of its Charter Documents. The minute books or the
equivalent of C3 contain true, complete and accurate records of meetings and
consents in lieu of meetings of its board of directors (and any committees
thereof), similar governing bodies and stockholders of Li ("Corporate Records"),
since the time of its organization. The ownership records of C3 Shares are true,
complete and accurate records of the ownership of the C3 Shares as of the date
of such records and contain all transfers of such C3 Shares since the time of
original issuance of the C3 Shares.  
 
Section 3.2 Capitalization of C3; Title to the C3 Shares. On the Closing Date,
immediately before the transactions to be consummated pursuant to this
Agreement, C3 shall have authorized 50,000 shares of capital stock, $1 per
share, of which 1 C3 Share will be issued and outstanding. The C3 Shares
constitute all the outstanding shares of capital stock of C3, and there are no
outstanding options, warrants, agreements, commitments, conversion rights,
preemptive rights or other rights to subscribe for, purchase or otherwise
acquire any shares of capital stock or any un-issued or treasury shares of
capital stock of C3.
 
 
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Section 3.3 Subsidiaries and Equity Investments of C3. (i) Set forth on
Schedule 3.3 is a true and correct list of the entities in which C3, directly or
indirectly, owns capital stock or holds an equity or similar interest, together
with their respective jurisdictions of organization and the percentage of the
outstanding capital stock or other equity interests of such entity that is held
by C3, subject to the completion of the PRC Entity Restructuring; (ii) other
than with respect to the entities listed on Schedule 3.3, C3 does not, directly
or indirectly, own any securities or beneficial ownership interests in any other
person (including through joint ventures or partnership arrangements) or have
any investment in any other person; (iii) C3 and its “Subsidiaries” (which for
purposes of this Agreement means any entity in which C3 or any of its
Subsidiaries, directly or indirectly, owns any of the capital stock, equity or
similar interests or voting power of such entity at the date of this Agreement,
after giving effect to the completion of the PRC Entity Restructuring) are
entities duly organized and validly existing and in good standing under the laws
of the jurisdictions in which they are formed, and have the requisite power and
authority to own their properties and to carry on their business as now being
conducted; and (iv) if applicable, each of C3 and the Subsidiaries is duly
qualified as a foreign entity to do business and, to the extent legally
applicable, is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect.

Section 3.4 Authorization and Validity of Agreements. The execution and delivery
of this Agreement by Li and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary actions and no other actions
on the part of Li are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.

Section 3.5 No Conflict or Violation. The execution, delivery and performance of
this Agreement by Li does not and will not violate or conflict with any
provision of the Charter Documents of C3, and does not and will not violate any
provision of law, or any order, judgment or decree of any court or other
governmental or regulatory authority, nor violate, result in a breach of or
constitute (with due notice or lapse of time or both) a default under or give to
any other entity any right of termination, amendment, acceleration or
cancellation of any contract, lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which Li or C3 is
a party or by which it is bound or to which any of his or its respective
properties or assets is subject, nor result in the creation or imposition of any
lien, charge or encumbrance of any kind whatsoever upon any of the properties or
assets of Li or C3, nor result in the cancellation, modification, revocation or
suspension of any of the licenses, franchises, permits to which Li or C3 is
bound.

Section 3.6 Regulatory Permits. C3 and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state (or their equivalent), local or foreign regulatory authorities necessary
to conduct their respective businesses, except where the failure to possess such
permits could not, individually or in the aggregate, have or reasonably be
expected to result in a C3 Material Adverse Effect (as such term is hereinafter
defined).

Section 3.7 Brokers’ Fees. Li does not have any liability to pay any fees or
commissions or other consideration to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement.

