SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this "Agreement") is dated as of July __,
2010 among SMSA Palestine Acquisition Corp., a Nevada corporation (collectively
with all predecessors thereof, the "Company"), Sino Oriental Agriculture Group
Limited, a British Virgin Islands company (together with its direct and indirect
subsidiaries "BVI"), Misaky Industry Limited, a Hong Kong company and a
wholly-owned subsidiary of BVI (the "HK Sub"), Fujian YADA Group Co., Ltd., a
wholly foreign-owned enterprise organized under the laws of the People's
Republic of China ("WFOE") and a wholly-owned subsidiary of HK Sub, and the
investors listed on the Schedule of Buyers attached hereto as Exhibit A and
identified on the signature pages hereto (each, an "Investor" and collectively,
the "Investors"), with respect to the following facts:
 
A.           The Company plans to enter into an Exchange Agreement (the
"Exchange Agreement"), with BVI and the BVI Shareholder (as defined in Section
1.1 below), pursuant to which the Company will acquire all of the equity
interest of BVI and, indirectly, all of BVI's direct and indirect subsidiaries
as set forth on Annex 1 attached hereto, in exchange for 11,685,617 shares of
the Common Stock (as defined in Section 1.1 below) as and immediately after the
closing of the exchange under the Exchange Agreement (the "Exchange").
 
B.           Subject to the terms and conditions set forth in this Agreement and
pursuant to the Securities Act (as defined below), the Company desires to issue
and sell to each Investor, and each Investor, severally and not jointly, desires
to purchase from the Company certain securities of the Company, as more fully
described in this Agreement.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and intending to be legally bound, the Company and the Investors
agree as follows:
 
SECTION 1 DEFINITIONS
 
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:
 
"2010 Annual Report" means the Annual Report of the Company for the fiscal year
ending December 31, 2010, as filed with the Commission on Form 10-K (or such
other form appropriate for such purpose as promulgated by the Commission).
 
"2011 Annual Report" means the Annual Report of the Company for the fiscal year
ending December 31, 2011, as filed with the Commission on Form 10-K (or such
other form appropriate for such purpose as promulgated by the Commission).
 
"Action" means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any Government Body, arbitrator,
regulatory authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.
 
 
 
- 1 -

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

 
 
"Affiliate" means, with respect to any specified Person: (i) if such Person is
an individual, the spouse of that Person and, if deceased or disabled, his
heirs, executors, or legal representatives, if applicable, or any trusts for the
benefit of such individual or such individual's spouse and/or lineal
descendants, or (ii) otherwise, another Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the Person specified. As used in this definition, "control"
shall mean the possession, directly or indirectly, of the power to cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or other written instrument.
 
"Business Day" means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other governmental action to close.
 
"BVI Shareholder" means Mr. Cai Yangbo.
 
"Closing" means the closing of the purchase and sale of the Shares pursuant to
Article 2.
 
"Closing Date" means the first Business Day following the date on which all of
the conditions set forth in Sections 5.1 and 5.2 hereof are satisfied (other
than those conditions that by their nature take place on the day of Closing, but
subject to the satisfaction or waiver of such conditions), or such other date as
the parties may agree.
 
"Closing Escrow Agreement" means that certain Escrow Agreement, dated as of the
date hereof, among the Investors, Securities Transfer Corporation, as escrow
agent and the Company, in the form of Exhibit D hereto.
 
"Commission" means the Securities and Exchange Commission.
 
"Common Stock" means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified or for which it may be exchanged as a class.
 
"Common Stock Equivalents" means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
any debt, preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exchangeable for, or otherwise entitles the
holder thereof to receive, Common Stock or other securities that entitle the
holder to receive, directly or indirectly, Common Stock.
 
"Company Entities" means the Company, BVI, HK Sub, WFOE and all existing
Subsidiaries of any such entities and any other entities which hereafter become
Subsidiaries of any such entities.
 
"Effective Date" means the date that the Registration Statement required by
Section 2(a) of the Registration Rights Agreement is first declared effective by
the Commission.
 
 
 
- 2 -

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

 
 
"Escrow Agent" means Securities Transfer Corporation.
 
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
"Existing Company Entities" means the Company, BVI, the HK Sub, WFOE and their
respective Subsidiaries and "Existing Company Entity" means any of the Company,
BVI, WFOE and any of their respective Subsidiaries.
 
"Founder" means Zhan Youdai.
 
"GAAP" means U.S. generally accepted accounting principles.
 
"Governmental Body" shall mean any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or (c)
governmental or quasi-governmental authority of any nature (including any
governmental or administrative division, department, agency, commission,
instrumentality, official, organization, unit, body or entity) and any court or
other tribunal.
 
"Investment Amount" means, with respect to each Investor, the Investment Amount
indicated on such Investor's signature page to this Agreement, which is also
reflected on the Schedule of Buyers attached hereto as Exhibit A.
 
"Legal Requirement" shall mean any federal state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Body (or under the authority of any
national securities exchange upon which the Common Stock is then listed or
traded). Reference to any Legal Requirement means such Legal Requirement as
amended, modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, and reference to any section or other provision of any
Legal Requirement means that provision of such Legal Requirement from time to
time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other provision.
 
"Lien" means any interest in Property securing an obligation owed to a Person
whether such interest is based on the common law, statute or contract, and
including but not limited to a security interest arising from a mortgage, lien,
title claim, assignment, encumbrance, adverse claim, contract of sale, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.  The term "Lien" includes but is not limited to mechanics',
materialmens', warehousemens' and carriers' liens and other similar
encumbrances. For the purposes hereof, a Person shall be deemed to be the owner
of Property which it has acquired or holds subject to a conditional sale
agreement or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes.
 
"Lockup Agreement" means the Lockup Agreement, dated as of the date hereof, by
and between the Company and each Person listed as a signatory thereto, in the
form attached as Exhibit F hereto.
 
 
 
- 3 -

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

 
 
"Make Good Escrow Agreement" means the Make Good Escrow Agreement, dated as of
the date hereof, among the Company, the Agent (as defined in Section 4.17
below), the escrow agent identified therein (the "Make Good Escrow Agent") and
the Make Good Pledgor, in the form of Exhibit E hereto, as may be amended from
time to time pursuant to this Agreement.
 
"Make Good Pledgor" means Mr. Cai Yangbo.
 
"Material Adverse Effect" means any or all of (i) a material and adverse effect
on the legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company Entities, taken as
a whole, except for results or consequences attributable to the effects of, or
changes in, general economic or capital markets conditions or effects and
changes that generally affect the industries in which the Company Entities
operate, such as regulatory action by the PRC or municipal governments, or (iii)
an adverse impairment to the Company's ability to perform on a timely basis its
obligations under any Transaction Document or any Material Agreements set forth
in Schedule 3.1(q).
 
"New York Courts" means the state and federal courts sitting in the City of New
York, Borough of Manhattan.
 
"OTCBB" shall mean the Over-the-Counter Bulletin Board system.
 
"Outside Date" means the thirtieth (30th) calendar day (if such calendar day is
a Business Day and if not, then the first Business Day following such thirtieth
(30th) calendar day) following the date of this Agreement.
 
"Per Share Purchase Price" equals $7.88.
 
"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.
 
"PIPE Common Shares" means the aggregate number of shares of Common Stock issued
to the Investors at the Closing under this Agreement (as equitably adjusted for
any stock splits, stock combinations, stock dividends or similar transactions).
 
"Placement Agents" [Intentionally omitted]
 
"PRC" means the People's Republic of China or any provincial, city or other
jurisdiction therein, but not including Taiwan, the Hong Kong Special
Administrative Region and the Macau Special Administrative Region.
 
"Proceeding" means an action, claim, suit, investigation or proceeding
(including an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the Company, threatened.
 
 
 
- 4 -

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

 
 
"Registration Rights Agreement" means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and the Investors, in the
form of Exhibit C hereto.
 
"Registration Statement" means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Registrable Securities as defined in the Registration Rights
Agreement.
 
"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.
 
"Securities" means the Shares, the Warrants and the Warrant Shares.
 
"Securities Act" means the Securities Act of 1933, as amended.
 
"Shares" means the PIPE Common Shares, the Actual Make Good Shares regardless of
whether such shares have actually been transferred to the Investors in
accordance with Section 4.7(c) hereof, and the shares of Common Stock that are
otherwise required to be issued, issuable or transferable to the Investors
pursuant to this Agreement (as equitably adjusted for any stock splits, stock
combinations, stock dividends or similar transactions) (other than the Warrant
Shares).
 
"Short Sales" include all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.
 
"Subsidiary" means any "subsidiary" as defined in Rule 1-02(x) of Regulation S-X
promulgated by the Commission under the Exchange Act; provided, that
"Subsidiaries" of the Company shall include the Company Entities.
 
"Trading Day" means: (i) a day on which the Common Stock is traded on a Trading
Market (other than OTCBB), or (ii) if the Common Stock is not listed on a
Trading Market (other than OTCBB), a day on which the Common Stock is traded in
the over the counter market, as reported by OTCBB, or (iii) if the Common Stock
is not quoted on any Trading Market, a day on which the Common Stock is quoted
in the over- the- counter market as reported by the Pink Sheets LLC (or any
similar organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i) and, (ii) and (iii) hereof, then Trading Day shall mean a Business
Day.
 
"Trading Market" means any of the New York Stock Exchange, the NYSE AMEX, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital
Market, the OTCBB or any other market on which the Common Stock is listed or
quoted for trading on the date in question.
 
"Transaction Documents" means this Agreement, the Registration Rights Agreement,
the Closing Escrow Agreement, the Make Good Escrow Agreement, the Lockup
Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
 
 
 
- 5 -

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

 
 
"Transfer Agent" means Securities Transfer Corporation, and any successor
transfer agent of the Company.
 
"Warrants" means collectively the Common Stock Purchase Warrants delivered to
the Investors at the Closing in accordance with Section 2(a)(ii) hereof, which
Warrants shall have an initial exercise price of $9.45 per share and a term of
exercise equal to three years, in the form of Exhibit B attached hereto.
 
"Warrant Shares" means the shares of Common Stock issuable upon exercise of the
Warrants.
 
SECTION 2 PURCHASE AND SALE
 
2.1 Purchase.   Subject to the terms and conditions set forth in this Agreement,
at the Closing, the Company shall issue and sell to each Investor, and each
Investor shall, severally and not jointly, purchase from the Company, the Shares
and Warrants representing such Investor's Investment Amount.  The Closing shall
take place at the offices of Pillsbury Winthrop Shaw Pittman LLP, counsel to the
Placement Agents, 2300 N Street, N.W., Washington, DC 20037-1122 on the Closing
Date or at such other location or time as the parties may agree.
 
2.2 Closing Deliveries.
 
(a) Concurrently with the execution and delivery of this Agreement, the Company
has delivered or caused to be delivered to each Investor the following (the
"Company Deliverables"):
 
(i) an irrevocable instruction letter, in agreed form, to the Transfer Agent
directing the Transfer Agent to issue a certificate evidencing a number of
Shares equal to such Investor's Investment Amount divided by the Per Share
Purchase Price, registered in the name of such Investor or its nominee;
 
(ii) a Warrant evidencing the right to purchase a number of Shares equal to 20%
of such Investor's Shares registered in the name of such Investor or its
nominee;
 
(iii) an officer's certificate, in agreed form, certifying the satisfaction of
each of the conditions precedent to the Investors' obligation to purchase Shares
and Warrants;
 
(iv) a certificate of the secretary of the Company executed on behalf of the
Company by its secretary dated as of the Closing Date, certifying the
resolutions adopted by the board of directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the PIPE Common Shares and Warrant Shares, certifying the
current versions of the articles of incorporation and bylaws of the Company and
certifying as to the signatures and authority of persons signing the Transaction
Documents and related documents on behalf of the Company;
 
 
 
- 6 -

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

 
 
(v) the legal opinion of U.S. counsel to the Company in form and substance
reasonably satisfactory to the Investors, addressed to the Investors and the
Placement Agents;
 
(vi) the legal opinion of PRC counsel to the Company in form and substance
reasonably satisfactory to the Investors, addressed to the Company;
 
(vii) a letter of the PRC counsel to the Investors and the Placement Agents in
substantially the form as Appendix B attached hereto;
 
(viii) the Registration Rights Agreement, duly executed by the Company;
 
(ix) the Closing Escrow Agreement, duly executed by the Company and the Escrow
Agent;
 
(x) the Make Good Escrow Agreement, duly executed by all parties thereto (other
than the Investors); and
 
(xi) Lockup Agreements, duly executed by the Company, Mr. Cai Yangbo and each of
the parties set forth on Schedule A attached thereto.
 
(b) At or prior to the Closing, each Investor shall deliver or cause to be
delivered to the Escrow Agent its Investment Amount, in immediately available
funds, by wire transfer to the account designated in the Closing Escrow
Agreement (the "Investor Deliverables").
 
SECTION 3 REPRESENTATIONS AND WARRANTIES
 
3.1 Representations and Warranties of the Company.
 
Subject to exceptions set forth in the Disclosure Schedules of the Existing
Company Entities attached hereto with each numbered Schedule corresponding to
the section number herein, the Company Entities hereby jointly and severally
make the following representations and warranties to each Investor as of the
date hereof and as of the Closing Date:
 
(a) Subsidiaries. Schedule 3.1(a) sets forth each Subsidiary of the Company,
showing the jurisdiction of its incorporation or organization and showing the
percentage of ownership of such Subsidiary by the relevant Company
Entity.  Except as disclosed on Schedule 3.1(a), the Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, nonassessable and free of preemptive and similar rights to subscribe for
or purchase securities.
 
 
 
- 7 -

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

 
 
(b) There are no outstanding: (i) securities of the Company or any Subsidiary
convertible into or exchangeable for shares of capital stock or voting
securities of any Subsidiary or (ii) options or other rights to acquire from the
Company or any Subsidiary, or other obligation of the Company or any Subsidiary
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of any Subsidiary (the items
in clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities").  There are no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary
Securities.
 
(c) Organization and Qualification. Each of the Existing Company Entities is
duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. No
Existing Company Entity is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each Existing Company Entity is duly
qualified to conduct its respective businesses and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
 
(d) Authorization; Enforcement. Each Existing Company Entity which is or is to
become party to any Transaction Document has the requisite corporate and other
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations thereunder. The execution and delivery of
the Transaction Documents, by each of the Existing Company Entities to be party
thereto and the consummation by each of them of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of such
Existing Company Entity, and no further action is required by any of them in
connection with such authorization. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and each other Existing
Company Entity required to execute the same (to the extent any of them is a
party thereto) and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company and such Existing
Company Entity, enforceable against the Company and the Existing Company Entity,
as the case may be, each in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar Legal Requirement relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
 
(e) No Conflicts. Except as set forth on Schedule 3.1(e), the execution,
delivery and performance of the Transaction Documents by the Company, and each
other Existing Company Entity (to the extent a party thereto) and the
consummation by the Company and such other Existing Company Entities of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's, or such Existing Company Entity's
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing any Existing Company Entity's debt or otherwise) or other
understanding to which any of
 
 
 
 
- 8 -

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

 
 
the Existing Company Entities is a party or by which any property or asset of
any of the Existing Company Entities is bound or affected, or (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Existing Company Entity under any agreement or any
commitment to which any of the Existing Company Entity is a party or by which
any of the Existing Company Entity is bound or by which any of its respective
properties or assets are bound,  or (iv) result in a violation of any Legal
Requirement, order, judgment, injunction, decree or other restriction of the
competent court or Governmental Body of any jurisdiction  to which the Company
or a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of any Existing Company Entity
is bound or affected; except in the case of each of clauses (i) and (iv), such
as could not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.
 
(f) Filings, Consents and Approvals. None of the Existing Company Entities is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any Governmental Body in
connection with the execution, delivery and performance by the Company and each
of the other Existing Company Entities to the extent it is a party thereto of
the Transaction Documents, other than (i) the filing with the Commission of one
or more Registration Statements in accordance with the requirements of the
Transaction Documents, (ii) filings required by state securities laws, (iii) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (iv) the filings required in accordance with
Section 4.5 hereof, (v) those that have been made or obtained prior to the date
of this Agreement, (vi) registrations, notices or filings required to be made in
order to comply with the currency and exchange control requirements imposed by
any Governmental Body or Legal Requirement in the PRC, if any, and (vii) other
post closing securities filings or notifications required to be made under
federal or state securities laws.
 
(g) Issuance of the Shares. The PIPE Common Shares have been duly authorized and
when issued and paid for in accordance with the Transaction Documents, will be,
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens.  The Warrant Shares, when issued in accordance with the terms of the
Warrants will be duly and validly issued, fully paid and nonassessable, free and
clear of all Liens. The Company has reserved from its duly authorized capital
stock the shares of Common Stock issuable pursuant to this Agreement in order to
issue the PIPE Common Shares and the Warrant Shares. The Make Good Pledgor is
the record owner of the 2010 Make Good Shares and 2011 Make Good Shares.
 
(h) Capitalization.
 
(i) Schedule 3.1(h) sets forth as of the date hereof and as of the Closing Date
(a) the authorized capital stock of the Company; (b) the number and class of
shares of capital stock issued and outstanding; (c) the number and class of
shares of capital stock issuable pursuant to the Company's stock incentive plans
or agreements; and (d) the number and class of shares of capital stock issuable
and reserved for issuance pursuant to securities exercisable for, or convertible
into or exchangeable for any shares of capital stock of the Company and a
description of the number and rights of such securities.
 
 
 
- 9 -

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

 
 
(ii) Except as described on Schedule 3.1(h), all of the issued and outstanding
shares of the Company's capital stock issued have been duly authorized and
validly issued and are fully paid, nonassessable and free of pre-emptive rights
and were issued in full compliance with applicable state and federal securities
law and any rights of third parties.
 
(iii) Except as described on Schedule 3.1(h), no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
 
(iv) Except as described on Schedule 3.1(h), there are no outstanding (i) shares
of capital stock or voting securities of the Company or (ii) options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of capital stock or voting securities or securities convertible into
or exchangeable for capital stock or voting securities of the Company, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of capital
stock or voting securities of the Company, or securities or rights convertible
into or exchangeable or exercisable for shares of capital stock or voting
securities of the Company (the items in clauses (i) and (ii) being referred to
collectively as the "Company Securities").  Except as described on Schedule
3.1(h), there are no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any Company Securities.
 
(v) Except as described on Schedule 3.1(h), the issuance and sale of the Shares
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company Securities to adjust the exercise, conversion,
exchange or reset price under such securities.
 
(vi) Except as described on Schedule 3.1(h), there are no voting agreements,
buy-sell agreements, option or right of first purchase agreements or other
agreements of any kind among the Company and any of the securities-holders of
the Company relating to the securities of the Company held by them.
 
(vii) Except as described on Schedule 3.1(h), no Person has the right to require
the Company to register any securities of the Company under the Securities Act,
whether on a demand basis or in connection with the registration of securities
of the Company for its own account or for the account of any other Person.
 
 
 
- 10 -

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

 
 
(i) SEC Reports; Financial Statements. The Company has filed all reports and
registration statements required to be filed by it under the Securities Act and
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
twelve months preceding the date hereof (or such shorter period as the Company
was required by law to file such reports) (the foregoing materials being
collectively referred to herein as the "SEC Reports" and, together with the
Schedules to this Agreement (if any) and the Draft Form 8-K delivered to the
Company prior to the Closing pursuant to Section 5.1(j) hereof, the "Disclosure
Materials") on a timely basis or has timely filed a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company and each Subsidiary included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
 
(j) Material Changes. Since March 31, 2010, which is the date of the latest
unaudited financial statements of the Company, except as disclosed on Schedule
3.1(j), (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
none of the Existing Company Entities has:
 
(i) issued any stock, bonds or other securities or any rights, options or
warrants with respect thereto;
 
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such Subsidiary's business;
 
(iii) discharged or satisfied any lien or encumbrance or paid any obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business;
 
(iv) declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
 
(v) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business;
 
 
 
- 11 -

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

 
 
(vi) sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or intellectual property
rights, or disclosed any proprietary confidential information to any Person
except to customers in the ordinary course of business or to the Investors or
their respective representatives;
 
(vii) suffered any substantial losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;
 
(viii) made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;
 
(ix) made capital expenditures or commitments therefor that aggregate in excess
of $100,000;
 
(x) entered into any other transaction other than in the ordinary course of
business;
 
(xi) made charitable contributions or pledges in excess of $10,000;
 
(xii) suffered any material damage, destruction or casualty loss, whether or not
covered by insurance;
 
(xiii) experienced any material problems with labor or management in connection
with the terms and conditions of their employment;
 
(xiv) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries; or
 
(xv) entered into an agreement, written or otherwise, to take any of the
foregoing actions.
 