Section 3.8 Material Agreements. Except as set forth on Schedule 3.8 hereof, C3
is not a party to or bound by any contracts, including, but not limited to any:

a.
employment, advisory or consulting contract;

 
 
 

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b.
plan providing for employee benefits of any nature;

c.
lease with respect to any property or equipment with a value  exceeding $50,000;

 
d.
contract, agreement, understanding or commitment for any future expenditure in
excess of $50,000 in the aggregate;

 
e.
contract or commitment pursuant to which it has assumed, guaranteed, endorsed,
or otherwise become liable for any obligation of any other person, entity or
organization exceeding $50,000;

 
f.
agreement with any person relating to the dividend, purchase or sale of
securities, that has not been settled by the delivery or payment of securities
when due, and which remains unsettled upon the date of the Agreement.

Section 3.9. Financial Statements. Set forth on Schedule 3.9 attached hereto are
the unaudited financial statements of Yili China which will become an indirect
Subsidiary of the Company upon the consummation of the transactions contemplated
hereunder (collectively, the “Financial Statements”). The Financial Statements
fairly present in all material respects the financial position of Yili China as
of the dates thereof and the results of operations for the periods then ended.

Section 3.10. Material Changes. Since the date of the latest balance sheet
included in the Financial Statements included on Schedule 3.10 attached hereto
and, except as set forth on Schedule 3.10 attached hereto, (i) there has been no
event, occurrence or development that has had or that would reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets, condition or results of operation of C3 (a "C3 Material
Adverse Effect"), (ii) neither the C3 nor any Subsidiary has incurred any
liabilities (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 or its Subsidiaries’ financial statements pursuant to GAAP. 

Section 3.11. Governmental Consents. To the best of Li’s knowledge, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with any court, governmental agency,
regulatory authority or political subdivision thereof, or any other entity, is
required in connection with the execution, delivery and performance by Li of
this Agreement.

Section 3.12 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending (or, to the best knowledge of Li, currently
threatened) against C3 or any of its Subsidiaries or, against any officer or
director of C3 or any of its Subsidiaries in connection with such officer’s or
director’s relationship with, or actions taken on behalf of, C3 or any of its
Subsidiaries. There is no pending or, to the knowledge or belief of Li,
currently threatened, claim or litigation against C3 or any of its Subsidiaries.
 
 
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Section 3.13. Indebtedness; Compliance. Except as disclosed on Schedule 3.13
attached hereto, neither C3 nor any of its Subsidiaries is a party to any
indenture, debt, loan or credit agreement by which it or any of its properties
is bound. Neither C3 nor any of its Subsidiaries is (i) 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 under), neither C3
nor any of its Subsidiaries has 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) in violation of any court, arbitrator, governmental or
administrative agency, regulatory or self regulatory authority (federal, state,
county, local or foreign), stock market, stock exchange or trading facility, or
(iii) or has not 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
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 C3 Material Adverse Effect.     

Section 3.14 Money Laundering Laws. The operations of C3 and each of its
Subsidiaries 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
C3 and each of its Subsidiaries with respect to the Money Laundering Laws is
pending or, to the best knowledge of Li, threatened.

Section 3.15 Disclosure. This Agreement, the schedules hereto and any
certificate attached hereto or delivered in accordance with the terms hereby by
or on behalf of Li in connection with the transactions contemplated by this
Agreement, when taken together, do not contain any untrue statement of a
material fact or omit any material fact necessary in order to make the
statements contained herein and/or therein not misleading.

Section 3.16 Survival. Each of the representations and warranties set forth in
this Article III shall be deemed represented and made by Li at the Closing as if
made at such time and shall survive the Closing for a period terminating on the
second anniversary of the date of this Agreement.
 