(k) No Undisclosed Liabilities.  There are no liabilities of the Existing
Company Entities of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than:
 
(i) liabilities provided for in the audited consolidated balance sheet of the
Company as of December 31, 2009 or disclosed in the notes thereto; and
 
(ii) other undisclosed liabilities which, individually or in the aggregate, have
not resulted in or could reasonably be expected to result in a Material Adverse
Effect.
 
 
 
- 12 -

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

 
 
(l) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Shares or (ii) except as disclosed on Schedule 3.1(l), could, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Existing Company
Entities, nor to the knowledge of the Existing Company Entities, any director or
officer thereof (in his or her capacity as such), is or has been the subject of
any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty, except as disclosed on
Schedule 3.1(m). There has not been, and to the knowledge of the Company, there
is not pending any investigation by the Commission involving any Existing
Company Entity or any current or former director or officer of an Existing
Company Entity (in his or her capacity as such).
 
(m) Labor Relations. None of the Existing Company Entities is a party to or
bound by any collective bargaining agreements or other agreements with labor
organizations.  None of the Existing Company Entities has violated in any
material respect any laws, regulations, orders or contract terms, affecting the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees' health, safety, welfare, wages and hours.  No material
labor dispute exists or, to the knowledge of the Company, is imminent with
respect to any of the employees of the Existing Company Entities which could
reasonably be expected to result in a Material Adverse Effect.
 
(n) Compliance. Except as disclosed on Schedule 3.1(n), none of the Existing
Company Entities (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by an Existing Company Entity under), nor has any
Existing Company Entity received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including 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, such as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.
 
(o) Regulatory Permits. Except as disclosed on Schedule 3.1(o), the Existing
Company Entities possess all certificates, authorizations and permits issued by
the appropriate federal, state, 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 Material Adverse Effect, and the Existing
Company Entities have not received any notice of proceedings relating to the
revocation or modification of any such permits.
 
(p) Title to Assets. The Existing Company Entities own, lease or otherwise have
valid land use rights to all real property that are material to their respective
businesses and good and marketable title in fee simple or the right under PRC
law, as the case may be, to all personal property owned by them that is material
to their respective businesses, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Existing Company Entities. Any real property and facilities held under
lease by the Existing Company Entities are held by them under valid, subsisting
and enforceable leases.
 
 
 
- 13 -

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

 
 
(q) Material Contracts. Schedule 3.1(q) contains a list and description of all
agreements, contracts or instruments, including all amendments thereto, to which
any of the Existing Company Entities is bound which meet the criteria set forth
in this Section 3.1(q) (such agreements, contracts or instruments, collectively,
the "Material Contracts").  The Company has made available to the Investors
copies of the Material Contracts.  None of the Existing Company Entities has
entered into any oral contracts which, if written, would qualify as a Material
Contract.  Each of the Material Contracts is valid and in full force and effect,
is enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or similar laws
affecting creditors' rights generally and general principles of equity, and will
continue to be so immediately following the Closing Date.  Except as set forth
in the SEC Reports or Schedule 3.1(q) none of the Existing Company Entities is
party or subject to, or bound by:
 
(i) any agreements, contracts or commitments that call for prospective fixed
and/or contingent payments or expenditures by or to any of Existing Company
Entities of more than $100,000, or which is otherwise material and not entered
into in the ordinary course of business;
 
(ii) any contract, lease or agreement involving payments in excess of $100,000,
which is not cancelable by any of Existing Company Entities, as applicable,
without penalty on not less than 60 days notice;
 
(iii) any contract, including any distribution agreements, containing covenants
directly or explicitly limiting the freedom of any of Existing Company Entities
to compete in any line of business or with any Person or to offer any of its
products or services;
 
(iv) any indenture, mortgage, promissory note, loan agreement, guaranty or other
agreement or commitment for the borrowing of money or pledging or granting a
security interest in any assets;
 
(v) any employment contracts, non-competition agreements, invention assignments,
severance or other agreements with officers, directors, employees, stockholders
or consultants of any of Existing Company Entities or Persons related to or
affiliated with such Persons;
 
(vi) any stock redemption or purchase agreements or other agreements affecting
or relating to the capital stock of any of Existing Company Entities, including
any agreement with any stockholder of any of Existing Company Entities which
includes antidilution rights, voting arrangements or operating covenants;
 
(vii) any pension, profit sharing, retirement, stock option or stock ownership
plans;
 
 
 
- 14 -

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

 
 
(viii) any royalty, dividend or similar arrangement based on the revenues or
profits of any of Existing Company Entities or based on the revenues or profits
derived from any material contract;
 
(ix) any acquisition, merger, asset purchase or other similar agreement;
 
(x) any sales agreement which entitles any customer to a right of set-off, or
right to a refund after acceptance thereof;
 
(xi) any agreement with any supplier or licensor containing any provision
permitting such supplier or licensor to change the price or other terms upon a
breach or failure by any of Existing Company Entities, as applicable, to meet
its obligations under such agreement; or
 
(xii) any agreement under which any of Existing Company Entities has granted any
Person registration rights for securities.
 
(r) Actions with Respect to Material Contracts.
 
(i) None of the Existing Company Entities has violated or breached, or committed
any default under, any Material Contract in any material respect, and, to the
Company's knowledge, no other Person has violated or breached, or committed any
default under any Material Contract, except for violations, breaches of defaults
which would not have or reasonably be expected to result in a Material Adverse
Effect; and
 
(ii) To the Company's knowledge, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or would
reasonably be expected to: (A) result in a material violation or breach of any
of the provisions of any Material Contract, (B) give any Person the right to
declare a default or exercise any remedy under any Material Contract, (C) give
any Person the right to accelerate the maturity or performance of any Material
Contract or (D) give any Person the right to cancel, terminate or modify any
Material Contract, except, in each case, as would not have or reasonably be
expected to result in a Material Adverse Effect.
 
(s) Taxes. The Existing Company Entities have timely and properly filed all tax
returns required to be filed by them for all years and periods (and portions
thereof) for which any such tax returns were due, except where the failure to so
file would not have or reasonably be expected to result in a Material Adverse
Effect.  All such filed tax returns are accurate in all material respects.  The
Company has timely paid all taxes due and payable (whether or not shown on filed
tax returns), except where the failure to so pay would not have or reasonably be
expected to result in a Material Adverse Effect.  There are no pending
assessments, asserted deficiencies or claims for additional taxes that have not
been paid.  The reserves for taxes, if any, reflected in the SEC Reports are
adequate, and there are no Liens for taxes on any property or assets of any of
the Existing Company Entities (other than Liens for taxes not yet due and
payable).  There have been no audits or examinations of any tax returns by any
Governmental Body, and none of the Existing Company Entities has received any
notice that such audit or examination is pending or contemplated.  No claim has
been made by any Governmental Body in a jurisdiction where any of the Existing
Company Entities does not file tax returns that it is or may be subject to
taxation by that jurisdiction.  To the knowledge of the Company, no state of
facts exists or has existed which would constitute grounds for the assessment of
any penalty or any further tax liability beyond that shown on the respective tax
returns.  There are no outstanding agreements or waivers extending the statutory
period of limitation for the assessment or collection of any tax.  None of the
Existing Company Entities is a party to any tax-sharing agreement or similar
arrangement with any other Person.
 
 
 
- 15 -

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

 
 
(i) The Company has made all necessary disclosures required by Treasury
Regulation Section 1.6011-4.  The Company has not been a participant in a
"reportable transaction" within the meaning of Treasury Regulation Section
1.6011-4(b).
 
(ii) No payment or benefit paid or provided, or to be paid or provided, to
current or former employees, directors or other service providers of the Company
will fail to be deductible for federal income tax purposes under Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code").
 
(t) Intellectual Property. The Existing Company Entities have, or have rights to
use, all U.S., PRC or other foreign patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights (collectively, the "Intellectual Property Rights") that are
necessary or material for use in connection with their respective businesses
which the failure to so have could, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.  No Existing
Company Entity has received a written notice that the Intellectual Property
Rights used by such Existing Company Entity violates or infringes upon the
rights of any Person.  Except as set forth on Schedule 3.1(t), to the knowledge
of the Existing Company Entities, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
 
(u) Environmental Matters.  Except as described in Schedule 3.1 (u), none of the
Existing Company Entities: (i) is in violation of any statute, rule, regulation,
decision or order of any Governmental Body relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "Environmental Laws"), (ii) owns, leases, has rights
in the PRC to or operates any real property contaminated with any substance that
is subject to any Environmental Laws, (iii) is liable for any off-site disposal
or contamination pursuant to any Environmental Laws, or (iv) is subject to any
claim relating to any Environmental Laws, and there is no pending or, to the
Company's knowledge, threatened investigation that might lead to such a claim.
 
(v) Insurance. The Existing Company Entities are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Existing
Company Entities are engaged.
 
(w) Certain Fees. Except as described in Schedule 3.1(w), no brokerage or
finder's fees or commissions are or will be payable by the Existing Company
Entities to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such
Investor which fees or commissions shall be the sole responsibility of such
Investor) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
 
 
 
- 16 -

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

 
 
(x) Investment Company.  The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
 
(y) Consultation with Auditors.  The Existing Company Entities have consulted
its independent auditors concerning the accounting treatment of the transactions
contemplated by the Transaction Documents, and in connection therewith have
furnished such auditors complete copies of the Transaction Documents.
 
(z) No Integrated Offering.  Other than in connection with this Offering,
neither the Company, nor any of its affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
securities or solicited any offers to buy any securities, under circumstances
that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act which would require
the registration of any such securities under the Securities Act or any
applicable shareholder approval provisions, including under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated.
 
(aa) Certain Registration Matters. Assuming the accuracy of the Investors'
representations and warranties set forth in Section 3.2(b)-(e), no registration
under the Securities Act is required for the offer and sale of the Shares and
Warrants by the Company to the Investors or the transfer of the 2009 Make Good
Shares or 2010 Make Good Shares by the Make Good Pledgor to the Investors under
the Transaction Documents. The Company is issuing Shares in accordance with and
in reliance upon the exemption from securities registration afforded, inter
alia, by Rule 506 under Regulation D or Rule 902 of Regulation S as promulgated
by the Commission under the Securities Act.  The Company is eligible to register
the Shares and Warrant Shares for resale by the Investors under the Securities
Act.
 
(bb) No Directed Selling Efforts or General Solicitation.  Neither the Company
nor any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Securities.
 
(cc) Solvency. The Company has not (a) made a general assignment for the benefit
of creditors; (b) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by its creditors; (c) suffered the
appointment of a receiver to take possession of all, or substantially all, of
its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally.
 
 
 
- 17 -

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

 
 
(dd) Transactions With Affiliates and Employees; Customers. Except as described
in Schedule 3.1(dd), none of the officers, directors or 5% or more shareholders
of any of the Existing Company Entities, and, to the knowledge of the Company,
none of the employees of any of the Existing Company Entities, is presently a
party to any transaction with any of the Existing Company Entities (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such Person or, to the knowledge of the
Company, any entity in which any officer, director, or such employee or 5% or
more shareholder has a substantial interest or is an officer, director, trustee
or partner. None of the Existing Company Entities owes any money or other
compensation to any of their respective officers or directors or shareholders,
except to the extent of ordinary course compensation arrangements. No material
customer of any of the Existing Company Entities has indicated their intention
to diminish their relationship with such Existing Company Entity and none of the
Existing Company Entities has any knowledge from which it could reasonably
conclude that any such customer relationship may be adversely affected.
 
(ee) No Additional Agreements. None of the Existing Company Entities has any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
 
(ff) Foreign Corrupt Practices Act. None of the Existing Company Entities nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Existing Company Entities, has, directly or indirectly, (i) used any funds, or
will use any proceeds from the sale of the Shares, for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company, or any such Existing Company Entity (or made
by any Person acting on their behalf of which the Company is aware) or, to the
knowledge of the Existing Company Entities, any members of their respective
management which is in violation of any Legal Requirement, or (iv) has violated
in any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended, and the rules and regulations thereunder which was applicable
to the Existing Company Entities.
 
(gg) OFAC. None of the Company or any of its Subsidiaries nor, to the knowledge
of the Company, any director, officer, agent, employee, Affiliate or Person
acting on behalf of the Company or any of its Subsidiaries, is currently subject
to any U.S. sanctions administered by the Office of Foreign Assets Control of
the U.S. Treasury Department ("OFAC"); and the Company will not directly or
indirectly use the proceeds of the sale of the Securities, or lend, contribute
or otherwise make available such proceeds to any of the Company's Subsidiaries,
joint venture partner or other Person or entity, towards any sales or operations
in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or
for the purpose of financing the activities of any Person currently subject to
any U.S. sanctions administered by OFAC.
 
 
 
- 18 -

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

 
 
(hh) Money Laundering Laws. The operations of each of the Company or any 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 all applicable Governmental Bodies of the PRC and any related or
similar rules, regulations or guidelines, issued, administered or enforced by
any Governmental Body (collectively, the "Money Laundering Laws") and no action,
suit or proceeding by or before any PRC court or PRC Governmental Body or any
arbitrator involving the Company and/or any Subsidiary with respect to the Money
Laundering Laws is pending or, to the best knowledge of the Company, threatened.
 
(ii) Disclosure.  Neither the Company nor any Person acting on its behalf has
provided any of the Investors or their agents or counsel with any information
that constitutes or might constitute material, non-public information, other
than the terms of the transactions contemplated hereby. The Company understands
and confirms that the Investors will rely on the foregoing representation in
effecting transactions in securities of the Company. All disclosure provided to
the Investors regarding the Company, the Subsidiaries or their respective
businesses and the transactions contemplated hereby, furnished by or on behalf
of the Company (including the Company's representations and warranties set forth
in this Agreement and the disclosure set forth in any diligence report, or
business plan or the Draft Form 8-K provided by the Company or any Person acting
on the Company's behalf) are true and correct in all material aspects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
 
(jj) Books and Records; Internal Accounting and Disclosure Controls.  The books
and records of the Existing Company Entities accurately reflect in all material
aspects the information relating to the business of the Existing Company
Entities. Each of the Existing Company Entities maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at quarterly
intervals and appropriate action is taken with respect to any material
differences.  The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15 under the Exchange Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the Commission, including controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company's management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. Except as disclosed on Schedule
3.1(j)(j), since December 31, 2007, neither the Company nor its independent
registered public accounting firm has indentified any material weakness or
significant deficiencies in the Company's internal control over financial
reporting that have not been remediated.
 
 
 
- 19 -

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

 
 
(kk) Off Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in the SEC
Reports and is not so disclosed.
 
(ll) Sarbanes-Oxley Act of 2002.  The Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") that are
applicable to it as of the date hereof and as of the Closing Date.  Each
required form, report and document containing financial statements that has been
filed with or submitted to the Commission was accompanied by the certifications
required to be filed or submitted by the Company's chief executive officer and
chief financial officer pursuant to the Sarbanes-Oxley Act, and at the time of
filing or submission of each such certification, such certification was true and
accurate and materially complied with the Sarbanes-Oxley Act and the rules and
regulations promulgated thereunder.  Neither the Company nor, to the Company's
knowledge, any representative of the Company has received or otherwise had or
obtained knowledge of any complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting or auditing practices, procedures,
methodologies or methods of the Company or their respective internal accounting
controls, including any complaint, allegation, assertion or claim that the
Company has engaged in questionable accounting or auditing practices, except for
(a) any complaint, allegation, assertion or claim as has been resolved without
any resulting change to the Company's accounting or auditing practices,
procedures methodologies or methods of the Company or its internal accounting
controls, (b) questions regarding such matters raised and resolved in the
ordinary course in connection with the preparation and review of the Company's
financial statements and periodic reports and (c) comments that have been raised
by the staff of the Commission.  To the Company's knowledge, no attorney
representing the Company, whether or not employed by the Company, has reported
evidence of a material violation of securities laws, breach of fiduciary duty or
similar violation by the Company or any of its officers, directors, employees or
agents to the Board of Directors or any committee thereof or to any director or
officer of the Company.  To the Company's knowledge, no employee of the Company
has provided or is providing information to any law enforcement agency regarding
the commission or possible commission of any crime or the violation or possible
violation of any applicable law.
 
(mm) Other Representations and Warranties Relating to the PRC Subsidiaries
 
(i) The constitutional documents of the Subsidiaries of the Company that have
been established under the laws of the PRC (the "PRC Subsidiaries") are valid
and have been duly approved by and registered with the relevant PRC Governmental
Bodies.
 
(ii) Except as set forth on Schedule 3.1(mm), all consents, approvals,
authorizations or licenses requisite under PRC Legal Requirements for the due
and proper establishment and operation of each PRC Subsidiary have been duly
obtained from the relevant PRC Governmental Bodies and are in full force and
effect.
 
 
 
- 20 -

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

 
 
(iii) All filings and registrations with the PRC Governmental Bodies required in
respect of each PRC Subsidiary, its capital structure and operations and the
execution, delivery and performance of the Transaction Documents, including, the
registration with the PRC Ministry of Commerce or its local counterpart, the
China Securities Regulatory Commission, the State Administration of Industry and
or their respective local divisions of Commerce, the State Administration of
Foreign Exchange, applicable PRC tax bureau and customs authorities have been
duly completed in accordance with the relevant PRC Legal Requirements, except
where, the failure to complete such filings and registrations does not, and
would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
 
(iv) Each PRC Subsidiary has complied with all relevant Legal Requirements of
the PRC regarding the contribution and payment of its registered share capital,
the payment schedule of which has been approved by the relevant PRC Governmental
Bodies.  There are no outstanding commitments made by the Company or any
Subsidiary (or any of their shareholders) to sell any equity interest in each
PRC Subsidiary. All of the registered capital of each PRC Subsidiary has been
timely contributed, such contribution has been duly verified by a certified
accountant registered in the PRC and the accounting firm employing such
accountant, and the report of the certified accountant evidencing such
verification has been registered with the relevant Governmental Body.  Except as
contemplated by this Agreement, there are no resolutions pending to increase the
registered capital of any PRC Subsidiary.  There are no outstanding rights of,
or commitments made by, the Company or any Subsidiary to sell any equity
interest in any PRC Subsidiary, or by any of the other shareholders of any PRC
Subsidiary to sell any equity interest in such PRC Subsidiary.  To the extent
that any direct or indirect shareholder of the Company (including the Founder)
or any of its Subsidiaries is subject to the jurisdiction of Circular 75 issued
by the PRC State Administration of Foreign Exchange on October 21, 2005,
including any amendment, implementing rules, or official interpretation thereof
or any replacement, successor or alternative legislation having the same subject
matter thereof (collectively "Circular 75"), each such shareholder has complied
in all respects with Circular 75 and any related requirement of law, including
the completion of any applicable foreign exchange registration, settlement or
remittance requirement therein.
 
(v) Each PRC Subsidiary has not received any letter or notice from any relevant
PRC Governmental Body notifying it of revocation of any licenses or
qualifications issued to it or any subsidy granted to it by any PRC Governmental
Body for non-compliance with the terms thereof or with applicable PRC Legal
Requirements, or the lack of compliance or remedial actions in respect of the
activities carried out by each PRC Subsidiary, except such revocation as does
not, and would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
 
(vi) Each PRC Subsidiary has conducted its business activities within the
permitted scope of business or has otherwise operated its business in compliance
with all relevant Legal Requirements and with all requisite licenses and
approvals granted by competent PRC Governmental Bodies other than such
non-compliance that do not, and would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
 
 
 
- 21 -

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

 
 
(vii) Except as set forth on Schedule 3.1(nn), as to licenses, approvals and
government grants and concessions requisite or material for the conduct of any
part of each PRC Subsidiary's respective business which is subject to periodic
renewal, the Company has no knowledge of any reasons related to such PRC
Subsidiary for which such requisite renewals will not be granted by the relevant
PRC Governmental Bodies.
 
(viii) Except as described in Schedule 3.1 (nn), with regard to employment and
staff or labor, each PRC Subsidiary has complied with all applicable PRC Legal
Requirements in all material respects, including those pertaining to welfare
funds, social benefits, medical benefits, insurance, retirement benefits,
pensions or the like, other than such non-compliance that do not, and would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.
 