 
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ARTICLE IV

COVENANTS

Section 4.1 Certain Changes and Conduct of Business.

a. From and after the date of this Agreement and until the Closing Date, the
Company shall conduct its business solely in the ordinary course consistent with
past practices and, in a manner consistent with all representations, warranties
or covenants of the Company, and without the prior written consent of Li, will
not, except as required or permitted pursuant to the terms hereof and the
Financing Transaction:

 
i.
make any material change in the conduct of its businesses and/or operations or
enter into any transaction other than in the ordinary course of business
consistent with past practices;

 
ii.
make any change in its Charter Documents; issue any additional shares of capital
stock or equity securities or grant any option, warrant or right to acquire any
capital stock or equity securities or issue any security convertible into or
exchangeable for its capital stock or alter in any material term of any of its
outstanding securities or make any change in its outstanding shares of capital
stock or its capitalization, whether by reason of a reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, stock dividend or otherwise;

 
iii.
A.
incur, assume or guarantee any indebtedness for borrowed money, issue any notes,
bonds, debentures or other corporate securities or grant any option, warrant or
right to purchase any thereof, except pursuant to transactions in the ordinary
course of business consistent with past practices; or

       

    B. Issue any securities convertible or exchangeable for debt or equity
securities of the Company;

 

 
iv.
make any sale, assignment, transfer, abandonment or other conveyance of any of
its assets or any part thereof, except pursuant to transactions in the ordinary
course of business consistent with past practice;

 
v.
subject any of its assets, or any part thereof, to any lien or suffer such to be
imposed other than such liens as may arise in the ordinary course of business
consistent with past practices by operation of law which will not have an the
Company Material Adverse Effect;

 
vi.
acquire any assets, raw materials or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;

 
 
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vii.
enter into any new (or amend any existing) employee benefit plan, program or
arrangement or any new (or amend any existing) employment, severance or
consulting agreement, grant any general increase in the compensation of officers
or employees (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or grant any increase in the
compensation payable or to become payable to any employee, except in accordance
with pre-existing contractual provisions or consistent with past practices;

 
viii.
make or commit to make any material capital expenditures;

 
ix.
pay, loan or advance any amount to, or sell, transfer or lease any properties or
assets to, or enter into any agreement or arrangement with, any of its
affiliates;

 
x.
guarantee any indebtedness for borrowed money or any other obligation of any
other person;

 
xi.
fail to keep in full force and effect insurance comparable in amount and scope
to coverage maintained by it (or on behalf of it) on the date hereof;

 
xii.
take any other action that would cause any of the representations and warranties
made by it in this Agreement not to remain true and correct in all material
aspect;

 
xiii.
make any material loan, advance or capital contribution to or investment in any
person;

 
xiv.
make any material change in any method of accounting or accounting principle,
method, estimate or practice;

 
xv.
settle, release or forgive any claim or litigation or waive any right;

 
xvi.
commit itself to do any of the foregoing.

b. From and after the date of this Agreement, Li will cause C3 each of its
Subsidiaries to:

 
1.
continue to maintain, in all material respects, its properties in accordance
with present practices in a condition suitable for its current use;

 
2.
file, when due or required, federal, state, foreign and other tax returns and
other reports required to be filed and pay when due all taxes, assessments, fees
and other charges lawfully levied or assessed against it, unless the validity
thereof is contested in good faith and by appropriate proceedings diligently
conducted;

 
 
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3.
continue to conduct its business in the ordinary course consistent with past
practices;

 
4.
keep its books of account, records and files in the ordinary course and in
accordance with existing practices; and

 
5.
continue to maintain existing business relationships with suppliers.

Section 4.2 Access to Properties and Records. Li shall afford the Company’s
accountants, counsel and authorized representatives, and the Company shall
afford to Li’s accountants, counsel and authorized representatives full access
during normal business hours throughout the period prior to the Closing Date (or
the earlier termination of this Agreement) to all of such parties’ properties,
books, contracts, commitments and records and, during such period, shall furnish
promptly to the requesting party all other information concerning the other
party's business, properties and personnel as the requesting party may
reasonably request, provided that no investigation or receipt of information
pursuant to this Section 4.2 shall affect any representation or warranty of or
the conditions to the obligations of any party.