3.2 Representations and Warranties of the Investors. Each Investor hereby, for
itself and for no other Investor, represents and warrants to the Company as
follows:
 
(a) Organization; Authority. If such Investor is a business entity, such
Investor is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite
corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and otherwise
to carry out its obligations thereunder. The execution, delivery and performance
by such Investor of the transactions contemplated by this Agreement has been
duly authorized by all necessary corporate or, if such Investor is not a
corporation, such partnership, limited liability company or other applicable
like action, on the part of such Investor. Each Transaction Document to which it
is a party has been duly executed by such Investor, and when delivered by such
Investor in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
 
(b) Investment Intent. Such Investor is acquiring the Securities as principal
for its own account for investment purposes only and not with a view towards, or
resale in connection with, a public sale or distribution of such Securities or
any part thereof, without prejudice, however, to such Investor's right at all
times to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws. Subject to the
immediately preceding sentence, nothing contained herein shall be deemed a
representation or warranty by such Investor to hold the Securities for any
period of time. Such Investor is acquiring the Securities hereunder in the
ordinary course of its business. Such Investor does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
 
 
 
- 22 -

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

 
 
(c) Investor Status. Such Investor is not a registered broker dealer under
Section 15 of the Exchange Act.  Such Investor has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Securities.  Such Investor acknowledges that an investment
in the Securities is speculative and involves a high degree of risk.  If such
Investor is a U.S. Investor, at the time such Investor was offered the
Securities, it was an "accredited investor" as defined in Rule 501(a) under the
Securities Act, and such Investor has completed and executed the Investor
Certificate attached as Appendix A to this Agreement.
 
(d) General Solicitation. Such Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio.
 
(e) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
 
(f) Certain Trading Activities. Such Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including any Short Sales involving the Company's securities) since the time
that such Investor was first contacted by the Company, any Placement Agent, or
any other Person acting on behalf of the Company regarding the investment in the
Company contemplated by this Agreement. Such Investor covenants that neither it
nor any Person acting on its behalf or pursuant to any understanding with it
will engage in any transactions in the securities of the Company (including
Short Sales) prior to the time that the transactions contemplated by this
Agreement are publicly disclosed.
 
(g) Independent Investment Decision. Such Investor has independently evaluated
the merits of its decision to purchase Securities pursuant to the Transaction
Documents, and such Investor confirms that it has not relied on the advice of
any other Investor's business and/or legal counsel in making such decision. Such
Investor has not relied on the business or legal advice of the Placement Agents
or any of their respective agents, counsel, or Affiliates in making its
investment decision hereunder, and confirms that none of such Persons has made
any representations or warranties to such Investor in connection with the
transactions contemplated by the Transaction Documents.
 
 
 
- 23 -

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

 
 
(h) Rule 144. Such Investor understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or
an exemption from registration is available. Such Investor acknowledges that it
is familiar with Rule 144 and that such Investor has been advised that Rule 144
permits resales only under certain circumstances. Such Investor understands that
to the extent that Rule 144 is not available, such Investor will be unable to
sell any Securities without either registration under the Securities Act or the
existence of another exemption from such registration requirement.
 
(i) General. Such Investor understands that the Securities are being offered and
sold in reliance on a transactional exemption from the registration requirements
of federal and state securities laws and the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Investor set forth herein in order to determine the
applicability of such exemptions and the suitability of such Investor to acquire
the Securities. Such Investor understands that no United States federal or state
agency or any Governmental Body has passed upon or made any recommendation or
endorsement of the Securities.
 
(j) Regulation S. If such Investor is not a U.S. Person (as such term is defined
in Rule 902(k) of Regulation S), such Investor (i) acknowledges that the
certificate(s) representing or evidencing the Securities contain a customary
restrictive legend restricting the offer, sale or transfer of any Securities
except in accordance with the provisions of Regulation S, pursuant to
registration under the Securities Act, or pursuant to an available exemption
from registration, (ii) agrees that all offers and sales by such Investor of
Securities shall be made pursuant to an effective registration statement under
the Securities Act or pursuant to an exemption from, or a transaction not
subject to the registration requirements of, the Securities Act, (iii)
represents that the offer to purchase the Securities was made to such Investor
outside of the United States, and such Investor was, at the time of the offer
and will be, at the time of the sale and is now, outside the United States, (iv)
has not engaged in or directed any unsolicited offers to purchase Securities in
the United States, (v) is neither a U.S. Person nor a Distributor (as such terms
are defined in Rules 902(k) and 902(d), respectively, of Regulation S), (vi) has
purchased the Securities for its own account and not for the account or benefit
of any U.S. Person, (vii) is the sole beneficial owner of the Shares specified
on Schedule 3.2(j) opposite his name and has not pre-arranged any sale with a
purchaser in the United States, and (ix) is familiar with and understands the
terms and conditions and requirements contained in Regulation S, specifically,
without limitation, each Investor understands that the statutory basis for the
exemption claimed for the sale of the Securities would not be present if the
sale, although in technical compliance with Regulation S, is part of a plan or
scheme to evade the registration provisions of the Securities Act.
 
The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
 
 
 
- 24 -

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

 
 
SECTION 4 OTHER AGREEMENTS OF THE PARTIES
 
4.1 Compliance with Securities Laws.
 
(a) Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of the Securities, other than
pursuant to an effective registration statement, pursuant to Rule 144, or to the
Company, to an Affiliate of an Investor or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor, the
substance of which opinion shall be reasonably acceptable to the Company, to the
effect that such transfer does not require registration of such transferred
Securities under the Securities Act. Notwithstanding the foregoing, the Company
hereby consents to and agrees to register on the books of the Company and with
its transfer agent, without any such legal opinion, any transfer of Securities
by an Investor to an Affiliate of such Investor, provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and provided that such Affiliate does not
request any removal of any existing legends on any certificate evidencing the
Securities.
 
(b) Certificates evidencing the Securities will contain, in addition to the
legend described in Section 3.2(j) as the case may be, the following legend,
until such time as they are not required under Section 4.1(c):
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
 
The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in some or all of the Securities
pursuant to a bona fide margin agreement in connection with a bona fide margin
account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of selling
stockholders thereunder. Except as otherwise provided in Section 4.1(c), any
Securities subject to a pledge or security interest as contemplated by this
Section 4.1(b) shall continue to bear the legend set forth in this Section
4.1(b) and be subject to the restrictions on transfer set forth in Section
4.1(a).
 
 
 
- 25 -

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

 
 
(c) Certificates evidencing Securities shall not contain any legend (including
the legend set forth in Section 4.1(b)): (i) while a registration statement
(including the Registration Statement) covering such Securities is then
effective; provided, however, that the Company reserves the right to issue stop
transfer instructions to the transfer agent (with a copy to the Investors), or
(ii) following a sale or transfer of such Securities pursuant to Rule 144
(assuming the transferee is not an Affiliate of the Company).  The Company
agrees that following the effective date of such registration statement
(including the Effective Date (as defined in the Registration Rights Agreement))
or such other time as legends are no longer required to be set forth on
certificates representing Securities under this Section 4.1(c), it will, no
longer than three Trading Days following the delivery by an Investor to the
Company or the Transfer Agent of a certificate representing such Securities
containing a restrictive legend, deliver or instruct the Transfer Agent to
deliver to such Investor, Securities which are free of all restrictive and other
legends.  If the Company is then eligible, certificates for Securities subject
to legend removal hereunder shall be transmitted by the Transfer Agent to an
Investor by crediting the prime brokerage account of such Investor with the
Depository Trust Company System as directed by such Investor.  If an Investor
shall make a sale or transfer of Securities either (x) pursuant to Rule 144 or
(y) pursuant to a registration statement and in each case shall have delivered
to the Company or the Company's transfer agent the certificate representing the
applicable Securities containing a restrictive legend which are the subject of
such sale or transfer and a representation letter in customary form (the date of
such sale or transfer and Securities delivery being the "Securities Delivery
Date") and (1) the Company shall fail to deliver or cause to be delivered to
such Investor a certificate representing such Securities that is free from all
restrictive or other legends by the third Trading Day following the Securities
Delivery Date and (2) following such third Trading Day after the Securities
Delivery Date and prior to the time such Securities are received free from
restrictive legends, the Investor, or any third party on behalf of such
Investor, purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Investor of such
Securities (a "Buy-In"), then, in addition to any other rights available to the
Investor under the Transaction Documents and applicable law, the Company shall
pay in cash to the Investor (for costs incurred either directly by such Investor
or on behalf of a third party) the amount by which the total purchase price paid
for Common Stock as a result of the Buy-In (including brokerage commissions, if
any) exceed the proceeds received by such Investor as a result of the sale to
which such Buy-In relates.  The Investor shall provide the Company written
notice indicating the amounts payable to the Investor in respect of the
Buy-In.  The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section.
 
 
 
- 26 -

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

 
 
4.2 Furnishing of Information.  As long as any Investor or any transferee owns
any Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act.  As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Securities under Rule
144.  The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell the Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
 
4.3 Integration. The Company shall not, and shall use its best efforts to ensure
that no Affiliate of the Company shall, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Investors, or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the securities to the Investors.
 
4.4 Subsequent Registrations. Other than pursuant to the Registration Rights
Agreement and as set forth on Schedule 4.4, prior to the first to occur of (a)
the Effective Date of a Registration Statement resulting in all Registrable
Securities (as defined in the Registration Rights Agreement) being registered
for resale pursuant to one or more effective Registration Statements or (b) such
time as all Registrable Securities may be sold by the Investors without volume
restrictions pursuant to Rule 144, the Company may not file any registration
statement (other than on Form S-8) with the Commission with respect to any
securities of the Company.
 
4.5 Securities Laws Disclosure; Publicity. By (i) 9:30 a.m. (New York time) on
the Trading Day following the Closing Date, the Company shall issue a press
release, disclosing the transactions contemplated by the Transaction Documents
(including details with respect to the make good provision and thresholds (i.e.
Earnings Per Share on a Fully-Diluted Basis) contained in Section 4.7 herein)
and the Closing and by (ii) 5:30 p.m. (New York time) on the Trading Day
following the Closing Date, the Company will file a Current Report on Form 8-K,
disclosing the material terms of the Transaction Documents, including details
with respect to the make good provision and thresholds (i.e. After Tax Net
Income) contained in Section 4.7 herein (and attach as exhibits thereto all
existing Transaction Documents) and the Closing. The Company covenants that
following such disclosure, the Investors shall no longer be in possession of any
material, non-public information with respect to any of the Existing Company
Entities. In addition, the Company will make such other filings and notices in
the manner and time required by the Commission or the Trading Market on which
the Common Stock is listed. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor, or include the name of any Investor
in any filing with the Commission (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or Trading Market regulations.
 
 
 
- 27 -

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

 
 
4.6 Use of Proceeds. The Company will use the net proceeds from the sale of the
Securities hereunder for the rent of bamboo forest and vegetable planting base,
the expansion of cold storage facilities, the development of agricultural market
outlets, the expansion of production capacity and for general working capital
purposes.  The Company will not use the net proceeds from the sale of the
Securities for dividends or distributions on its outstanding capital stock,
redemptions or repurchases of any of its outstanding capital for the purchase of
assets unrelated to its existing core business. The net proceeds from the sale
of the Securities hereunder will be contributed to the PRC Subsidiaries through
an increase in of registered capital
 
4.7 Make Good Shares.
 
(a) The Make Good Pledgor agrees that in the event that the "Earnings Per Share
on a Fully-Diluted Basis" of the Company for fiscal year 2010 as calculated in
accordance with Section 4.7(d) hereof is less than the "2010 Guaranteed EPS", a
number of 2010 Make Good Shares (as defined and calculated below) shall be
transferred in accordance with the Make Good Escrow Agreement to the Investors
on a pro rata basis (determined by dividing each Investor's Investment Amount by
the aggregate of all Investment Amounts delivered to the Company by the
Investors hereunder) ("Pro Rata Basis") for no consideration other than payment
of their respective Investment Amount paid to the Company at Closing and without
the need of any Investor to take any action with respect thereto.  For purposes
of this Agreement the 2010 Guaranteed EPS shall be the number determined by
$18,176,145 divided by the total number of shares of the Common Stock
outstanding immediately following the Closing The number of 2010 Make Good
Shares transferrable to the Investors shall be equal to (the result of such
calculation, the "Actual 2010 Make Good Shares"):
 
[(2010 Guaranteed EPS – Earnings Per Share on a Fully-Diluted Basis for fiscal
year 2010)/Earning Per Share on a Fully-Diluted Basis for fiscal year 2010] *
aggregate number of 2010 Make Good Shares
 
The aggregate number of "2010 Make Good Shares" means a number of shares of
Common Stock equal to the PIPE Common Shares. The Make Good Pledgor shall
deposit into escrow such additional number of share of Common Stock equal to the
Actual 2010 Make Good Shares (the "Replenishment Shares") so that the aggregate
number of shares of Common Stock remain in escrow shall be equal to the number
of 2010 Make Good Shares (such aggregate number of shares of Common Stock in
escrow, the "2011 Make Good Shares").
 
(b) The Make Good Pledgor agrees that in the event that the "Earnings Per Share
on a Fully-Diluted Basis" of the Company for fiscal year 2011 as calculated in
accordance with Section 4.7(d) hereof is less than the "2011 Guaranteed EPS", a
number of 2011 Make Good Shares (as defined and calculated below) shall be
transferred in accordance with the Make Good Escrow Agreement to the Investors
on a Pro Rata Basis for no consideration other than payment of their respective
Investment Amount paid to the Company at Closing and without the need of any
Investor to take any action with respect thereto.  For purposes of this
Agreement 201l Guaranteed EPS shall be the number determined by $27,264,218
divided by the total number of shares of Common Stock outstanding immediately
following the Closing.  The number of 2011 Make Good Shares transferrable to the
Investors shall be equal to (the result of such calculation, the "Actual 2011
Make Good Shares" and together with the Actual 2010 Make Good Shares,
collectively, the "Actual Make Good Shares"):
 
 
 
- 28 -

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

 
 
[(2011 Guaranteed EPS –Earnings Per Share on a Fully-Diluted Basis for fiscal
year 2011)/Earnings Per Share on a Fully-Diluted Basis for fiscal year 2011] *
aggregate number of 2011 Make Good Shares – the Actual 2010 Make Good Shares
 
(c) In the event that the "Earnings Per Share on a Fully-Diluted Basis" for
fiscal year 2010 is equal to or greater than the 2010 Guaranteed EPS, no
transfer of the 2010 Make Good Shares shall be required by the Make Good Pledgor
to the Investors and such 2010 Make Good Shares shall remain in escrow in
accordance with the Make Good Escrow Agreement and shall be subject to Section
4.7(b) hereof.  In the event that the "Earnings Per Share on a
Fully-Diluted-Basis" for fiscal year 2011 is equal to or greater than the 2011
Guaranteed EPS, no transfer of the 2011 Make Good Shares shall be required by
the Make Good Pledgor to the Investors and such 2011 Make Good Shares shall be
returned to the Make Good Pledgor no later than the 2011 Delivery Date (as
defined below). Any transfer of the 2010 Make Good Shares or the 2011 Make Good
Shares to the Investors in accordance with this Agreement and the Make Good
Escrow Agreement shall be made to the Investors within 10 Business Days after
the date on which the 2010 Annual Report or 2011 Annual Report, as applicable,
is required to be filed with the Commission under the Exchange Act (the date on
which each such transfer is required to be made with respect to the applicable
Annual Report, the "2010 Delivery Date" or the "2011 Delivery Date", as
applicable), without any further action on the part of the Investors.
 
(d) "Earnings Per Share on a Fully-Diluted Basis," for a given fiscal year as
used in this Section 4.7 hereof, shall be calculated on a weighted average basis
in accordance with the GAAP calculation of diluted earnings per share of Common
Stock (using net income, as opposed to total comprehensive income, as the
numerator in such calculation), except  that (i) 11,685,617 shares of Common
Stock issued in the Exchange and the total PIPE Common Shares shall be deemed to
have been issued on January 1, 2010, (ii) the Warrant Shares issuable to the
Investors hereunder shall be excluded in such calculation (iii) the shares of
Common Stock; up to an aggregate amount equal to 7% of the number PIPE Common
Shares, which are issuable upon exercise of the warrants issued to the Placement
Agents pursuant to the Letter Agreement dated January 28, 2010 by and between
WFOE and [intentionally omitted], as amended by the Amendment and Joinder
Agreement dated June 10, 2010 by and among WFOE, [intentionally omitted], and
issuable to [intentionally omitted] for their financial advisory services to the
Company, shall be excluded in such calculation, and (iv) expenses incurred by
the Company as a result of the release of any of the 2011 Make Good Shares to
the Make Good Pledgor pursuant to Section 4.7 hereof shall not be deemed to be
an expense, charge, or any other deduction from revenues even though GAAP may
require contrary treatment or the Annual Report for the respective fiscal years
filed with the Commission by the Company may report otherwise.  Notwithstanding
anything to the contrary set forth in Section 4.7(a) and (b), in the event that
the Company reports a net loss in the 2010 Annual Report, the Actual 2010 Make
Good Shares shall be equal to the 2010 Make Good Shares and in the event that
the Company reports a net loss in the 2011 Annual Report, the Actual 2011 Make
Good Shares shall be equal to the 2011 Make Good Shares.
 
 
 
- 29 -

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

 
 
(e) In connection with the foregoing, the Make Good Pledgor agrees that (i)
within five Trading Days following the Closing, the Make Good Pledgor will
deposit all 2010 Make Good Shares into escrow, and (ii) within five Trading Days
following the 2010 Delivery Date, the Make Good Pledgor will deposit the
Replenishment Shares into escrow, each in accordance with the Make Good Escrow
Agreement along with stock powers executed in blank (or such other signed
instrument of transfer acceptable to the Company's transfer agent), and the
handling and disposition of the 2010 Make Good Shares and 2011 Make Good Shares
shall be governed by this Section 4.7 and the Make Good Escrow Agreement. The
Company shall notify the Investors as soon as the 2010 Make Good Shares and the
Replenishment Shares have been deposited with the Make Good Escrow Agent. The
Make Good Pledgor understands and agrees that the Investors' right to receive
the Actual 2010 Make Good Shares and the Actual 2011 Make Good Shares pursuant
to this Section 4.7 and the Make Good Escrow Agreement shall continue to run to
the benefit of each Investor even if such Investor shall have transferred or
sold all or any portion of its Shares, and that each Investor shall have the
right to assign its rights to receive all or any such shares of Common Stock to
other Persons in conjunction with negotiated sales or transfers of any of its
Shares. For as long as the Make Good Pledgor is obligated under terms of this
Section 4.7 and the Make Good Escrow Agreement: (i) the Make Good Pledgor will
reserve from his shares of Common Stock a sufficient number of shares to meet
his obligations to provide the Replenishment Shares or any shares required by
Section 4.7(i) below, and (ii) the Make Good Pledgor agrees that any transfer,
sale or disposition of such shares shall be invalid unless the transferee
agrees, in writing, to be bound by the provisions of this Section 4.7 and the
provisions of the Make Good Escrow Agreement. The Make Good Pledgor represents
and warrants that it has carefully considered and understands its obligations
and rights under this Section 4.7 and the Make Good Escrow Agreement, and in
furtherance thereof (x) has consulted with its legal and other advisors with
respect thereto and (y) hereby forever waives and agrees that it may not assert
any equitable defenses in any Proceeding involving either of the 2010 Make Good
Shares and/or 2011 Make Good Shares.
 
(f) The Company covenants and agrees that upon any transfer of 2010 Make Good
Shares or 2011 Make Good Shares to the Investors in accordance with this
Agreement and the Make Good Escrow Agreement, the Company shall promptly
instruct its Transfer Agent to reissue such 2010 Make Good Shares or 2011 Make
Good Shares in the applicable Investor's name and deliver the same as directed
by such Investor.
 
(g) The Company agrees that any Actual 2010 Make Good Shares and Actual 2011
Make Good Shares to be issued to the Investors will be properly treated for
United States tax purposes as constituting a non-taxable purchase price
adjustment within the meaning of U.S. Treasury Regulation Section 1.305-1(c)
and, accordingly, the Company shall effect all applicable tax reporting and all
withholding tax determinations on a basis consistent with such non-taxable
purchase price adjustment treatment.
 
(h) If the Company shall at any time after the date hereof (A) declare and pay a
dividend or make a distribution on Common Stock, or (B) subdivide or split the
outstanding shares of Common Stock into a greater number of shares, or (C)
combine or reclassify the outstanding shares of Common Stock into a smaller
number of shares, or (D) make any other similar changes to its share capital,
the Investors shall be entitled to receive (i) the proportionately adjusted
number of the Actual 2010 Make Good Shares or the Actual 2011 Make Good Shares,
as applicable, and (ii) all dividends and other distributions made on the Actual
2010 Make Good Shares or the Actual 2011 Make Good Shares, as applicable, that
the Investors would have received had the Investors received such Actual Make
Good Shares at the Closing.
 
 
 
- 30 -

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

 
 
(i) If, prior to June 30, 2014, the Company or the auditors of the Company's
2010 Annual Report or the 2011 Annual Report, as applicable report or recognize
that the financial statements contained in such report are subject to amendment
or restatement which would result in the Company's adjusted "Earnings Per Share
on a Fully-Diluted Basis" for 2010 and/or 2011 being less than the 2010
Guaranteed EPS or the 2011 Guaranteed EPS (as applicable), then notwithstanding
any prior return of any Make Good Shares to the Make Good Pledgor, the Make Good
Pledgor will, without any further action on the part of the Investors, within 10
Business Days following the earlier of the filing of such amendment or
restatement or recognition, deliver the number of the Make Good Shares to the
Investors so that the total number of Actual Make Good Shares delivered to the
Investors pursuant to this Section 4.7 shall be equal to the sum of the Actual
2010 Make Good Shares and the Actual 2011 Make Good Shares each as calculated in
accordance with Section 4.7(a) or (b) (as applicable) using the adjusted
"Earnings Per Share on a Fully-Diluted Basis" for the applicable year.
 
(j) If any term or provision of this Section 4.7 contradicts or conflicts with
any term or provision of the Make Good Escrow Agreement, the terms of the Make
Good Escrow Agreement shall control. The Company agrees that it will not change
its fiscal year end for so long as the Make Good Escrow Agreement is in effect.
 
4.8 Right of First Refusal.
 
(a) From the date hereof until the two (2) year anniversary of the Closing Date
(the "Trigger Date"), the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition of) any of its or its
Subsidiaries' equity or equity equivalent securities, including any debt,
preferred stock or other instrument or security that is, at any time during its
life and under any circumstances, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement") unless the Company shall have first complied with this
Section 4.8.
 
(b) The Company shall deliver to each Investor hereunder a written notice (the
"Offer Notice") of any proposed or intended issuance or sale or exchange (the
"Offer") of the securities being offered (the "Offered Securities") in a
Subsequent Placement, which Offer Notice shall (v) identify and describe the
Offered Securities, (w) include the final form of documents and agreements
governing the Subsequent Placement, (x)specify the price and other terms upon
which the Offered Securities are to be issued, sold or exchanged, and the number
or amount of the Offered Securities to be issued, sold or exchanged, (y)
identify the persons or entities (if known) to which or with which the Offered
Securities are to be offered, issued, sold or exchanged and (z) offer to issue
and sell to or exchange with such Investors (i) all of the Offered Securities,
allocated pro-rata among such Investors in accordance with their Investment
Amount relative to the aggregate Investment Amount of all Investors (the "Basic
Amount"), and (ii) with respect to each Investor that elects to purchase its
Basic Amount, any additional portion of the Offered Securities attributable to
the Basic Amounts of other Investors as such Investor shall indicate it will
purchase or acquire should the other Investors subscribe for less than their
Basic Amounts (the "Undersubscription Amount"), which process shall be repeated
until the Investors shall have an opportunity to subscribe for any remaining
Undersubscription Amount.
 
 
 
- 31 -

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

 
 
(c) To accept an Offer, in whole or in part, such Investor must deliver a
written notice to the Company prior to the end of the tenth day after such
Investor's receipt of the Offer Notice (the "Offer Period"), setting forth the
portion of such Investor's Basic Amount that such Investor elects to purchase
and, if such Investor shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Investor elects to purchase (in
either case, the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all Investors are less than the total of all of the Basic Amounts, then each
Investor who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Investor who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount of
such Investor bears to the total Basic Amounts of all Investors that have
subscribed for Undersubscription Amounts, subject to rounding by the Company to
the extent its deems reasonably necessary.
 
(d) The Company shall have twenty Business Days from the expiration of the Offer
Period above to (i) offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Investors (the "Refused Securities"), but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including unit prices and interest rates) that are not more favorable to the
acquiring Person or Persons or less favorable to the Company than those set
forth in the Offer Notice and (ii) to publicly announce (a) the execution of
such Subsequent Placement Agreement (as defined below), and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the Commission on a Current Report on Form 8-K with such
Subsequent Placement Agreement and any documents contemplated therein filed as
exhibits thereto.  If no disclosure has been made by the Company by the end of
the twenty Business Day period referred to in this subsection (d), the
Subsequent Placement shall be deemed to have been abandoned and the Investors
shall no longer be deemed to be in possession of any non-public information with
respect to the Company.
 
(e) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in this
Section 4.8), then each Investor may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Investor elected to purchase pursuant
to Section 4.8(c) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Investors pursuant to Section 4.8(c) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that any Investor so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Investors in accordance with Section 4.8(b) above.
 
 
 
- 32 -

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

 
 
(f) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Investors shall acquire from the Company, and the
Company shall issue to the Investors, the number or amount of Offered Securities
specified in the Notices of Acceptance, as reduced pursuant to Section 4.8(e)
above if the Investors have so elected, upon the terms and conditions specified
in the Offer. The purchase by the Investors of any Offered Securities is subject
in all cases to the preparation, execution and delivery by the Company and the
Investors of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Investors and their respective counsel
(such agreement, the "Subsequent Placement Agreement").
 
(g) Any Offered Securities not acquired by the Investors or other persons in
accordance with Section 4.8(f) above may not be issued, sold or exchanged until
they are again offered to the Investors under the procedures specified in this
Agreement.
 
(h) In exchange for the Company's willingness to agree to these procedures, each
Investor hereby irrevocably agrees that it will hold in strict confidence any
and all Offer Notices, the information contained therein, and the fact that the
Company is contemplating a Subsequent Placement, until such time as the Company
is obligated to make the disclosures required by Section 4.8(d), or unless it
notifies the Company in writing that it no longer desires to receive Offer
Notices.
 
(i) The rights contained in this Section shall not apply to the issuance and
sale by the Company of :
 
(i) shares of Common Stock or Common Stock Equivalents to employees, officers,
or directors of the Company, as compensation for their services to the Company
or any of its direct or indirect Subsidiaries pursuant to arrangements approved
by the Board of Directors of the Company (including, but not limited to, any
stock or option plan duly adopted by the Board of Directors of the Company),
 
(ii) shares of Common Stock or Common Stock Equivalents issued as consideration
for the acquisitions of or strategic transactions with another company or
business where the primary purpose is not to raise capital for the Company or
any Subsidiary, which acquisition or strategic transaction has been approved by
the Board of Directors of the Company,
 
 
 
- 33 -

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

 
 
(iii) up to an aggregate of $500,000 worth of shares of Common Stock or Common
Stock Equivalents issued to non-Affiliates in connection with services rendered
to the Company pursuant to arrangements approved by the Board of Directors of
the Company,
 
(iv) securities upon the exercise or exchange of or conversion of any Common
Stock Equivalents issued hereunder or to any placement agents in connection with
the transactions contemplated hereby and/or Common Stock Equivalents issued and
outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of any such
securities, or
 
(v) shares of Common Stock or Common Stock Equivalents issued as part of a
primary underwritten public offering (which shall not include a shelf takedown)
with proceeds to the Company equal to or greater than $20,000,000.
 
4.9 Board Nomination and Board Observation Rights.
 
(a) Board Nomination Right. The CID Group, Ltd. ("CID"), its Affiliates or
designee shall have the right (but not the obligation) to nominate one (1)
member of the Board of Directors of the Company (the "CID Nominee") for so long
as CID and its Affiliates collectively hold at least 50% of the aggregate PIPE
Common Shares and Warrant Shares purchased by CID at the Closing; provided, that
such nominee must qualify as an "independent" director as defined under NASDAQ
Listing Rule 5605(a)(2).  The Company agrees to take all necessary corporate and
other actions, including increasing the size of the Board of Directors, if
necessary, and/or to request a voting of the shareholders, to permit the CID
Nominee to be elected by the members of the Board of Directors pursuant to the
Company's articles of incorporations and Bylaws. So long as CID and its
Affiliates collectively hold at least 50% of the aggregate PIPE Common Shares
and Warrant Shares purchased by CID at the Closing, the Make Good Pledgor agrees
to vote his shares in favor of such nominee in case of a shareholder voting to
elect members of the Board of Directors and the Company agrees to take all
necessary corporate and other activities to have such nominee elected to the
Board of Directors of the Company. Within 90 days upon election of the CID
Nominee to the Board of Directors of the Company, the Company shall purchase and
maintain director insurance on behalf of such CID Nominee with the terms and
conditions reasonably satisfactory to the CID Nominee.
 
(b) Board Observation Right. During such time as CID has a right to nominate a
CID Nominee as set forth above, and prior to the election of the CID Nominee to
the Board of Directors of the Company pursuant to this Section 4.9, or to the
extent CID has not exercised its nomination right under this Section 4.9, CID
shall have the right (but not the obligation) to appoint one representative (the
"CID Representative") to attend all meetings of the Board of Directors of the
Company in a nonvoting observer capacity and to be notified of all meetings of
the Company's Board of Directors; provided, that CID agrees, and shall cause
such CID Representative to agree, to keep any material non-public information
obtained at such meetings confidential; provided further, that the Company
reserves the right not to provide information to such CID Representative or to
exclude such CID Representative from any meeting or portion thereof if
attendance at such meeting by such representative would adversely affect the
attorney-client privilege between the Company and its counsel or if CID or such
CID Representative is or becomes a competitor, or affiliated in any manner with
a competitor, of the Company. It being understood that it shall not create a
presumption that CID has possession of material non-public information of or
related to the Company solely based on CID's board observation right provided
hereunder.
 
 
 
- 34 -

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

 
 
4.10 Corporate Governance. The Company covenants and agrees that (i) it will
comply with its reporting and other obligations under the U.S. securities law,
and (ii) no later than 180 days following the Closing Date, the Board of
Directors of the Company shall be comprised of a minimum of five members (who
possess experience such that he or she can fulfill its fiduciary obligations and
other responsibilities as a director of a United States publicly listed company
incorporated in the United States), a majority of which shall be "independent
directors" as such term is defined in NASDAQ Listing Rule 5605(a)(2) and a
meeting of such full Board of Directors shall be convened within such 180 days
following the Closing Date.  No later than 180 days following the Closing Date,
the Company will otherwise satisfy the corporate governance requirements
relating to the board of directors, the board of directors' committee
composition, process and decision-making, and approval of related-party
transactions applicable to a NASDAQ-listed company.
 
4.11 Exchange Listing .  The Company hereby agrees to use its best efforts to
maintain the listing or quotation of the Common Stock on the Trading Market on
which it is currently listed. The Company covenants and agrees that it will use
best commercial efforts to (i) meet the initial listing requirements of the New
York Stock Exchange, New York Stock Exchange-Amex, Nasdaq Global Select Market,
Nasdaq Global Market or Nasdaq Capital Market (each such exchange including any
successor market thereto, a "National Stock Exchange"), (ii) within 60 days
following the Effective Date of the initial Registration Statement filed with
the Commission pursuant to Section 2(a) of the Registration Rights Agreement
(the "Initial Effective Date"), file an application to have its shares listed on
a National Stock Exchange and include in such application all of the Shares and
Warrant Shares, and (iii)  take such other action as is necessary to cause all
of the Shares and Warrant Shares to be listed or quoted on such National Stock
Exchange within 18 months following the Closing Date.  The Company will then
take all action reasonably necessary to continue the listing and trading of its
Common Stock on such National Stock Exchange and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of such National Stock Exchange. If the Company fails to (i) file such an
application within 60 days following the Initial Effective Date (the "Filing
Deadline"), (ii) cause all of the Shares and Warrant Shares to be listed or
quoted on a National Stock Exchange within 18 months following the Closing Date
(the "First Listing Deadline"), or (iii) cause all of the Shares and Warrant
Shares to be listed or quoted on a National Stock Exchange within 24 months
following the Closing Date (the "Second Listing Deadline"), (any such failure or
breach being referred to as an "Event," and the date on which such Event occurs,
being referred to as "Event Date"), then in addition to any other rights an
Investor may have hereunder or under applicable law, on each such Event Date and
on each three-month anniversary date of the Second Listing Deadline (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company will pay to each Investor an amount in cash, as
partial liquidated damages and not as a penalty, equal to one percent (1%) of
such Investor's Investment Amount; provided, however, the aggregate liquidated
damages payable by the Company under this Section 4.11 shall not exceed 6% of
the total Investment Amount. Each such payment will be due on the fifth (5th)
Trading Day following the applicable Event Date except that any liquidated
damages payable by the Company for failure to meet the Filing Deadline shall not
become due until the fifth (5th) Trading Day following the Company's failure to
meet the First Listing Deadline.
 
 
 
- 35 -

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

 
 
4.12 Limitation on Issuance of Future Priced Securities.  During the six months
following the Closing Date, the Company shall not issue any "Future Priced
Securities" as such term is described by NASD IM-5635-4.
 
4.13 Indemnification.  In addition to the indemnity provided in the Registration
Rights Agreement, each of the Company Entities, jointly and severally, on the
one hand and each Investor, severally and not jointly, on the other hand, will
indemnify and hold the other, and their respective directors, officers,
shareholders, partners, members, affiliates, employees and agents (each, an
"Indemnified Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation in respect thereof (collectively, "Losses") that any such
Indemnified Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made in any Transaction Document, and will reimburse each
Indemnified Party for its reasonable legal and other expenses (including the
cost of any investigation, preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred.  The maximum
aggregate liability of each Investor pursuant to its indemnification obligations
under this Section 4.13 and Section 5 of the Registration Statement shall not
exceed the Investment Amount of such Investor. Except as otherwise set forth
herein, the mechanics and procedures with respect to the rights and obligations
under this Section 4.11 shall be the same as those set forth in Section 5 of the
Registration Rights Agreement.
 
4.14 Non-Public Information.  The Company covenants and agrees that, except as
specifically contemplated by the Transaction Document, neither it nor any other
Person acting on its behalf will provide any Investor or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless prior thereto such Investor shall have executed a written
agreement regarding the confidentiality and use of such information.  The
Company understands and confirms that each Investor shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
 
4.15 Auditors. The Company shall engage one of Ernst & Young, KPMG,
PriceWaterhouseCoopers, Deloitte or another internationally recognized
accounting firm as the Company's independent registered public accounting firm
to audit the Company's financial statements for fiscal year 2011 and to issue
audit report with respect thereto; provided, that for so long as CID or any
Affiliate of CID holds any Shares or Warrant Shares during the period starting
on the Closing Date and ending on March 31, 2012, the engagement of such
independent registered public accounting firm by the Company shall be to the
reasonable satisfaction of CID. The Company's 2011 Annual Report shall contain
financial statements for fiscal year 2011 audited by such public accounting firm
so engaged by the Company and the audit report with respect thereto issued by
such public accounting firm.
 
 
 
- 36 -

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

 
 
4.16 Key Employee. Within 30 days following the Closing Date, the Company shall
enter into an employment agreement, in form and substance reasonably
satisfactory to the Investors, with each person set forth on Schedule 4.16
hereto, which shall restrict such person's ability to compete with the Company
or its Subsidiaries, hold any material ownership interest in any competitors of
the Company or its Subsidiaries, solicit any employees of the Company or its
Subsidiaries, or disclose any confidential information of or related to the
Company or its Subsidiaries.
 
4.17 Agency.
 
(a) The Investors hereby appoint CID Venture Capital General Partner III,
Limited  as Investor Agent ("Agent") and Agent hereby accepts such appointment
as agent on behalf of and for the Investors for the purpose of rendering certain
instructions in accordance with the Make Good Escrow Agreement and the Closing
Escrow Agreement.
 
(b) Agent shall be entitled in its capacity as agent to take such actions in
connection with monitoring and enforcing the Make Good Escrow Agreement or the
Closing Escrow Agreement, as applicable, as Investor Agent shall determine is
reasonably necessary.  Agent is not charged with any obligation to conduct any
investigation into the financial reports or make any other investigation related
to the Make Good Escrow Agreement or the Closing Escrow Agreement, as
applicable.  In the event of any actual or alleged mistake or fraud of any
Existing Company Entity, its auditors or any other Person (other than Agent) in
connection with such financial reports of the Company, Agent shall have no
obligation or liability to any Investor hereunder.
 
(c) Agent is not a party to, and is not bound by or charged with notice of any
agreement out of which the Make Good Escrow Agreement or the Closing Escrow
Agreement, as applicable, may arise.  Agent acts under this Agreement as agent
only and is not responsible or liable in any manner whatsoever for the
sufficiency, correctness, genuineness or validity of the subject matter of the
escrow, or any part thereof, or for the form or execution of any notice given by
any other party hereunder or thereunder, or for the identity or authority of any
Person executing any such notice.  Agent will have no duties or responsibilities
other than those expressly set forth in the Make Good Escrow Agreement or the
Closing Escrow Agreement, as applicable.  Agent will be under no liability to
anyone by reason of any failure on the part of any party hereto or the Make Good
Escrow Agreement or the Closing Escrow Agreement, as applicable, or any maker,
endorser or other signatory of any document to perform such Person's obligations
hereunder or under any such document, including the Make Good Escrow Agreement
and the Closing Escrow Agreement, as applicable.  Except for this Agreement, the
Make Good Escrow Agreement or the Closing Escrow agreement, as applicable, and
instructions provided by Agent to the escrow agent under such agreements
pursuant to the terms of such agreements, Agent will not be obligated to
recognize any agreement between or among any or all of the Persons referred to
herein, notwithstanding its knowledge thereof.
 
 
 
- 37 -

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

 
 
(d) Agent will not be liable for any action taken or omitted by it, or any
action suffered by it to be taken or omitted, in good faith and in the exercise
of its own best judgment, and may rely conclusively on, and will be protected in
acting upon, any order, notice, demand, certificate, or opinion or advice of
counsel, statement, instrument, report or other paper or document (not only as
to its due execution and the validity and effectiveness of its provisions, but
also as to the truth and acceptability of any information therein contained)
which is reasonably believed by Agent to be genuine and to be signed or
presented by the proper person or persons.  The duties and responsibilities of
Agent hereunder shall be determined solely by the express provisions of this
Agreement, and the Make Good Escrow Agreement or the Closing Escrow Agreement,
as applicable, and no other or further duties or responsibilities shall be
implied, including, but not limited to, any obligation under or imposed by any
laws of the State of New York upon fiduciaries.
 
(e) The Investors hereby, jointly and severally, indemnify and hold harmless
Agent and its principals, partners, agents, employees and affiliates from and
against any expenses, including reasonable attorneys' fees and disbursements,
damages or losses suffered by Agent in connection with any claim or demand,
which, in any way, directly or indirectly, arises out of or relates to this
Agreement,  the Make Good Escrow Agreement or the Closing Escrow Agreement, as
applicable, or the services of Agent hereunder; except, that if Agent is guilty
of willful misconduct or fraud under this Agreement, then Agent will bear all
losses, damages and expenses arising as a result of such willful misconduct or
fraud.  Promptly after the receipt by Agent of notice of any such demand or
claim or the commencement of any action, suit or proceeding relating to such
demand or claim, Agent will notify the other parties hereto in writing.  For the
purposes hereof, the terms "expense" and "loss" will include all amounts paid or
payable to satisfy any such claim or demand, or in settlement of any such claim,
demand, action, suit or proceeding settled with the express written consent of
the parties hereto, and all costs and expenses, including, but not limited to,
reasonable attorneys' fees and disbursements, paid or incurred in investigating
or defending against any such claim, demand, action, suit or proceeding.  The
provisions of this Section shall survive the termination of this Agreement and
the Make Good Escrow Agreement.
 
(f) Should any controversy arise among the parties hereto with respect to this
Agreement, the Make Good Escrow Agreement or the Closing Escrow Agreement, as
applicable, Agent shall have the right to consult counsel and/or to institute an
appropriate interpleader action to determine the rights of the parties.
 
(g) At any time, upon five days written notice to the Investors, Agent may
resign and be discharged from its duties as agent hereunder.  If, by the end of
the five-day period following the giving of notice of resignation by Agent, the
Investors shall have failed to appoint a successor agent, Agent may appoint an
agent who in its good faith judgment shall be satisfactory to perform as agent
hereunder.
 
SECTION 5 CONDITIONS TO CLOSING
 
5.1 Conditions Precedent to the Obligations of the Investors to Purchase
Shares.  The obligation of each Investor to acquire the PIPE Common Shares and
the Warrants at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:
 
 
 
- 38 -

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

 
 
(a) Representations and Warranties.  The representations and warranties of the
Company contained herein shall be true and correct as of the date when made and
as of the Closing as though made on and as of such date.
 