Section 4.3 Negotiations. From and after the date hereof until the earlier of
the Closing or the termination of this Agreement, no party to this Agreement nor
its officers or directors (subject to such director's fiduciary duties) nor
anyone acting on behalf of any party or other persons shall, directly or
indirectly, encourage, solicit, engage in discussions or negotiations with, or
provide any information to, any person, firm, or other entity or group
concerning any merger, sale of substantial assets, purchase or sale of shares of
capital stock or similar transaction involving any party except for the
Financing Transaction. A party shall promptly communicate to any other party any
inquiries or communications concerning any such transaction which they may
receive or of which they may become aware of.

Section 4.4 Consents and Approvals. The parties shall:

 
i.
use their reasonable commercial efforts to obtain all necessary consents,
waivers, authorizations and approvals of all governmental and regulatory
authorities, domestic and foreign, and of all other persons, firms or
corporations required in connection with the execution, delivery and performance
by them of this Agreement; and

 
 
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ii.
diligently assist and cooperate with each party in preparing and filing all
documents required to be submitted by a party to any governmental or regulatory
authority, domestic or foreign, in connection with such transactions and in
obtaining any governmental consents, waivers, authorizations or approvals which
may be required to be obtained connection in with such transactions.

Section 4.5 Public Announcement. Unless otherwise required by applicable law,
the parties hereto shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
and shall not issue any such press release or make any such public statement
prior to such consultation.

Section 4.6 Stock Issuance. From and after the date of this Agreement until the
Closing Date, Li shall cause C3 not to issue any additional shares of its
capital stock.

ARTICLE V

CONDITIONS TO OBLIGATIONS OF LI

The obligations of Li to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, at or before the Closing Date, of the
following conditions, any one or more of which may be waived by Li in his sole
discretion:

Section 5.1 Representations and Warranties of the Company and Yili US. All
representations and warranties made by the Company and Yili US in this Agreement
shall be true and correct on and as of the Closing Date as if again made by the
Company and Yili US as of such date.

Section 5.2 Agreements and Covenants. The Company and Yili US shall have
performed and complied in all material respects to all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date.

Section 5.3 Consents and Approvals. Consents, waivers, authorizations and
approvals of any governmental or regulatory authority, domestic or foreign, and
of any other person, firm or corporation, required in connection with the
execution, delivery and performance of this Agreement shall be in full force and
effect on the Closing Date.

Section 5.4 No Violation of Orders. No preliminary or permanent injunction or
other order issued by any court or governmental or regulatory authority,
domestic or foreign, nor any statute, rule, regulation, decree or executive
order promulgated or enacted by any government or governmental or regulatory
authority, which declares this Agreement invalid in any respect or prevents the
consummation of the transactions contemplated hereby, or which materially and
adversely affects the assets, properties, operations, prospects, net income or
financial condition of the Company or Yili US shall be in effect; and no action
or proceeding before any court or governmental or regulatory authority, domestic
or foreign, shall have been instituted or threatened by any government or
governmental or regulatory authority, domestic or foreign, or by any other
person, or entity which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement.
 
 
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Section 5.5 Other Closing Documents. Li shall have received such other
certificates, instruments and documents in confirmation of the representations
and warranties of the Company and Yili US or in furtherance of the transactions
contemplated by this Agreement as Li or its counsel may reasonably request.

Section 5.6 Series A Financing. Li shall have received a copy of the Securities
Purchase Agreement duly executed by the parties thereto and the Series A
Financing shall have been consummated.

ARTICLE VI
 
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND YILI US

The obligations of the Company and Yili US to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or before the
Closing Date, of the following conditions, any one or more of which may be
waived by the Company in its sole discretion:

Section 6.1 Representations and Warranties of Li. All representations and
warranties made by Li in this Agreement shall be true and correct on and as of
the Closing Date as if again made by Li on and as of such date.

Section 6.2 Agreements and Covenants. Li shall have performed and complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by Li on or prior to the Closing
Date. Yili China shall have received a Certificate of Approval issued by the
related PRC governmental authority evidencing the governmental approval
regarding the Purchase of Yili China by C3.

Section 6.3 Consents and Approvals. All consents, waivers, authorizations and
approvals of any governmental or regulatory authority, domestic or foreign, and
of any other person, firm or corporation, required in connection with the
execution, delivery and performance of this Agreement, shall have been duly
obtained and shall be in full force and effect on the Closing Date.

Section 6.4 No Violation of Orders. No preliminary or permanent injunction or
other order issued by any court or other governmental or regulatory authority,
domestic or foreign, nor any statute, rule, regulation, decree or executive
order promulgated or enacted by any government or governmental or regulatory
authority, domestic or foreign, that declares this Agreement invalid or
unenforceable in any respect or which prevents the consummation of the
transactions contemplated hereby, or which materially and adversely affects the
assets, properties, operations, prospects, net income or financial condition of
C3 shall be in effect; and no action or proceeding before any court or
government or regulatory authority, domestic or foreign, shall have been
instituted or threatened by any government or governmental or regulatory
authority, domestic or foreign, or by any other person, or entity which seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement or which challenges the validity or enforceability of this Agreement.
 
 
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Section 6.5 Other Closing Documents. The Company and Yili US shall have received
such other certificates, instruments and documents in confirmation of the
representations and warranties of Li or in furtherance of the transactions
contemplated by this Agreement as the Company or its counsel may reasonably
request.
 
ARTICLE VII

TERMINATION AND ABANDONMENT

Section 7.1 Methods of Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time before the
Closing:

a. By the mutual written consent of Li and the Company;

b. By the Company or Yili US, upon a material breach of any representation,
warranty, covenant or agreement on the part of Li set forth in this Agreement,
or if any representation or warranty of Li shall become untrue, in either case
such that any of the conditions set forth in Article VI hereof would not be
satisfied (a "Li Breach"), and such breach shall, if capable of cure, has not
been cured within ten (10) days after receipt by the party in breach of a notice
from the non-breaching party setting forth in detail the nature of such breach;

c. By Li, upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company or Yili US set forth in this Agreement, or,
if any representation or warranty of the Company or Yili US shall become untrue,
in either case such that any of the conditions set forth in Article V hereof
would not be satisfied (a "Company Breach"), and such breach shall, if capable
of cure, not have been cured within ten (10) days after receipt by the party in
breach of a written notice from the non-breaching party setting forth in detail
the nature of such breach;

d. By either the Company or Li, if the Closing shall not have consummated before
ninety (90) days after the date hereof; provided, however, that this Agreement
may be extended by written notice of either Li or the Company, if the Closing
shall not have been consummated as a result of the Company or Li having failed
to receive all required regulatory approvals or consents with respect to this
transaction or as the result of the entering of an order as described in this
Agreement; and further provided, however, that the right to terminate this
Agreement under this Section 7.1(d) shall not be available to any party whose
failure to fulfill any obligations under this Agreement has been the cause of,
or resulted in, the failure of the Closing to occur on or before this date.
 
 
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e. By either Li or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (which order, decree
or ruling the parties hereto shall use its best efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the transactions
contemplated by this Agreement.

Section 7.2 Procedure Upon Termination. In the event of termination and
abandonment of this Agreement by Li or the Company pursuant to Section 7.1,
written notice thereof shall forthwith be given to the other parties and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action. If this Agreement is terminated as provided
herein, no party to this Agreement shall have any liability or further
obligation to any other party to this Agreement; provided, however, that no
termination of this Agreement pursuant to this Article VII shall relieve any
party of liability for a breach of any provision of this Agreement occurring
before such termination.

 
ARTICLE VIII

MISCELLANEOUS PROVISIONS

Section 8.1 Survival of Provisions. The respective representations, warranties,
covenants and agreements of each of the parties to this Agreement (except
covenants and agreements which are expressly required to be performed and are
performed in full on or before the Closing Date) shall survive the Closing Date
and the consummation of the transactions contemplated by this Agreement, subject
to Sections 2.15 and 3.16. In the event of a breach of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach available to it under the provisions of this
Agreement or otherwise, whether at law or in equity, regardless of any
disclosure to, or investigation made by or on behalf of such party on or before
the Closing Date.
 