(b) Performance.  The Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by it at
or prior to the Closing.
 
(c) Exchange.  The Exchange shall have been consummated.
 
(d) No Injunction.  No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents.
 
(e) Adverse Changes.  Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably could have or result in a
Material Adverse Effect or a material adverse change with respect to the Company
or its Subsidiaries.
 
(f) Company Deliverables.  The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).
 
(g) No Stop Orders; No Suspensions, etc.  No stop order or suspension of trading
shall have been imposed by the Commission or any other governmental or
regulatory body having jurisdiction over the Company or the market(s) where the
Common Stock is listed or quoted, with respect to public trading in the Common
Stock, nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis of such
magnitude in its effect on, or any material adverse change in any financial
market which, in each case, in the reasonable judgment of such Investor, makes
it impracticable or inadvisable to purchase PIPE Common Shares and Warrants.
 
(h) Capitalization Table. No later than the third calendar day prior to the
Closing Date, the Company shall have delivered to each of the Investors a
capitalization table setting forth (i) its capitalization, on a fully diluted
basis immediately prior to the Closing and (ii) its pro forma capitalization, on
a fully diluted basis, giving effect to the consummation of the transactions
contemplated by this Agreement. In each case, the table shall list all
outstanding options, warrants and other securities convertible into equity of
the Company.
 
(i) Minimum Investment. The Company shall have sold, subject to Closing, $15
million worth of PIPE Common Shares and Warrant Shares.
 
(j) Draft Form 8-K. No later than three (3) calendar days prior to the Closing
Date, the Company shall have delivered to each Investor a draft of the
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Management" and "Related Party Transaction" sections of
the Current Report on Form 8-K (the "Draft Form 8-K"), in substantially final
form (except that such draft may contained a description of the Transaction
Documents which has not been substantially finalized) that it proposes to file
with the Commission pursuant to Section 4.5 hereof, which sections of the Draft
Form 8-K shall be reasonably acceptable to the Investors.
 
 
 
- 39 -

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

 
 
(k) Termination.  This Agreement shall not have been terminated as to such
Investor in accordance with Section 6.5.
 
5.2 Conditions Precedent to the Obligations of the Company to sell Shares.  The
obligation of the Company to sell Shares at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
 
(a) Representations and Warranties.  The representations and warranties of each
Investor contained herein shall be true and correct as of the date when made and
as of the Closing Date as though made on and as of such date;
 
(b) Performance.  Each Investor shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by such
Investor at or prior to the Closing;
 
(c) No Injunction.  No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents;
 
(d) Investors Deliverables.  Each Investor shall have delivered its Investors
Deliverables in accordance with Section 2.2(b) and a duly completed certificate
in the form attached as Appendix A; and
 
(e) Termination.  This Agreement shall not have been terminated as to such
Investor in accordance with Section 6.5.
 
SECTION 6 MISCELLANEOUS
 
6.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents; provided, however, that
the Company shall pay at the Closing fees and expenses incurred by one legal
counsel to CID  incident to the negotiation, preparation, execution, delivery
and performance of the Transaction Documents (including disbursement of
out-of-pocket expenses) up to a maximum amount of $75,000.  The Company shall
pay all stamp and other taxes and duties levied in connection with the issuance
and/or transfer of the Securities.
 
6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
 
 
 
- 40 -

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

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

  Fujian YADA Group Co., Ltd.      Shuinan Industrial Area,      Songxi County,
Fujian Province 353500, China      Facsimile: (86) 059 9233 3658     
Attention:  Chief Executive Officer            With a copy to:           
Sheppard Mullin Richter & Hampton LLP      41/F Raffles City Office Tower, 268
Xizang Road Central      Huangpu District, Shanghai 200001, China     
Facsimile: (86) 21-2321-6001      Attn.:  James A. Mercer III, Esq.        Liang
"William" Zheng, Esq.            If to CID:            The CID Group, Ltd.     
19F, Tower B, CCIG International Plaza,      333 Cao Xi North Road,     
Facsimile:  86-21-54075499      Attn:  Hubert Chang            With a copy to: 
          Wilson Sonsini Goodrich & Rosati P.C.      38F, Unit 01-04 Jin Mao
Tower, 88 Century Avenue      Pudong New Area, Shanghai 200121      Facsimile:
+86 (21) 6165 1799      Attn:   Eva H. Wang, Esq.        Laura H. Luo, Esq.   

 
 
 
- 41 -

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

 

If to an Investor (other than CID):
 
To the address set forth under such Investor's name on the signature pages
hereof; or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
 
6.4 Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written instrument signed by the
Company and the Investors holding a majority of the PIPE Common Shares
subscribed for by Investors (excluding any Investors that are Affiliates of the
Company). No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. No consideration shall be offered or paid to any Investor to amend or
consent to a waiver or modification of any provision of any Transaction Document
unless the same consideration is also offered to all Investors who then hold
Shares. Notwithstanding anything contained herein to the contrary, a Person can,
without the need for approval by any other Investors to this Agreement, become a
Party to this Agreement by executing and delivering a joinder signature page
hereto before the Outside Date, whereupon such Person will be deemed an Investor
for all purposes of this Agreement and will be automatically added to Exhibit A
hereto.
 
6.5 Termination.  This Agreement may be terminated prior to Closing:
 
(a) by written agreement of an Investor (as to itself but no other Investor) and
the Company; and
 
(b) by the Company or an Investor (as to itself but no other Investor) upon
written notice to the other, if the Closing shall not have taken place by 6:30
p.m. Eastern time on the Outside Date; provided, that the right to terminate
this Agreement under this Section 6.5(b) shall not be available to any Person
whose failure to comply with its obligations under this Agreement has been the
cause of or resulted in the failure of the Closing to occur on or before such
time.
 
(c) In the event of a termination pursuant to Section 6.5(a) or 6.5(b), each
Investor shall have the right to a return of up to its entire Investment Amount
deposited with the Escrow Agent pursuant to Section 2.2(b), without interest or
deduction.  The Company covenants and agrees to cooperate with such Investor in
obtaining the return of its Investment Amount, and shall not communicate any
instructions to the contrary to the Escrow Agent.
 
(d) In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Investors.  Upon a termination in accordance
with this Section 6.5, the Company and the terminating Investor(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Investor will have any liability to any other
Investor under the Transaction Documents as a result therefrom.
 
 
 
- 42 -

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

 
 
6.6 Construction; Language; Interpretation.  The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.
 
This Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents. The words "including," "include" and other words of
similar import shall be deemed to be followed by the words "without limitation."
 
This Agreement may be written in both English and Chinese.  In the event that a
Chinese language version is produced, where there are differences of
interpretation between the versions, the English version shall control.
 
6.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the Investors (each such transferee, a "Permitted
Transferee"). Notwithstanding anything contained herein to the contrary, a
Permitted Transferee shall be deemed an Investor with respect to the Securities
so transferred.
 
6.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and Permitted Transferees and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person, and that the Placement Agents are third party beneficiaries of the
Company's representations and warranties contained herein.
 
6.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby
 
 
 
- 43 -

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

 
 
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such New York Court, or
that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. If either party shall commence a Proceeding to enforce any provisions of
a Transaction Document, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.
 
6.10 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to specific performance under the Transaction
Documents.  The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
 
6.11 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law (including
any bankruptcy law, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
 
6.12 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities
for two years following the Closing Date and any Action arising out of a breach
of representation or warranty of this Agreement must be brought, if at all,
within two years of the Closing Date.
 
6.13 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
 
 
- 44 -

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

 
 
6.14 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Investor exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Investor may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
 
6.15 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested.  The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.  If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
 
6.16 Independent Nature of Investors' Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Shares pursuant
to the Transaction Documents has been made by such Investor independently of any
other Investor. Nothing contained herein or in any Transaction Document, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no Investor will be acting as agent of such
Investor in connection with monitoring its investment in the Shares or enforcing
its rights under the Transaction Documents. Each Investor shall be entitled to
independently protect and enforce its rights, including the rights arising out
of this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
 
6.17 Limitation of Liability. Notwithstanding anything herein to the contrary,
the Company acknowledges and agrees that the liability of an Investor arising
directly or indirectly, under any Transaction Document of any and every nature
whatsoever shall be satisfied solely out of the assets of such Investor, and
that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
 
 
 
- 45 -

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

 
 
6.18 Execution in Counterparts. This Agreement may be executed in two or more
counterparts, and may be delivered by facsimile transmission or electronic mail
in portable document format or other means intended to preserve the original
graphic content of a signature.  Each such counterpart shall be considered an
original and all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -- SIGNATURE PAGES FOLLOW]
 
 
 
- 46 -

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

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
SMSA Palestine Acquisition Corp.
 
By: /s/ Yang Yongjie                                                      
Name: Yang Yongjie
Title: Chief Executive Officer
 
Sino Oriental Agriculture Group Ltd.
 
By: /s/ Zhan Youdai                                                      
Name: Zhan Youdai
Title: Director
 
Misaky Industry Limited
 
By: /s/ Zhan Youdai                                                      
Name: Zhan Youdai
Title: Director
 
Fujian Yada Group, Ltd.
 
By: /s/ Zhan Youdai                                                      
Name: Zhan Youdai
Title: Chief Executive Officer
 

Only as to Section 4.7 and 4.9 herein:

/s/ Cai Yangbo                                                      
Cai Yangbo
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -- SIGNATURE PAGES FOR INVESTORS
FOLLOW]
 
 
 
- 47 -

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

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
NAME OF INVESTOR
 
CID Greater China Venture Capital Fund III, LP
 
By: /s/ Steven C.Y. Chang

Name: Steven C.Y. Chang
Title: General Partner
 
Investment Amount:
$10,000,000                                                  
Tax ID No.: UN-A
 
ADDRESS FOR NOTICE
 
c/o:                                                
 
Street:                                           
 
City/State/Post code:                 
 
Attention:                                    
 
Tel:                                                
 
Fax:                                               
 
DELIVERY INSTRUCTIONS
(if different from above)
 
c/o:                                                
 
Street:                                           
 
City/State/Post code:                
 
Attention:                                    
 
Tel:                                                
 
 
 
 
- 48 -

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

 
 
EXHIBIT A

SCHEDULE OF BUYERS

Name
Investment
Amount
Number of Shares
Number of
Warrants
 
 
                                                                               
               

 
 
 
 
 
- 49 -

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

 
 
 
EXHIBIT B

 
COMMON STOCK PURCHASE WARRANT
 
SMSA PALESTINE ACQUISITION CORP.
 
Warrant Shares: [●]
Initial Exercise Date: [●], 2010
Issue Date:  [●], 2010

 
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that, for value
received, [●] (the "Holder") is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on
or after the initial Exercise Date set forth above (the "Initial Exercise Date")
and on or prior to the close of business on the three year anniversary of the
Initial Exercise Date (the "Termination Date") but not thereafter, to subscribe
for and purchase from SMSA Palestine Acquisition Corp., a Nevada corporation
(including any successor thereof, the "Company"), up to [●] shares (the "Warrant
Shares") of Common Stock. The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
 

1.  Definitions. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Securities Purchase Agreement (the
"Purchase Agreement"), dated [●], 2010 among the Company and the purchasers
signatory thereto.
  
2.  
Exercise

 
(a) Exercise of Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of
the date said Notice of Exercise is delivered to the Company, the Company shall
have received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States bank or,
if available, pursuant to the cashless exercise procedure specified in
Section 2(c) below.  Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant to the Company until
the Holder has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall surrender
this Warrant to the Company for cancellation within three (3) Trading Days of
the date the final Notice of Exercise is delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased.  The Holder and the
Company shall maintain records showing the number of Warrant Shares purchased
and the date of such purchases.  The Company shall deliver any objection to any
Notice of Exercise Form within one Business Day of receipt of such notice.  In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.  The Holder and
any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.
 
 
 
- 50 -

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

 
 
(b) Exercise Price.  The exercise price per share of the Common Stock under this
Warrant shall be $[9.45], subject to adjustment hereunder (the "Exercise
Price").
 
(c) Cashless Exercise.  If at the time of exercise hereof there is no effective
registration statement registering, or the prospectus contained therein is not
available for the issuance of the Warrant Shares to the Holder and all of the
Warrant Shares are not then registered for resale by Holder into the market at
market prices from time to time on an effective registration statement for use
on a continuous basis (or the prospectus contained therein is not available for
use), then this Warrant may also be exercised, in whole or in part, at such time
by means of a "cashless exercise" in which the Holder shall be entitled to
receive a certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:
 
 
(A) = the VWAP on the Trading Day immediately preceding the date on which Holder
elects to exercise this Warrant by means of a "cashless exercise," as set forth
in the applicable Notice of Exercise;

 
 
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 
 
(X) = the number of Warrant Shares that would be issuable upon exercise of this
Warrant in accordance with the terms of this Warrant if such exercise were by
means of a cash exercise rather than a cashless exercise.

 
"VWAP" means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time), (b)  if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the "Pink Sheets" published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Holders of a majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company.
 
(d) Mechanics of Exercise.
 
 
 
- 51 -

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

 
 
(i) Delivery of Certificates Upon Exercise.  Certificates for shares purchased
hereunder shall be transmitted by the Transfer Agent to the Holder by crediting
the account of the Holder's prime broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission ("DWAC") system if the Company
is then a participant in such system and either (A) there is an effective
Registration Statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by Holder or (B) this Warrant is being exercised
via cashless exercise, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise by the date that is three
(3) Trading Days after the latest of (a) the delivery to the Company of the
Notice of Exercise Form, (b) surrender of this Warrant (if required) and (c)
payment of the aggregate Exercise Price as set forth above (including by
cashless exercise, if permitted) (such date, the "Warrant Share Delivery
Date").  This Warrant shall be deemed to have been exercised on the first date
on which any of the foregoing have been delivered to the Company.  The Warrant
Shares shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes (including without limitation, a Holder under
this Agreement), as of the date the Warrant has been exercised, with payment to
the Company of the Exercise Price (or by cashless exercise, if permitted) and
all taxes required to be paid by the Holder, if any, pursuant to
Section 2(d)(vi) prior to the issuance of such shares, having been paid.
 
(ii) Delivery of New Warrants Upon Exercise.  If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder and upon
surrender of this Warrant certificate, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
 
(iii) Rescission Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.
 
(iv) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Exercise.  If the Company fails to cause the Transfer Agent to transmit to the
Holder a certificate or the certificates representing the Warrant Shares
pursuant to an exercise on or before the Warrant Share Delivery Date, and if
after such date the Holder is required by its broker to purchase (in an open
market transaction or otherwise) or the Holder's brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a "Buy-In"), then the Company shall (A) pay in cash to the Holder the
amount, if any, 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 (1) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the
exercise at issue times (2) the price at which the sell order giving rise to
such purchase obligation was executed, and (B) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number of Warrant
Shares for which such exercise was not honored (in which case such exercise
shall be deemed rescinded) 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.  For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (A) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss.  Nothing herein
shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
 
 
 
- 52 -

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

 
 
(v) No Fractional Shares or Scrip.  No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
 
(vi) Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
 
(vii) Closing of Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
 
3.  
Certain Adjustments.

 
(a) Stock Dividends and Splits.  If the Company, at any time while this Warrant
is outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant or any other warrant or option issued by the Company),
(ii) subdivides outstanding shares of Common Stock into a larger number of
shares, (iii) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (iv) issues by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment
made pursuant to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
 
 
 
- 53 -

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

 
 
(b) Fundamental Transaction.  If, at any time while this Warrant is outstanding,
(i) the Company, directly or indirectly, in one or more related transactions
effects any merger or consolidation of the Company with or into another Person,
(ii) the Company, directly or indirectly, effects any sale, lease, license,
assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct
or indirect, purchase offer, tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the holders of 50% or more
of the outstanding Common Stock, (iv) the Company, directly or indirectly, in
one or more related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property, (v) the Company, directly or indirectly, in one or
more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than 50% of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination) (each a "Fundamental Transaction"), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at the
option of the Holder, the number of shares of Common Stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation, and
any additional consideration (the "Alternate Consideration") receivable as a
result of such Fundamental Transaction by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Transaction.  For purposes of any such exercise, the determination
of the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration.  If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, including, but not limited to, the Nasdaq Global Select
Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or
any Successor Entity (as defined below) shall, at the Holder's option,
exercisable at any time concurrently with, or within 30 days after, the
consummation of the Fundamental Transaction, purchase this Warrant from the
Holder by paying to the Holder an amount of cash equal to the Black Scholes
Value of the remaining unexercised portion of this Warrant on the date of the
consummation of such Fundamental Transaction.  "Black Scholes Value" means the
value of this Warrant based on the Black-Scholes-Merton Option Pricing Model
obtained from the "OV" function on Bloomberg, L.P. ("Bloomberg") determined as
of the day of consummation of the applicable Fundamental Transaction for pricing
purposes and reflecting (A) a risk-free
 
 
 
 
- 54 -

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

 
 
 
interest rate corresponding to the U.S. Treasury rate for a period equal to the
time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of
the applicable Fundamental Transaction, (C) the underlying price per share used
in such calculation shall be the sum of the price per share being offered in
cash, if any, plus the value of any non-cash consideration, if any, being
offered in such Fundamental Transaction and (D) a remaining option time equal to
the time between the date of the public announcement of the applicable
Fundamental Transaction and the Termination Date.  The Company shall cause any
successor entity in a Fundamental Transaction in which the Company is not the
survivor (the "Successor Entity") to assume in writing all of the obligations of
the Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section 3(b) pursuant to written agreements in form
and substance reasonably satisfactory to the Holder and approved by the Holder
(without unreasonable delay) prior to such Fundamental Transaction and shall, at
the option of the holder of this Warrant, deliver to the Holder in exchange for
this Warrant a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant which is
exercisable for a corresponding number of shares of capital stock of such
Successor Entity (or its parent entity) equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and with an exercise price which applies the exercise price
hereunder to such shares of capital stock (but taking into account the relative
value of the shares of Common Stock pursuant to such Fundamental Transaction and
the value of such shares of capital stock, such number of shares of capital
stock and such exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such Fundamental
Transaction), and which is reasonably satisfactory in form and substance to the
Holder. Upon the occurrence of any such Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the "Company" shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein.
 
(c) Calculations.  All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 3, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.
 
 
 
- 55 -

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

 
 
(d) Notice to Holder.
 
(i) Adjustment to Exercise Price.  Whenever the Exercise Price is adjusted
pursuant to any provision of this Section 3, the Company shall promptly mail to
the Holder a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. If the
Company enters into a Variable Rate Transaction, despite the prohibition thereon
in the Purchase Agreement, the Company shall be deemed to have issued Common
Stock or Common Stock Equivalents at the lowest possible conversion or exercise
price at which such securities may be converted or exercised.
 
(ii) Notice to Allow Exercise by Holder.  If (A) the Company shall declare a
dividend (or any other distribution in whatever form) on the Common Stock, (B)
the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the granting to
all holders of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of
any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property, or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.  To the extent
that any notice provided hereunder constitutes, or contains, material,
non-public information regarding the Company or any of the Subsidiaries, the
Company shall simultaneously file such notice with the Commission pursuant to a
Current Report on Form 8-K.  The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly
set forth herein.
 
4.  
Transfer of Warrant

 
(a) Transferability.  This Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company or its
designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled.  The Warrant, if properly assigned
in accordance herewith, may be exercised by a new holder for the purchase of
Warrant Shares without having a new Warrant issued.
 
 
 
- 56 -

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

 
 
(b) New Warrants.  This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to
compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. All Warrants issued on transfers or exchanges shall
be dated the initial issuance date set forth on the first page of this Warrant
and shall be identical with this Warrant except as to the number of Warrant
Shares issuable pursuant thereto.
 
(c) Warrant Register.  The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the "Warrant Register"), in the
name of the record Holder hereof from time to time.  The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
 
(d) Understandings or Arrangements.  Such Holder is acquiring this Warrant as
principal for its own account and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the
distribution of such Warrant (this representation and warranty not limiting such
Holder's right to sell the Warrant pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws.) Such
Holder is acquiring this Warrant hereunder in the ordinary course of its
business.
 
5. Miscellaneous.
 
(a) No Rights as Stockholder Until Exercise.  This Warrant does not entitle the
Holder to any voting rights, dividends or other rights as a stockholder of the
Company prior to the exercise hereof as set forth in Section 2(d)(i).
 
(b) Loss, Theft, Destruction or Mutilation of Warrant.  The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall include the posting of a bond if reasonably
required by the Company), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
 
 
 
- 57 -

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

 
 
(c) Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then, such action may be taken or such right may be
exercised on the next succeeding Business Day.
 