 
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Section 8.2 Indemnification.

a. Indemnification Obligations in favor of the Shareholders, Executive Officers,
Directors and Employees of the Company. Notwithstanding the limitation set forth
in Section 8.1 and subject to the limitations set forth in this Section 8.2,
from and after the Closing Date until the expiration of statute of limitations
for shareholder action under the laws of New York, Li shall reimburse and hold
harmless the Company’s shareholders, executive officers, directors, employees in
office immediately prior to the Closing (each such person and his heirs,
executors, administrators, agents, successors and assigns is referred to herein
as a “Company Capital Indemnified Party”) against and in respect of any and all
damages, losses, settlement payments, in respect of deficiencies, liabilities,
costs, expenses and claims suffered, sustained, incurred or required to be paid
by any the Company Indemnified Party, and any and all actions, suits, claims, or
legal, administrative, arbitration, governmental or other procedures or
investigation against any the Company Indemnified Party, which arises or results
from a third-party claim brought against a the Company Indemnified Party to the
extent based on (i) a breach of the representations and warranties with respect
to the business, operations or assets of C3 and/or any of its Subsidiaries, or
(ii) any actions or omissions or any the Company Indemnified Party taken in
furtherance of the transactions contemplated by this Agreement or the Financing
Transaction.
 
   b. Indemnification in favor of Li. Notwithstanding the limitation set forth
in Section 8.1 and subject to the limitations set forth in this Section 8.2,
from and after the Closing Date until the expiration of statute of limitations
for shareholder action under the laws of New York, the Company will, indemnify
and hold harmless Li and his agents, attorneys and employees, and each person,
if any, who controls or may “control” (within the meaning of the Securities Act)
any of the forgoing persons or entities (hereinafter referred to individually as
a “Li Indemnified Person”) from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes of
action, including, without limitation, legal fees, (collectively, “Damages”)
arising out of any (i) any breach of representation or warranty made by the
Company or Yili US in this Agreement, (ii) any breach by the Company or Yili US
of any covenant, obligation or other agreement made by the Company or Yili US in
this Agreement, and (iii) a third-party claim based on any acts or omissions by
the Company or Yili US from the inception of such corporations through and
including the Closing Date.

Section 8.3 Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective successors and
assigns; provided, however, that no party shall assign or delegate any of the
obligations created under this Agreement without the prior written consent of
the other parties.

Section 8.4 Fees and Expenses. Except as otherwise expressly provided in this
Agreement, all legal and other fees, costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such fees, costs or expenses.

Section 8.5 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given or made if in
writing and delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses:
 
 
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If to Li, to:

Mr. Tie Li
22 Berkshire Way, East Brunswick, NJ 08816
Attention:
Tel:     7326681629
Fax:     6463493807
Email:  jtl2020@gmail.com
 
If to the Company or Yili US, to:

Paragon Semitech USA, Inc.
197 Route 18 South, Suite 3000, PMB 4157
East Brunswick, NJ 08816 Attention: Ms. Hong Zhao
Tel:     (732) 658-4280

with copies to: 

Guzov Ofsink, LLC
600 Madison Avenue, 14th Floor
New York, New York 10022
Attention: Darren Ofsink
Tel. No.:   (212) 371-8008, ext. 127
Fax No.:   (212) 688-7273

or to such other persons or at such other addresses as shall be furnished by any
party by like notice to the others, and such notice or communication shall be
deemed to have been given or made as of the date so delivered or mailed. No
change in any of such addresses shall be effective insofar as notices under this
Section 8.5 are concerned unless such changed address is located in the United
States of America and notice of such change shall have been given to such other
party hereto as provided in this Section 8.5.

Section 8.6 Entire Agreement. This Agreement, together with the exhibits hereto,
represents the entire agreement and understanding of the parties with reference
to the transactions set forth herein and no representations or warranties have
been made in connection with this Agreement other than those expressly set forth
herein or in the exhibits, certificates and other documents delivered in
accordance herewith. This Agreement supersedes all prior negotiations,
discussions, correspondence, communications, understandings and agreements
between the parties relating to the subject matter of this Agreement and all
prior drafts of this Agreement, all of which are merged into this Agreement. No
prior drafts of this Agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any action or suit involving this
Agreement.

Section 8.7 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible so as to be valid and enforceable.
 
 
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Section 8.8 Titles and Headings. The Article and Section headings contained in
this Agreement are solely for convenience of reference and shall not affect the
meaning or interpretation of this Agreement or of any term or provision hereof.

Section 8.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.

Section 8.10 Convenience of Forum; Consent to Jurisdiction. The parties to this
Agreement, acting for themselves and for their respective successors and
assigns, without regard to domicile, citizenship or residence, hereby expressly
and irrevocably elect as the sole judicial forum for the adjudication of any
matters arising under or in connection with this Agreement, and consent and
subject themselves to the jurisdiction of, the courts of the State of New York
located in County of New York, and/or the United States District Court for the
Southern District of New York, in respect of any matter arising under this
Agreement. Service of process, notices and demands of such courts may be made
upon any party to this Agreement by personal service at any place where it may
be found or giving notice to such party as provided in Section 8.5.

Section 8.11 Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur if any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which they are entitled at law or in equity.

Section 8.12 Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law provisions thereof.

Section 8.13 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties hereto.. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
 
Section 8.14 Publicity. No party shall cause the publication of any press
release or other announcement with respect to this Agreement or the transactions
contemplated hereby without the consent of the other parties, unless a press
release or announcement is required by law. If any such announcement or other
disclosure is required by law, the disclosing party agrees to give the
non-disclosing parties prior notice and an opportunity to comment on the
proposed disclosure.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

PARAGON SEMITECH USA, INC.
     
By:
   
Name: Hong Zhao
 
Title: Director, CFO
         
YILI CARBORUNDUM USA, INC.
         
By:
   
Name: Hong Zhao
 
Title: Director, Treasurer and Secretary
             
Tie Li
 

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Schedule 2.2

Warrants

On October 9, 2007, the Company issued warrants to acquire 1,000,000 shares of
its common stock to Columbia China Capital Group, Inc., an affiliate of the
Company, at an exercise price of $0.001 per share with a term of five years from
October 9, 2007 to October 9, 2012. The Warrants were issued pursuant to a
consulting agreement by and between the Company and Columbia China Capital
Group, Inc. (the “Consultant”), an affiliate to the Company on October 9, 2007.
Under such agreement, the Company agrees to pay the warrants referenced above
for the financial advisory services rendered by the Consultant.
 
Schedule 3.3

 

Name
 
Jurisdiction
 
Equity Owners and
Percentage of Equity
Securities Held
 
Yili Master Carborundum Production Co., Ltd. (“Yili China”)
 
China
 
100% owned by C3 Capital, Limited*
 
Xinjiang Ehe Mining and Metallurgy Co., Ltd. (“Ehe China”)
 
China
 
90% owned by C3 Capital, Limited *
The rest 10% is to be owned by the local electric power supplier.
 
Xinjiang Paragon Master Mining Co., Ltd. (“Quartz Mine China”)
 
China
 
100% owned by C3 Capital, Limited *
 

* Subject to the completion of the PRC Entity Restructuring.

Schedule 3.8

Material Agreements

None.

Schedule 3.9

Financial Statement

See separately attached sheets.

 
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Schedule 3.10

Material Changes

None.

Schedule 3.13

Indebtedness; Compliance

As of the date of this Agreement, Yili China owns approximately RMB 2,666,537.23
(Approximately US$389,847) to local electric power supplier, Yihe Hydro-electric
Center of Development and Administration Center of Yilihe Area of Xinjiang.
 
 
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