(d) Authorized Shares.
 
The Company covenants that, during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant.  The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be
listed.  The Company covenants that all Warrant Shares which may be issued upon
the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant and payment for such
Warrant Shares in accordance herewith, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
 
Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment.  Without limiting the generality of the foregoing,
the Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this Warrant.
 
Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price,
the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
 
 
 
- 58 -

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

 
 
(e) Jurisdiction.  All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
 
(f) Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, and if the Holder does not
utilize cashless exercise, will have restrictions upon resale imposed by state
and federal securities laws.
 
(g) Nonwaiver and Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or remedies.  Without
limiting any other provision of this Warrant or the Purchase Agreement, if the
Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
 
(h) Notices.  Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance
with the notice provisions of the Purchase Agreement.
 
(i) Limitation of Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
 
(j) Remedies.  The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant.  The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive and
not to assert the defense in any action for specific performance that a remedy
at law would be adequate.
 
(k) Successors and Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder.  The provisions of this Warrant are
intended to be for the benefit of any Holder from time to time of this Warrant
and shall be enforceable by the Holder or holder of Warrant Shares.
 
(l) Amendment.  This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and Holder.
 
 
 
- 59 -

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

 
 
(m) Severability.  Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
 
(n) Headings.  The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
 
********************
 
(Signature Pages Follow)
 
 
 
- 60 -

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

 
 
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above indicated.
 

 

 

 
SMSA PALESTINE ACQUISITION CORP.
 
 
By: _________________________       
Name: Yang Yongjie
Title:  Chief Executive Director

 
 
 
 
- 61 -

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

 
 
NOTICE OF EXERCISE
 
TO:           SMSA PALESTINE ACQUISITION CORP.
 
(1)           The undersigned hereby elects to purchase ________ Warrant Shares
of the Company pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.
 
(2)           Payment shall take the form of (check applicable box):
 
[  ] in lawful money of the United States; or
 
[  ] [if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in
subsection 2(c).
 
(3)           Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
 
_______________________________
 
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
 
_______________________________
 
_______________________________
 
_______________________________
 

 
[SIGNATURE OF HOLDER]
 
Name of Investing
Entity:                                                                                                      
Signature of Authorized Signatory of Investing
Entity:                                                                                                      
Name of Authorized
Signatory:                                                                                                      
Title of Authorized
Signatory:                                                                                                        
Date:                                                                                                                                         
 
 
 
 
- 62 -

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

 
 
ASSIGNMENT FORM
 
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
 

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant
and all rights evidenced thereby are hereby assigned to
_______________________________
 
whose address
is____________________________________________________________________________________.
 
 
Dated:  ______________, _______
 
Holder's Signature:  
 
Holder's Address:    
                  Signature Guaranteed:    

                                                                                                                               
 

 
NOTE:  The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
 
 
 
 
- 63 -

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

 

EXHIBIT C

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into
as of July [●], 2010, by and among SMSA Palestine Acquisition Corp., a Nevada
corporation (the "Company") and the investors signatory hereto (each, including
their respective successors and assigns, an "Investor" and collectively, the
"Investors").
 
WHEREAS, in connection with the Securities Purchase Agreement by and among the
parties hereto and the other parties signatory thereto dated July [●], 2010 (the
"Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions set forth in the Purchase Agreement, to issue and sell to each
Investor a certain number of Shares and Warrant Shares of the Company; and
WHEREAS, in accordance with the terms of the Purchase Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "Securities Act"), and applicable state securities
laws.
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Investors hereby agree as follows:
 
1. Definitions.  Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement will have the respective meanings given
such terms in the Purchase Agreement.  As used in this Agreement, the following
terms have the respective meanings set forth in this Section 1:
 
"2010 Delivery Date" means the date on which the 2010 Make Good Shares are
required to be delivered to the Investors pursuant to the Make Good Escrow
Agreement.
 
"2011 Delivery Date" means the date on which the 2011 Make Good Shares are
required to be delivered to the Investors pursuant to the Make Good Escrow
Agreement.
 
"Advice" has the meaning set forth in Section 8(d).
 
"Commission Comments" means written comments pertaining solely to Rule 415 which
are received by the Company from the Commission to a filed Registration
Statement, a copy of which shall have been provided by the Company to the
Holders, which either (i) requires the Company to limit the number of
Registrable Securities which may be included therein to a number which is less
than the number sought to be included thereon as filed with the Commission or
(ii) requires the Company to either exclude Registrable Securities held by
specified Holders or deem such Holders to be underwriters with respect to
Registrable Securities they seek to include in such Registration Statement.
 
"Cut Back Shares" has the meaning set forth in Section 2(b).
 
"Effective Date" means, as to a Registration Statement, the date on which such
Registration Statement is first declared effective by the Commission.
 
 
 
- 64 -

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

 
 
"Effectiveness Date" means (a) with respect to the initial Registration
Statement required to be filed pursuant to Section 2(a), the earlier of: (i) the
150th day following the Closing Date and (ii) the fifth Trading Day following
the date on which the Company is notified by the Commission that the initial
Registration Statement will not be reviewed or is no longer subject to further
review and comments; and (b) with respect to any additional Registration
Statements required to be filed pursuant to Section 2(a), the earlier of: (i)
the 90th day following the applicable Filing Date for such additional
Registration Statement(s) and (ii) the fifth Trading Day following the date on
which the Company is notified by the Commission that such additional
Registration Statement(s) will not be reviewed or is no longer subject to
further review; provided, that, if the Commission reviews and has written
comments to such filed Registration Statement that would require the filing of a
pre-effective amendment thereto with the Commission, then the Effectiveness Date
under this clause (b)(i) shall be the 120th day following the applicable Filing
Date.
 
"Effectiveness Period" means, as to any Registration Statement required to be
filed pursuant to this Agreement, the period commencing on the Effective Date of
such Registration Statement and ending on (a) the date that all of the
Registrable Securities covered by such Registration Statement have been publicly
sold by the Holders of the Registrable Securities included therein, or (b) such
time as all of the Registrable Securities covered by such Registration Statement
may be sold by the Holders without volume restrictions pursuant to Rule 144 as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Holders.
 
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
"Filing Date" means the 30th day following (a) with respect to the initial
Registration Statement required to be filed pursuant to Section 2(a), the
Closing Date; and (b) with respect to any additional Registration Statements
required to be filed pursuant to Section 2(a), the Effective Date for the last
Registration Statement filed pursuant to this Agreement under Section 2(a); (c)
with respect to any additional Registration Statements required to be filed due
to SEC Restrictions, the applicable Restriction Termination Date; (d) with
respect to a Registration Statement required to be filed under Section 2(c), the
date on which the Company becomes eligible to utilize Form S-3 to register the
resale of Registrable Securities, (e) with respect to the Registration Statement
required to be filed under Section 2(d), the 2010 Delivery Date, and (f) with
respect to the Registration Statement required to be filed under Section 2(e),
the 2011 Delivery Date.
 
"FINRA" means the Financial Industry Regulatory Authority, Inc.
 
"Holder" or "Holders" means the holder or holders, as the case may be, from time
to time of Registrable Securities and, if other than an Investor, a Person to
whom the rights hereunder have been properly assigned pursuant to Section 7
hereof.
 
"Indemnified Party" has the meaning set forth in Section 5(c).
 
"Indemnifying Party" has the meaning set forth in Section 5(c).
 
"Losses" has the meaning set forth in Section 5(a).
 
"New York Courts" means the state and federal courts sitting in the City of New
York, Borough of Manhattan.
 
 
 
- 65 -

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

 
 
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
 
"Prospectus" means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
 
"Registrable Securities" means: (i) the PIPE Common Shares, (ii) the Warrant
Shares, (iii) the 2010 Make Good Shares, (iv) the 2011 Make Good Shares, and (v)
any securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event, or any price adjustment as a
result of such stock splits, reverse stock splits or similar events with respect
to any of the securities referenced in (i) – (iv) above.  Notwithstanding the
foregoing, a security shall cease to be a Registrable Security for purposes of
this Agreement from and after such time as the Holder of such security may
resell such security without volume restrictions under Rule 144, as determined
by the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and the
affected Holders.
 
"Registration Statement" means the initial registration statement required to be
filed in accordance with Section 2(a) and any additional registration statements
required to be filed under this Agreement, including in each case the
Prospectus, amendments and supplements to such registration statements or
Prospectus, including pre- and post- effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference therein.
 
"Restriction Termination Date" has the meaning set forth in Section 2(b).
 
"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.
 
"Rule 415" means Rule 415 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.
 
"Rule 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
"SEC Restrictions" has the meaning set forth in Section 2(b).
 
"Selling Holder Questionnaire" means the selling security holder notice and
questionnaire attached as Annex B hereto.
 
 
 
- 66 -

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

 
 
"Trading Market" means any of the New York Stock Exchange, the NYSE AMEX, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital
Market, the OTCBB or any other market on which the Common Stock is listed or
quoted for trading on the date in question.

 
2. Registration.
 
(a) On or prior to the applicable Filing Date, the Company shall prepare and
file with the Commission a Registration Statement covering the resale of all
Registrable Securities (other than in the case of the initial Registration
Statement to be filed under this Section 2(a), the 2010 Make Good Shares and the
2011 Make Good Shares) not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415.  Each Registration Statement required to be filed under this
Agreement shall be filed on Form S-1 (or on such other form appropriate for such
purpose) and contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement, other
than as to the characterization of any Holder as an underwriter, which shall not
occur unless such characterization is consistent with written information
provided by the Holder in the Selling Holder Questionnaire) the "Plan of
Distribution" attached hereto as Annex A.  The Company shall cause each
Registration Statement required to be filed under this Agreement to be declared
effective under the Securities Act as soon as possible but, in any event, no
later than its Effectiveness Date, and shall use its reasonable best efforts to
keep each such Registration Statement continuously effective during its entire
Effectiveness Period.  By 5:00 p.m. (New York City time) on the Business Day
immediately following the Effective Date of each Registration Statement, the
Company shall file with the Commission in accordance with Rule 424 under the
Securities Act the final prospectus to be used in connection with sales pursuant
to such Registration Statement (whether or not such filing is technically
required under such Rule). If for any reason other than due solely to SEC
Restrictions, a Registration Statement is effective but not all outstanding
Registrable Securities are registered for resale pursuant thereto, then the
Company shall prepare and file by the applicable Filing Date an additional
Registration Statement to register the resale of all such unregistered
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415.
 
(b) Notwithstanding anything to the contrary contained in this Section 2, if the
Company receives Commission Comments, and following discussions with and
responses to the Commission in which the Company uses its reasonable best
efforts and time to cause as many Registrable Securities (other than the 2010
Make Good Shares and 2011 Make Good Shares, unless the 2010 Delivery Date or
2011 Delivery Date, as the case may be, shall have occurred) for as many Holders
as possible to be included in the Registration Statement filed pursuant to
Section 2(a) without characterizing any Holder as an underwriter unless such
characterization is consistent with written information provided by the Holder
in the Selling Holder Questionnaire (and in such regard uses its reasonable best
efforts to cause the Commission to permit the affected Holders or their
respective counsel to participate in Commission conversations on such issue
together with the Company's counsel, and timely conveys relevant information
concerning such issue with the affected Holders or their respective counsel)
(the day that such discussions and responses are concluded shall be referred to
as the "Tolling Date"), the Company is unable to
 
 
 
 
- 67 -

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

 
 
 
cause the inclusion of all Registrable Securities, then the Company may,
following not less than three (3) Trading Days prior written notice to the
Holders (i) remove from the Registration Statement such Registrable Securities
(the "Cut Back Shares") and/or (ii) agree to such restrictions and limitations
on the registration and resale of the Registrable Securities, in each case as
the Commission may require in order for the Commission to allow such
Registration Statement to become effective; provided, that in no event may the
Company characterize any Holder as an underwriter unless such characterization
is consistent with written information provided by the Holder in the Selling
Holder Questionnaire (collectively, the "SEC Restrictions").  Unless the SEC
Restrictions otherwise require, any cut-back imposed pursuant to this Section
2(b) shall be allocated: (i) first, upon the holders of any other securities of
the Company who have the right to have such securities included in the
Registration Statement and (ii) second, among the Registrable Securities of the
Holders on a pro rata basis.  No liquidated damages under Section 2(f) shall
accrue on or as to any Cut Back Shares, and the required Effectiveness Date for
such Registration Statement will be tolled until such time as the Company is
able to effect the registration of the Cut Back Shares in accordance with any
SEC Restrictions if such Registrable Securities cannot at such time be resold by
the Holders thereof without volume limitations pursuant to Rule 144 (such date,
the "Restriction Termination Date").  From and after the Restriction Termination
Date, all provisions of this Section 2 shall again be applicable to the Cut Back
Shares (which, for avoidance of doubt, retain their character as "Registrable
Securities") if such Registrable Securities cannot at such time be resold by the
Holders thereof without volume limitations pursuant to Rule 144 so that the
Company will be required to file with and cause to be declared effective by the
Commission such additional Registration Statements in the time frames set forth
herein as necessary to ultimately cause to be covered by effective Registration
Statements all Registrable Securities.  For the avoidance of doubt, the time
period starting from the Tolling Date and ending with the Restriction
Termination Date shall be excluded in calculating the applicable Effectiveness
Date.
 
(c) Promptly following any date on which the Company becomes eligible to use a
registration statement on Form S-3 to register Registrable Securities for
resale, the Company shall file a Registration Statement on Form S-3 covering all
Registrable Securities (or a post-effective amendment on Form S-3 to the then
effective Registration Statement) and shall cause such Registration Statement to
be filed by the Filing Date for such Registration Statement and declared
effective under the Securities Act as soon as possible thereafter, but in any
event prior to the Effectiveness Date therefor.  Such Registration Statement
shall contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement, other
than as to the characterization of any Holder as an underwriter, which shall not
occur unless such characterization is consistent with written information
provided by the Holder in the Selling Holder Questionnaire) the "Plan of
Distribution" attached hereto as Annex A.  The Company shall use its reasonable
best efforts to keep such Registration Statement continuously effective under
the Securities Act during the entire Effectiveness Period.  By 5:00 p.m. (New
York City time) on the Business Day immediately following the Effective Date of
such Registration Statement, the Company shall file with the Commission in
accordance with Rule 424 under the Securities Act the final prospectus to be
used in connection with sales pursuant to such Registration Statement (whether
or not such filing is technically required under such Rule).
 
(d) On or prior to its Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of the 2010 Make Good
Shares on Form S-3 if the Company is then eligible to utilize such Form (or if
the Company is not then eligible to utilize such form of registration, it shall
utilize such other available form appropriate for such purpose) and shall cause
such Registration Statement to be filed by the Filing Date for such Registration
Statement and declared effective under the Securities Act as soon as possible
thereafter, but in any event prior to the Effectiveness Date therefor.  Such
Registration Statement shall contain (except if otherwise required pursuant to
written comments received
 
 
 
- 68 -

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

 
 
from the Commission upon a review of such Registration Statement, other than as
to the characterization of any Holder as an underwriter, which shall not occur
without such Holder's consent) the "Plan of Distribution" attached hereto as
Annex A.  The Company shall use its reasonable best efforts to keep such
Registration Statement continuously effective under the Securities Act during
the entire Effectiveness Period which is applicable to it.  By 5:00 p.m. (New
York City time) on the Business Day immediately following the Effective Date of
such Registration Statement, the Company shall file with the Commission in
accordance with Rule 424 under the Securities Act the final prospectus to be
used in connection with sales pursuant to such Registration Statement (whether
or not such filing is technically required under such Rule).
 
(e) On or prior to its Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of the 2011 Make Good
Shares on Form S-3 if the Company is then eligible to utilize such Form (or if
the Company is not then eligible to utilize such form of registration, it shall
utilize such other available form appropriate for such purpose) and shall cause
such Registration Statement to be filed by the Filing Date for such Registration
Statement and declared effective under the Securities Act as soon as possible
thereafter, but in any event prior to the Effectiveness Date therefor.  Such
Registration Statement shall contain (except if otherwise required pursuant to
written comments received from the Commission upon a review of such Registration
Statement, other than as to the characterization of any Holder as an
underwriter, which shall not occur without such Holder's consent) the "Plan of
Distribution" attached hereto as Annex A.  The Company shall use its reasonable
best efforts to keep such Registration Statement continuously effective under
the Securities Act during the entire Effectiveness Period which is applicable to
it.  By 5:00 p.m. (New York City time) on the Business Day immediately following
the Effective Date of such Registration Statement, the Company shall file with
the Commission in accordance with Rule 424 under the Securities Act the final
prospectus to be used in connection with sales pursuant to such Registration
Statement (whether or not such filing is technically required under such Rule).
 
(f) If: (i) a Registration Statement is not filed on or prior to its Filing Date
covering the Registrable Securities required under this Agreement to be included
therein) (if the Company files a Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section
3(a) hereof, the Company shall not be deemed to have satisfied this clause (i)),
or (ii) a Registration Statement is not declared effective by the Commission on
or prior to its required Effectiveness Date or if by the Business Day
immediately following the Effective Date the Company shall not have filed a
"final" prospectus for the Registration Statement with the Commission under Rule
424(b) in accordance with the terms hereof (whether or not such a prospectus is
technically required by such Rule), or (iii) after its Effective Date, without
regard for the reason thereunder or efforts therefor, such Registration
Statement ceases for any reason to be effective and available to the Holders as
to the Registrable Securities to which it is required to cover at any time prior
to the expiration of its Effectiveness Period for more than an aggregate of 30
Trading Days (which need not be consecutive) (any such failure or breach being
referred to as an "Event," and for purposes of clauses (i) or (ii) the date on
which such Event occurs, or for purposes of clause (iii) the date which such 30
Trading Day-period is exceeded, being referred to as "Event Date"), then in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 0.5% of the
aggregate Investment Amount paid by such Holder pursuant to the Purchase
Agreement.  The parties agree that in no event will the Company be liable for
liquidated damages under this Agreement in excess of 0.5% of the aggregate
Investment Amount of the Holders in any single month and the maximum aggregate
liquidated damages payable to a Holder under this Agreement shall be six percent
(6%) of the aggregate Investment Amount paid by such Holder pursuant to the
Purchase Agreement.  The partial liquidated damages pursuant to the terms hereof
shall apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Event (except in the case of the first Event Date), and shall cease
to accrue (unless earlier cured) upon the expiration of the Effectiveness
Period.
 
 
 
- 69 -

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

 
 
(g) Each Holder agrees to furnish to the Company a completed Questionnaire in
the form attached to this Agreement as Annex B (a "Selling Holder
Questionnaire").  The Company shall not be required to include the Registrable
Securities of a Holder in a Registration Statement and shall not be required to
pay any liquidated or other damages under Section 2(f) to any Holder who fails
to furnish to the Company a fully completed Selling Holder Questionnaire at
least two Trading Days prior to the applicable Filing Date (subject to the
requirements set forth in Section 3(a)); provided, that the Company shall have
furnished a copy of Selling Holder Questionnaire to such Holder and requested a
completed Selling Holder Questionnaire from such Holder ten Trading Days prior
to each applicable Filing Date.
 
3. Registration Procedures.
 
  In connection with the Company's registration obligations hereunder:
 
(a) Not less than four Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto, the
Company shall furnish to each Holder copies of the "Selling Stockholders"
section of such document, the "Plan of Distribution" and any risk factor
contained in such document that addresses specifically this transaction or the
Selling Stockholders, as proposed to be filed, which documents will be subject
to the review of such Holder.  The Company shall not file a Registration
Statement, any Prospectus or any amendments or supplements thereto in which the
"Selling Stockholder" section thereof differs from the disclosure received from
a Holder in its Selling Holder Questionnaire (as amended or supplemented).  The
Company shall not file a Registration Statement, any Prospectus or any
amendments or supplements thereto in which it (i) characterizes any Holder as an
underwriter, unless such characterization is consistent with written information
provided by the Holder in the Selling Holder Questionnaire, (ii) excludes a
particular Holder due to such Holder refusing to be named as an underwriter, or
(iii) reduces the number of Registrable Securities being registered on behalf of
a Holder except pursuant to, in the case of subsection (iii), the Commission
Comments, without, in each case, such Holder's express written authorization,
unless such reduction is made pursuant to Section 2(b) hereof.  The Company
shall also ensure that each Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading.
 
(b) The Company shall (i) prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep such
Registration Statement continuously effective as to the applicable Registrable
Securities for its Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to each Registration Statement or any amendment thereto
and, as promptly as reasonably possible; and (iv) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with
respect to the Registration Statement(s) and the disposition of all Registrable
Securities covered by each Registration Statement.
 
 
 
- 70 -

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

 
 
(c) The Company shall notify the Holders as promptly as reasonably possible (i)
when a Prospectus or any Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; and with respect to each
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration Statement
or Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
 
(d) The Company shall use its reasonable best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify the Holders of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
 
(e) The Company shall furnish to each Holder, without charge and at the option
of the Company in electronic format, at least one conformed copy of each
Registration Statement and each amendment thereto and all exhibits, as well as a
copy of each Prospectus and each amendment or supplement thereto, to the extent
requested by such Holder (including those previously furnished) promptly after
the filing of such documents with the Commission.
 
(f) Prior to any public offering of Registrable Securities, the Company shall
register or qualify such Registrable Securities for offer and sale under the
securities or Blue Sky laws of all jurisdictions within the United States as any
Holder may reasonably request, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statements; provided, however, in connection with any such registration or
qualification, the Company shall not be required to (i) qualify to do business
in any jurisdiction where the Company would not otherwise be required to
qualify, (ii) subject itself to general taxation in any such jurisdiction, (iii)
file a general consent to service of process in any jurisdiction, or (iv) make
any change to the Company's articles of incorporation or bylaws.
 
 
 
- 71 -

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

 
 
(g) The Company shall cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to the Registration Statement(s), which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may request.
 
(h) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as reasonably possible, the Company shall prepare a supplement or
amendment, including a post-effective amendment, to the affected Registration
Statements or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, no Registration
Statement nor any Prospectus will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
 
(i) The Company shall notify each Holder in writing of the happening of any
event, as promptly as practicable after becoming aware of such event, as a
result of which the prospectus included in a Registration Statement, as then in
effect, includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material,
nonpublic information), and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission.  The
Company shall also promptly notify each Holder in writing when a prospectus or
any prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective.
 
(j) If any Holder is required under applicable securities laws to be described
in the Registration Statement as an underwriter, at the reasonable request of
such Holder, the Company shall furnish to such Holder, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as a Holder may reasonably request: (i) a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Holders, and
(ii) an opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance reasonably
acceptable to such counsel and as is customarily given in an underwritten public
offering, addressed to the Holders.
 
 
 
- 72 -

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

 
 
(k) The Company shall hold in confidence and not make any disclosure of
information concerning a Holder provided to the Company unless: (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement.  The Company agrees that it shall, upon learning that disclosure of
such information concerning an Holder is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt written
notice to such Holder and allow such Holder, at the Holder's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
 
(l) The Company shall use its reasonable best efforts to cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
national securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange.  The
Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(l).
 
(m) If requested by a Holder, the Company shall as soon as practicable: (i)
incorporate in a prospectus supplement or post-effective amendment such
information as a Holder reasonably requests to be included therein relating to
the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by a Holder
holding any Registrable Securities.
 
(n) The Company shall use its reasonable best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.
 
4. Registration Expenses.  All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement.  The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with any Trading Market on which the Common Stock is then listed for
trading, (B) with respect to filings with FINRA for compensation review pursuant
to FINRA Rule 5110, and (C) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement.  In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
 
 
 
- 73 -

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

 
 
5. Indemnification.
 
(a) Indemnification by the Company.  The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, investment and legal advisors, partners, members
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable costs of preparation and reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for this
purpose) or (2) in the case of an occurrence of an event of the type specified
in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
an Advice or an amended or supplemented Prospectus, but only if and to the
extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have been
corrected.  The Company shall notify the Holders promptly of the institution,
threat or assertion of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement.
 
(b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, arising
solely out of or based solely upon: (x) such Holder's failure to comply with the
prospectus delivery requirements of the Securities Act or (y) any untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent that, (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement (it being understood that the Holder has
 
 
 
 
- 74 -

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

 
 
approved Annex A hereto for this purpose), such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the case of an
occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by
such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of an Advice or an amended or supplemented
Prospectus, but only if and to the extent that following the receipt of the
Advice or the amended or supplemented Prospectus the misstatement or omission
giving rise to such Loss would have been corrected.  In no event shall the
aggregate liability of any selling Holder under the Transaction Documents (as
defined in the Purchase Agreement) be greater in amount than the dollar amount
of the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
 
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an "Indemnified
Party"), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be determined by a court of competent
jurisdiction that such failure shall have proximately and materially adversely
prejudiced the Indemnifying Party.
 
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party).  The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld.  No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
 
All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
 
 
 
- 75 -

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

 
 
(d) Contribution.  If a claim for indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations.  The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission.  The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
 
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph.  Notwithstanding the provisions of this Section 5(d), (i) no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) no Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
 
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
 
6. Reports Under the Exchange Act.  With a view to making available to the
Holders the benefits of Rule 144 or any other similar rule or regulation of the
SEC that may at any time permit the Holders to sell Registrable Securities of
the Company to the public without registration, the Company agrees, for so long
as Registrable Securities are outstanding and held by the Holders, to:
 
(a) make and keep public information available, as those terms are understood,
defined and required in Rule 144;
 
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and
 
 
 
- 76 -

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

 
 
(c) furnish to each Holder so long as such Holder owns Registrable Securities,
promptly upon request, such information as may be reasonably and customarily
requested to permit the Holders to sell such securities pursuant to Rule 144
without registration.
 
7. Assignment of Registration Rights.  The rights under this Agreement shall be
automatically assignable by the Investors to any permitted transferee of all or
any portion of such Investor's Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within five (5) Business Days
after such assignment; (ii) the Company is, within five (5) Business Days after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act or applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement.
 
8. Miscellaneous.
 
(a) Remedies.  In the event of a breach by the Company or by a Holder, of any of
their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.  The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
 
(b) No Piggyback on Registrations.  Except for the shares identified on Annex C
hereto, which shall be included in the Registration Statement ("Permissible
Piggyback Shares"), neither the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) have the contractual right to
include securities of the Company in a Registration Statement other than the
Registrable Securities, and the Company shall not during the Effectiveness
Period enter into any agreement providing any such right to any of its security
holders.
 
(c) Compliance.  Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
 
(d) Discontinued Disposition.  Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(c), such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.  The
Company may provide appropriate stop transfer orders to enforce the provisions
of this paragraph.
 
 
 
- 77 -

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

 
 
(e) Piggy-Back Registrations.  If at any time during the Effectiveness
Period  there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen calendar days after receipt of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.
 
(f) Amendments and Waivers.  Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the Holders of no less than a majority in interest of the then
outstanding Registrable Securities.  No such amendment shall be effective to the
extent that it applies to less than all of the Holders.  No consideration shall
be offered or paid to any Person to amend or consent to a waiver or modification
of any provision of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.  Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of certain Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, further that no amendment or waiver to any
provision of this Agreement relating to naming any Holder or requiring the
naming of any Holder as an underwriter may be effected in any manner without
such Holder's prior written consent.  Section 2(a) may not be amended or waived
except by written consent of each Holder affected by such amendment or waiver.
 
(g) Notices.  Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered if delivered in accordance with Section
6.3 of the Purchase Agreement.
 
(h) Successors and Assigns.  This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder.  The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder.  Each Holder may assign their respective rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.
 
 
 
- 78 -

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

 
 
(i) Execution and Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same
Agreement.  In the event that any signature is delivered by facsimile or email
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile or email signature were the
original thereof.
 
(j) Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof.  Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective Affiliates, employees or agents) will
be commenced in the New York Courts.  Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum.  Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law.  Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any Proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby.  If
either party shall commence a Proceeding to enforce any provisions of this
Agreement, then the prevailing party in such Proceeding shall be reimbursed by
the other party for its attorney's fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Proceeding.
 
(k) Cumulative Remedies.  The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
 
(l) Entire Agreement. This Agreement, the other Transaction Documents (as
defined in the Purchase Agreement) and the instruments referenced herein and
therein constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein.  This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
 
(m) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
 
 
 
- 79 -

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

 
 
(n) Headings.  The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
 
(o) Independent Nature of Investors' Obligations and Rights.  The obligations of
each Investor under this Agreement are several and not joint with the
obligations of each other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other under this
Agreement.  Nothing contained herein or in any Transaction Document, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement or any other Transaction Document.  Each Investor
acknowledges that no other Investor will be acting as agent of such Investor in
enforcing its rights under this Agreement.  Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary for any
other Investor to be joined as an additional party in any Proceeding for such
purpose.  The Company acknowledges that each of the Investors has been provided
with the same Registration Rights Agreement for the purpose of closing a
transaction with multiple Holders and not because it was required or requested
to do so by any Investor.
 
[Signature Page Follows]
 
 
 
- 80 -

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

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

  COMPANY:           SMSA PALESTINE ACQUISITION CORP.          
 
By:
        Name: Yang Yongjie        Title:   Chief Executive Officer           

 

 

 

 
- 81 -

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

 

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

  NAME OF INVESTOR          
 
By:
        Name:       Title:              

 

 

 

  ADDRESS FOR NOTICE            
Company:
    Address:     Tel:         Fax:    Email:        Attention: 

 

 
 
 
- 82 -

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

 
 
 

Annex A
 
Plan of Distribution
 
The Selling Stockholders and any of their pledgees, donees, transferees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of Common Stock on any stock exchange, market or trading facility
on which the shares are traded or quoted or in private transactions.  These
sales may be at fixed or negotiated prices.  The Selling Stockholders may use
any one or more of the following methods when selling shares:
 
·  
ordinary brokerage transactions and transactions in which the broker-dealer
solicits Investors;

 
·  
block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction;

 
·  
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 
·  
an exchange distribution in accordance with the rules of the applicable
exchange;

 
·  
privately negotiated transactions;

 
·  
through the writing of options on the shares;

 
·  
to cover short sales made after the date that this Registration Statement is
declared effective by the Commission;

 
·  
broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share; and

 
·  
a combination of any such methods of sale.

 
The Selling Stockholders may also sell shares under Rule 144 of the Securities
Act of 1933, as amended (the "Securities Act"), if available, rather than under
this prospectus. The selling stockholders shall have the sole and absolute
discretion not to accept any purchase offer or make any sale of shares if it
deems the purchase price to be unsatisfactory at any particular time.
 
The Selling Stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then existing market
price. We cannot assure that all or any of the shares offered in this prospectus
will be issued to, or sold by, the Selling Stockholders. The Selling
Stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act, the Exchange Act and the rules
and regulations of such acts. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
 
 
 
- 83 -

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

 
 
We are required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the Selling Stockholders,
but excluding brokerage commissions or underwriter discounts.
 
The Selling Stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter.  The Selling Stockholders
have not entered into any agreement with a prospective underwriter and there is
no assurance that any such agreement will be entered into.
 
The Selling Stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a Selling Stockholder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares. The Selling Stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Exchange Act, and the rules and regulations under such act, including, without
limitation, Regulation M. These provisions may restrict certain activities of,
and limit the timing of purchases and sales of any of the shares by, the Selling
Stockholders or any other such person. In the event that any of the Selling
Stockholders are deemed an affiliated purchaser or distribution participant
within the meaning of Regulation M, then the Selling Stockholders will not be
permitted to engage in short sales of common stock. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. In addition, if a short sale is deemed to be a stabilizing activity,
then the Selling Stockholders will not be permitted to engage in a short sale of
our common stock. All of these limitations may affect the marketability of the
shares.
 
If a Selling Stockholder notifies us that it has a material arrangement with a
broker-dealer for the resale of the common stock, then we would be required to
amend the registration statement of which this prospectus is a part, and file a
prospectus supplement to describe the agreements between the Selling Stockholder
and the broker-dealer.  
 

 
 
- 84 -

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

 
Annex B
 

SMSA PALESTINE ACQUISITION CORP.

Selling Stockholder Notice and Questionnaire

 
The undersigned beneficial owner of common stock (the "Common Stock"), of SMSA
Palestine Acquisition Corp., a Nevada corporation (the "Company"), understands
that the Company has filed or intends to file with the Securities and Exchange
Commission (the "Commission") a Registration Statement for the registration and
resale of the Registrable Securities, in accordance with the terms of the
Registration Rights Agreement, dated as of [●], 2010 (the "Registration Rights
Agreement"), among the Company and the Investors named therein.  A copy of the
Registration Rights Agreement is available from the Company upon request at the
address set forth below.  All capitalized terms used and not otherwise defined
herein shall have the meanings ascribed thereto in the Registration Rights
Agreement.
 
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
 
QUESTIONNAIRE
 
 
1.
Name.

 

 
(a)
Full Legal Name of Selling Stockholder
   

 
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities Listed in Item 3 below are held:
   

 

 
(c)
Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by the questionnaire):
   

 
  2.  Address for Notices to Selling Stockholder:
 

     
Telephone:
 
Fax:
 
Contact Person:
 

 
 
 
- 85 -

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

 
 
3.  Beneficial Ownership of Registrable Securities:
 

 
 
Type and Principal Amount of Registrable Securities beneficially owned:
           

 
4.  Broker-Dealer Status:
 
 

 
 
(a)
Are you a broker-dealer?

 
Yes   o                      No   o
 
 
Note:
If yes, the Commission's staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 
 
(b)
Are you an affiliate of a broker-dealer?

 
Yes   o                      No   o
 
 
(c)
If you are an affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at the time of
the purchase of the Registrable Securities to be resold, you had no agreements
or understandings, directly or indirectly, with any person to distribute the
Registrable Securities?

 
Yes   o                      No   o
 
Note:
If no, the Commission's staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 
5.  Beneficial Ownership of Other Securities of the Company Owned by the Selling
Stockholder.

 
Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
 

 
 
Type and Amount of Other Securities beneficially owned by the Selling
Stockholder:
       

 
 
- 86 -

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

 

6.  Relationships with the Company:

 
Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.
 

 
 
State any exceptions here:
       

 
 
7.  The Company has advised each Selling Stockholder that it is the view of the
Commission that it may not use shares registered on the Registration Statement
to cover short sales of Common Stock made prior to the date on which the
Registration Statement is declared effective by the Commission, in accordance
with 1997 Securities and Exchange Commission Manual of Publicly Available
Telephone Interpretations Section A.65.  If a Selling Stockholder uses the
prospectus for any sale of the Common Stock, it will be subject to the
prospectus delivery requirements of the Securities Act.  The Selling
Stockholders will be responsible to comply with the applicable provisions of the
Securities Act and Exchange Act, and the rules and regulations thereunder
promulgated, including, without limitation, Regulation M, as applicable to such
Selling Stockholders in connection with resales of their respective shares under
the Registration Statement.
 
The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the Effective Date for the Registration Statement.
 
Certain legal consequences arise from being named as a Selling Stockholder in
the Registration Statement and related prospectus.  Accordingly, the undersigned
is advised to consult their own securities law counsel regarding the consequence
of being named or not being named as a Selling Stockholder in the Registration
Statement and the related prospectus.
 
By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus.  The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.  The undersigned hereby elects to include the
Registrable Securities owned by it and listed above in Item 3 (unless otherwise
specified in Item 3) in the Registration Statement.
 
 
 
- 87 -

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

 
 
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.
 
Dated:
Beneficial Owner:               By:         Name        Title           

 
 
PLEASE FAX OR EMAIL A COPY OF THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

Sheppard, Mullin, Richter & Hampton LLP
41/F Raffles City Office Tower
268 Xizang Road Central, Huangpu
Shanghai 200001, China
wzheng@sheppardmullin.com
Sahghai Fax - (86 21) 2321 6001
US Fax: (858) 720-8900
 
 
 
- 88 -

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

 
 
Annex C
 
Schedule of Holders of Permissible Piggyback Shares
 
Name of Holders of Permissible
 Piggyback Shares
Number of Permissible
Piggyback Shares
 
Contact Information
   
[________]
 
   
 
 
   
 
 
   
 
 
   
 
 

 
 

 
 
- 89 -

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

 

EXHIBIT D

CLOSING ESCROW AGREEMENT

This Closing Escrow Agreement, dated as of July [●], 2010 (this "Agreement"), is
entered into by and between Securities Transfer Corporation (the "Escrow
Agent"), SMSA Palestine Acquisition Corp. (the "Company") and each investor
identified on the signature pages hereto (the "Investors"), with respect to the
following facts:
 
A.           The Company and the Investors entered into a securities purchase
agreement (the "Purchase Agreement") dated as of July [●], 2010 pursuant to
which the Investors will purchase shares of the Company's common stock, par
value $0.001 per share (the "Shares") for an aggregate purchase price of up to
$20,000,000 (the "Investment Amount"); and
 
B.           The Company and the Investors desire to deposit all proceeds
received from subscriptions for the Shares pursuant to the Purchase Agreement
(the "Escrowed Funds") with the Escrow Agent, to be held in escrow until joint
written instructions are received by the Escrow Agent from the Company and CID
Venture Capital General Partner III, Limited (the "Investor Agent"), from time
to time, at which time the Escrow Agent will disburse the Escrowed Funds in
accordance with such instructions (a "Closing"); and
 
D.           Escrow Agent has agreed to act as escrow agent pursuant to the
terms and conditions of this Agreement.
 
NOW, THEREFORE, in consideration of the mutual promises herein contained, and
intending to be legally bound, the parties hereby agree as follows:
 
1. Appointment of Escrow Agent. Each Investor and the Company hereby appoints
Securities Transfer Corporation as Escrow Agent to act in accordance with the
Purchase Agreement and the terms and conditions set forth in this Agreement, and
Escrow Agent hereby accepts such appointment and agrees to act in accordance
with such terms and conditions.
 
2. Establishment of Escrow. The Escrowed Funds shall be deposited in an account
maintained by the Escrow Agent with Vision Bank, Texas in immediately available
funds by federal wire transfer.  The wire transfer details relating to such
account are:
 
UNITED STATES WIRING INSTRUCTIONS

Vision Bank-Texas
ABA#111925472
Credit to:  Securities Transfer Corporation Account L
Acct # 201566
 
 
 
- 90 -

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

 

OVERSEAS WIRING INSTRUCTIONS

The Bank of New York
ABA #021000018
Swift Code:  IRVTUS3N
Credit:  TIB Bank
ABA # 111010170
Beneficiary Bank:  Vision Bank-Texas
Acct # 1020288
Final Credit:  Securities Transfer Corporation Account L
Acct # 201566

3. Escrow Agent to Hold and Disburse Escrowed Funds. The Escrowed Funds shall be
segregated from the assets of Escrow Agent and held in trust for the benefit of
the Company and the Investors (who shall be deemed to have an interest in such
Escrowed Funds in proportion to the percentages indicated in Exhibit A) in
accordance herewith. The Escrow Agent will hold and disburse the Escrowed Funds
received by it pursuant to the terms of this Escrow Agreement, as follows:
 
(a) Upon receipt of joint instructions from the Company and the Investor Agent,
in substantially the form of Exhibit B hereto (the "Joint Instructions"), the
Escrow Agent shall release the Escrowed Funds, as directed in the
Joint  Instructions; and
 
(b) In the event that the Escrow Agent does not receive any instructions
pursuant to subparagraph (a) above by a date that is ten (10) days from the date
of this Agreement, the Escrowed Funds shall be returned to the parties from
which they were received, without interest thereon or deduction therefrom.
 
4. Interpleader. In the event this Agreement, the Escrowed Funds or the Escrow
Agent becomes the subject of litigation, the Company authorizes the Escrow
Agent, at its option, to deposit the Escrowed Funds with the clerk of the court
in which the litigation is pending, or a court of competent jurisdiction if no
litigation is pending, and thereupon the Escrow Agent shall be fully relieved
and discharged of any further responsibility with regard thereto; provided, that
five (5) Business Days prior to such deposit the Escrow Agent shall notify the
Company and the Investor Agent in writing of its intention to so deposit the
Escrow Funds. The Company also authorizes the Escrow Agent, if it receives
conflicting claims to the Escrowed Funds, is threatened with litigation, to
interplead all interested parties in any court of competent jurisdiction and to
deposit the Escrowed Funds with the clerk of that court and thereupon the Escrow
Agent shall be fully relieved and discharged of any further responsibility
hereunder to the parties from which they were received.
 
5. Exculpation and Indemnification of Escrow Agent.
 
(a) Escrow Agent is not a party to, and is not bound by or charged with notice
of any agreement (other than the Purchase Agreement) out of which this escrow
may arise. Escrow Agent acts under this Agreement as a depositary only and is
not responsible or liable in any manner whatsoever for the sufficiency,
correctness, genuineness or validity of the subject matter of the escrow, or any
part thereof, or for the form or execution of any notice given by any other
party hereunder, or for the identity or authority of any person executing any
such notice or depositing the Escrowed Funds. Escrow Agent will have no duties
or responsibilities other than those expressly set forth herein. Escrow Agent
will be under no liability to anyone by reason of any failure on the part of any
party hereto (other than Escrow Agent) or any maker, endorser or other signatory
of any document to perform such person's or entity's obligations hereunder or
under any such document. Except for this Agreement and the Joint Instructions to
Escrow Agent pursuant to the terms of this Agreement, Escrow Agent will not be
obligated to recognize any agreement between or among any or all of the persons
or entities referred to herein, notwithstanding its knowledge thereof.
 
 
 
- 91 -

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

 
 
(b) Escrow Agent will not be liable for any action taken or omitted by it, or
any action suffered by it to be taken or omitted, in good faith and in the
exercise of its own best judgment, and may rely conclusively on, and will be
protected in acting upon, any order, notice, demand, certificate, or opinion or
advice of counsel (including counsel chosen by Escrow Agent), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information therein contained) which is reasonably
believed by Escrow Agent to be genuine and to be signed or presented by the
proper person or persons. The duties and responsibilities of the Escrow Agent
hereunder shall be determined solely by the express provisions of this Agreement
and no other or further duties or responsibilities shall be implied, including,
but not limited to, any obligation under or imposed by any laws of the State of
[New York] upon fiduciaries.
 
(c)  Escrow Agent will be indemnified and held harmless by the Company from and
against any expenses, including reasonable attorneys' fees and disbursements,
damages or losses suffered by Escrow Agent in connection with any claim or
demand, which, in any way, directly or indirectly, arises out of or relates to
this Agreement or the services of Escrow Agent hereunder; except, that if Escrow
Agent is guilty of willful misconduct, fraud or gross negligence under this
Agreement, then Escrow Agent will bear all losses, damages and expenses arising
as a result of such willful misconduct, fraud or gross negligence. Promptly
after the receipt by Escrow Agent of notice of any such demand or claim or the
commencement of any action, suit or proceeding relating to such demand or claim,
Escrow Agent will notify the other parties hereto in writing. For the purposes
hereof, the terms "expense" and "loss" will include all amounts paid or payable
to satisfy any such claim or demand, or in settlement of any such claim, demand,
action, suit or proceeding settled with the express written consent of the
parties hereto, and all costs and expenses, including, but not limited to,
reasonable attorneys' fees and disbursements, paid or incurred in investigating
or defending against any such claim, demand, action, suit or proceeding. The
provisions of this Section 5 shall survive the termination of this Agreement.
 
6. Compensation of Escrow Agent. Escrow Agent shall be entitled to compensation
for its services as stated in the fee schedule attached hereto as Exhibit C,
which compensation shall be paid by the Company. The fee agreed upon for the
services rendered hereunder is intended as full compensation for Escrow Agent's
services as contemplated by this Escrow Agreement; provided, however, that in
the event that Escrow Agent renders any material service not contemplated in
this Escrow Agreement, or any material modification hereof, or if any material
controversy arises hereunder, or Escrow Agent is made a party to any litigation
pertaining to this Escrow Agreement, or the subject matter hereof, then Escrow
Agent shall be reasonably compensated by the Company for such extraordinary
services and reimbursed for all costs and expenses, including reasonable
attorney's fees, occasioned by any delay, controversy, litigation or event, and
the same shall be recoverable from the Company. Prior to incurring any costs
and/or expenses in connection with the foregoing sentence, Escrow Agent shall be
required to provide written notice to the Company of such costs and/or expenses
and the relevancy thereof and Escrow Agent shall not be permitted to incur any
such costs and/or expenses which are not related to litigation prior to
receiving written approval from the Company, which approval shall not be
unreasonably withheld.
 
 
 
- 92 -

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

 
 
7. Resignation of Escrow Agent. At any time, upon ten (10) days' written notice
to the Company and the Investor Agent, Escrow Agent may resign and be discharged
from its duties as Escrow Agent hereunder. As soon as practicable after its
resignation, Escrow Agent will promptly turn over to a successor escrow agent
appointed by the Company and the Investor Agent all monies and property held
hereunder upon presentation of a document appointing the new escrow agent and
evidencing its acceptance thereof. If, by the end of the 10-day period following
the giving of notice of resignation by Escrow Agent, the Company and the
Investor Agent shall have failed to appoint a successor escrow agent, Escrow
Agent may interplead the Escrowed Funds into the registry of any court having
jurisdiction.
 
8. Method of Distribution by Escrow Agent. All disbursements by Escrow Agent to
a party to this Agreement will be made by wire transfer of immediately available
funds to an account designated in writing by the party (it being understood that
the Exhibits hereto constitute such writings) to receive any such payment.
 
9. Records. Escrow Agent shall maintain accurate records of all transactions
hereunder. Promptly after the termination of this Agreement or as may reasonably
be requested by the parties hereto from time to time before such termination,
Escrow Agent shall provide the parties hereto, as the case may be, with a
complete copy of such records, certified by Escrow Agent to be a complete and
accurate account of all such transactions. The authorized representatives of
each of the parties hereto shall have access to such books and records at all
reasonable times during normal business hours upon reasonable notice to Escrow
Agent.
 
10. Notice. All notices, communications and instructions required or desired to
be given under this Agreement must be in writing and shall be deemed to be duly
given if sent by registered or certified mail, return receipt requested, or
overnight courier to the following addresses:
 
If to Escrow Agent:
 
Securities Transfer Corporation
   
2591 Dallas Parkway, Suite 102
   
Frisco, Texas 75034
   
Attention: Kevin Halter
     
If to the Company:
 
SMSA Palestine Acquisition Corp.
   
Shuinan Industrial Area
   
Songxi County, Fujian Province, China 610000
   
Attention: Chief Executive Officer

 
 
 
- 93 -

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

 
 
 
                   With a copy to:
 
Sheppard Mullin Richter & Hampton LLP
   
122275 El Camino Real, Suite 200
   
San Diego, CA 92130 USA
   
Facsimile: (202) 663-8007
   
Attn.: James A Mercer III, Esq.
     
If to a Investor:
 
To the address set forth on such Investor's
   
signature page to the Purchase Agreement

 
or to such other address and to the attention of such other person as any of the
above may have furnished to the other parties in writing and delivered in
accordance with the provisions set forth above.
 
11. Entire Agreement.  This Agreement is the final expression of, and contains
the entire agreement between, the parties with respect to the subject matter
hereof and supersedes all prior understandings with respect thereto. This
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
 
12. Assignment and Modification.  This Agreement and the rights and obligations
hereunder of any of the parties hereto may not be assigned without the prior
written consent of the other parties hereto. Subject to the foregoing, this
Agreement will be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and permitted assigns. No other person
will acquire or have any rights under, or by virtue of, this Agreement. No
portion of the Escrowed Funds shall be subject to interference or control by any
creditor of any party hereto, or be subject to being taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of any
such party hereto prior to the disbursement thereof to such party hereto in
accordance with the provisions of this Agreement. This Agreement may be changed
or modified only in writing signed by all of the parties hereto.
 
13. Merger or Consolidation of Escrow Agent.  Any corporation or association
into which the Escrow Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer all or substantially all of
its corporate trust business and assets as a whole or substantially as a whole,
or any corporation or association resulting from any such conversion, sale,
merger, consolidation or transfer to which the Escrow Agent is a party, shall be
and become the successor escrow agent under this Agreement and shall have and
succeed to the rights, powers, duties, immunities and privileges as its
predecessor, without the execution or filing of any instrument or paper or the
performance of any further act.
 
14. Applicable Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, USA APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED THEREIN. THE PARTIES EXPRESSLY WAIVE SUCH DUTIES AND
LIABILITIES, IT BEING THEIR INTENT TO CREATE SOLELY AN AGENCY RELATIONSHIP AND
HOLD THE ESCROW AGENT LIABLE ONLY IN THE EVENT OF ITS WILLFUL MISCONDUCT, FRAUD,
OR GROSS NEGLIGENCE. ANY LITIGATION CONCERNING THE SUBJECT MATTER OF THIS
AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE STATE OR FEDERAL COURTS SITTING
IN THE [CITY OF NEW YORK, STATE OF NEW YORK], AND ALL PARTIES CONSENT TO THE
EXCLUSIVE JURISDICTION AND VENUE OF THOSE COURTS.
 
 
 
- 94 -

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

 
 
15. Attorneys' Fees.  If any action at law or in equity, including an action for
declaratory relief, is brought to enforce or interpret the provisions of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees from the other party (unless such other party is the Escrow
Agent), which fees may be set by the court in the trial of such action or may be
enforced in a separate action brought for that purpose, and which fees shall be
in addition to any other relief that may be awarded.
 
16. Waiver.  No waiver of, or  any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
the time for performance of any other obligation or act.
 
17. Headings.  The headings contained in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
 
18. Construction.  Whenever required by the context of this Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if all parties had prepared the same.
 
19. Further Instruments.  If this Agreement reasonably requires other or further
instruments in connection with this Agreement or obligations in respect hereto,
the necessary parties hereto shall use its best efforts to join in furnishing
such instruments.
 
20. Execution in Counterparts.  This Agreement may be executed in counterparts
and may be delivered by facsimile transmission or electronic mail in portable
document format or other means intended to preserve the original graphic content
of a signature.  Each such counterpart shall be deemed an original, but all of
which together shall constitute one and the same instrument.
 
 
 
- 95 -

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

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

 
SMSA PALESTINE ACQUISITION CORP.
               
By: _______________________
   
Name: Yang Yongjie
   
Title: Chief Executive Officer
         
SECURITIES TRANSFER CORPORATION
               
By: _______________________
   
Name:
   
Title:
 

 
 
- 96 -

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

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

 
INVESTOR:
               
By: ___________________________
   
Name:
 
Title:

 

 
- 97 -

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

 
 
EXHIBIT A
 
INVESTMENT INFORMATION FORM
 
Name of Investor:
   
Address of Investor:
                           
Aggregate Investment Amount:
   
Percentage of Total:
   
Aggregate Number of Shares:
   
Taxpayer ID Number:
   
Social Security Number:
   

 

 
 
- 98 -

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

 

 
EXHIBIT B
 
FORM OF DISBURSEMENT REQUEST
 
__________, 2010
 
SECURITIES TRANSFER CORPORATION, as Escrow Agent
2591 Dallas Parkway, Suite 102
Frisco, Texas 75034
Attention: Kevin Halter
 
Re: SMSA Palestine Acquisition Corp. - Disbursement Request and Wire Transfer
Instructions
 
Ladies and Gentlemen:
 
     Pursuant to that certain Closing Escrow Agreement by and among SMSA
Palestine Acquistion Corp., the Investors named therein and the Escrow Agent,
the undersigned hereby request disbursement of the Purchase Price by wire
transfer from your trust account per the instructions set forth on Schedule 1
attached hereto.
 

 
SMSA PALESTINE ACQUISITION CORP.
               
By: ________________________________
   
Name:
   
Title:
                     
[●]
               
By: ________________________________
   
Name:
   
Title:
 

 

 
 
- 99 -

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

 
EXHIBIT C
 
SECURITIES TRANSFER CORPORATION ESCROW AGENT FEE SCHEDULE
 

 
ESCROW AGENT SERVICES
 
Establishment of Escrow Account
$3,500.00
Receive, Examine and Process Subscription Agreements
$20.00 per Subscription
Envelopes & Postage
Included
Prepare & Print Checks for Disbursement of Escrowed funds
Included
Wire Transfer of Escrowed funds
Included

 
 
 
- 100 -

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

 
 
 
EXHIBIT E

MAKE GOOD ESCROW AGREEMENT

This Make Good Escrow Agreement (the "Make Good Agreement"), dated as of [●],
2010, is entered into by and among SMSA Palestine Acquisition Corp., a Nevada
corporation (the "Company"), Cai Yangbo (the "Make Good Pledgor"), CID Venture
Capital General Partner III, Limited, as Investor agent (the "Investor Agent")
and Securities Transfer Corporation, a Texas corporation, as escrow agent
("Escrow Agent"), with respect to the following facts:
 
A.           Each of the investors in the private offering of securities of the
Company (the "Investors") has entered into a Securities Purchase Agreement,
dated the date of this Make Good Agreement (the "Securities Purchase
Agreement"), evidencing their participation in the Company's private offering
(the "Offering") of securities.
 
B.           As an inducement to the Investors to participate in the Offering
and as set forth in the Securities Purchase Agreement, the Make Good Pledgor has
agreed to place certain shares of the Company's common stock, par value $0.001
per share (the "Common Stock") owned by him into escrow for the benefit of the
Investors in the event the Company fails to satisfy certain financial thresholds
as set forth in this Make Good Agreement.
 
C.           Pursuant to the requirements of the Securities Purchase Agreement,
the Company and the Make Good Pledgor have agreed to establish an escrow on the
terms and conditions set forth in this Make Good Agreement;
 
D.           The Company and the Make Good Pledgor have requested that the
Escrow Agent hold the Escrow Shares (as defined below) and the Escrow Agent has
agreed to act as escrow agent pursuant to the terms and conditions of this Make
Good Agreement; and
 
E.           All capitalized terms used but not defined herein which are defined
in the Securities Purchase Agreement shall have the respective meanings given to
such terms in the Securities Purchase Agreement;
 
NOW, THEREFORE, in consideration of the mutual promises of the parties and the
terms and conditions hereof, and intending to be legally bound, the parties
agree as follows:
 
1. Appointment of Escrow Agent.  The Make Good Pledgor and the Company hereby
appoint Escrow Agent to act as Escrow Agent in accordance with the terms and
conditions set forth in this Make Good Agreement, and Escrow Agent hereby
accepts such appointment and agrees to act as Escrow Agent in accordance with
such terms and conditions.
 
 
 
- 101 -

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

 
 
2. Establishment of Escrow.  Within three Business Days following the Closing,
the Make Good Pledgor shall deliver, or cause to be delivered, to the Escrow
Agent certificates evidencing an aggregate number of shares of the Company's
Common Stock equal to the number of PIPE Common Shares (the "Initial Escrow
Shares" and together with the Replenishment Shares (as defined in Section 4.7(a)
of the Securities Purchase Agreement, collectively, the "Escrow Shares"), along
with bank signature stamped stock powers executed in blank (or such other signed
instrument of transfer acceptable to the Company's Transfer Agent).  As used in
this Make Good Agreement, "Transfer Agent" means Securities Transfer
Corporation, or such other entity hereafter retained by the Company as its stock
transfer agent as specified in a writing from the Company to the Escrow
Agent.  The Make Good Pledgor hereby irrevocably agrees that, other than in
accordance with Section 4.7 of the Securities Purchase Agreement and this Make
Good Agreement, the Make Good Pledgor will not offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, or announce the offering of any of the
Escrow Shares (including any securities convertible into, or exchangeable for,
or representing the rights to receive Escrow Shares).  In furtherance thereof,
the Company will (x) place a stop transfer order on all Escrow Shares which
shall expire on the date the Escrow Shares are delivered to the Investors or
returned to the Make Good Pledgor, (y) notify the Transfer Agent in writing of
the stop transfer order and the restrictions on such Escrow Shares under this
Make Good Agreement and direct the Transfer Agent not to process any attempts to
resell or transfer by the Make Good Pledgor any Escrow Shares before the date
when such Escrow Shares are delivered to the Investors or returned to the Make
Good Pledgor, or otherwise in violation of Section 4.7 of the Securities
Purchase Agreement and this Make Good Agreement.  The Company shall notify the
Investors as soon as the Initial Escrow Shares and the Replenishment Shares have
been deposited with the Escrow Agent.
 
3. Representations of Make Good Pledgor.  The Make Good Pledgor (as to itself
and its Escrowed Shares) hereby represents and warrants to the Investors as
follows:
 
 
(i)
The Make Good Pledgor is the record owner of the Escrow Shares.  All of the
Escrow Shares are validly issued, fully paid and nonassessable shares of the
Company, and free and clear of all Liens.  There are no restrictions on the
ability of the Make Good Pledgor to transfer the Escrow Shares to the Investors,
except as stated herein.  1There are no restrictions on the ability of the Make
Good Pledgor to enter into this Make Good Agreement other than transfer
restrictions under applicable federal and state securities laws.  Upon any
transfer of Escrow Shares to Investors hereunder, Investors will receive full
right, title and authority to such shares as holders of Common Stock of the
Company free and clear of all liens other than those imposed by U.S. Federal
Securities laws.

 
 
(ii)
Performance of this Make Good Agreement and compliance with the provisions
hereof will not violate any provision of any applicable law and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien upon any of the properties or assets of Make Good Pledgor
pursuant to the terms of any indenture, mortgage, deed of trust or other
agreement or instrument binding upon Make Good Pledgor or such properties or
assets, other than such breaches, defaults or Liens which would material
adversely affect the ability of Make Good Pledgor to fulfill its obligations
under this Make Good Agreement.  No notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
is necessary for the execution, delivery or performance of this Make Good
Agreement or the consummation of the transactions contemplated hereby by the
Make Good Pledgor.

 
 
 

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

1 WSGR to Company: what about the Option agreement between the Make Good Pledgor
and the Founder? Please revise the Option agreement to make sure that the
Founder's ability to exercise the option must be subject to the Investors'
rights under Section 4.7 of the SPA and the Make Good Escrow Agreement
 
 
- 102 -

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

 
 
(iii)
The Make Good Pledgor has carefully considered and understands its obligations
and rights under Section 4.7 of the Securities Purchase Agreement and this Make
Good Agreement, and in furtherance thereof (x) has consulted with its legal and
other advisors with respect thereto and (y) hereby forever waives and agrees
that it may not assert any equitable defenses in any Proceeding involving the
Escrow Shares.

 
4. Disbursement of Escrow Shares.
 
(a) In the event that the "Earnings Per Share on a Fully-Diluted Basis" (as
defined below) of the Company for fiscal year 2010 is less than the "2010
Guaranteed EPS", the Escrow Agent (on behalf of the Make Good Pledgor) will,
without any further action on the part of the Investors, transfer a number of
2010 Make Good Shares (as defined and calculated below) to the Investors on a
pro rata basis (determined by dividing each Investor's Investment Amount by the
aggregate of all Investment Amounts delivered to the Company by the Investors
under the Securities Purchase Agreement) ("Pro Rata Basis") as specified in
Exhibit A to this Make Good Agreement for no consideration other than payment of
their respective Investment Amount paid to the Company at Closing and without
the need of any Investor to take any action with respect thereto.  For purposes
of this Agreement the 2010 Guaranteed EPS shall be the number determined by
$18,147,165 divided by the total number of shares of the Common Stock
outstanding immediately following the Closing.  The aggregate number of "2010
Make Good Shares" means a number of shares of Common Stock equal to the PIPE
Common Shares. The Make Good Pledgor shall deposit into escrow such additional
number of share of Common Stock equal to the Actual 2010 Make Good Shares (the
"Replenishment Shares") so that the aggregate number of shares of Common Stock
remain in escrow shall be equal to the number of 2010 Make Good Shares (such
aggregate number of shares of Common Stock in escrow, the "2011 Make Good
Shares").  The number of 2010 Make Good Shares transferrable to the Investors
shall be equal to (the result of such calculation, "Actual 2010 Make Good
Shares"):
 
[(2010 Guaranteed EPS – Earnings Per Share on a Fully-Diluted Basis for fiscal
year 2010)/Earning Per Share on a Fully-Diluted Basis for fiscal year 2010] *
aggregate number of 2010 Make Good Shares
 
(b) In the event that the "Earnings Per Share on a Fully-Diluted Basis" (as
defined below) of the Company for fiscal year 2011 is less than the "2011
Guaranteed EPS", the Escrow Agent (on behalf of the Make Good Pledgor) shall,
without any further action on the part of the Investors, transfer a number of
2010 Make Good Shares (as calculated below) to the Investors on a Pro Rata Basis
as specified in Exhibit A to this Make Good Agreement for no consideration other
than payment of their respective Investment Amount paid to the Company at
Closing and without the need of any Investor to take any action with respect
thereto.  For purposes of this Agreement 201l Guaranteed EPS shall be the number
determined by $27,264,217 divided by the total number of shares of the Common
Stock outstanding immediately following the Closing.  The aggregate number of
2011 Make Good Shares transferrable to the Investors shall be equal to (the
result of such calculation, the "Actual 2011 Make Good Shares" and together with
the Actual 2010 Make Good Shares, collectively, the "Actual Make Good Shares"):
 
 
 
- 103 -

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

 
 
[(2011 Guaranteed EPS – Earnings Per Share on a Fully-Diluted Basis for fiscal
year 2011)/Earnings Per Share on a Fully-Diluted Basis for fiscal year 2011] *
aggregate number of 2011 Make Good Shares – the Actual 2010 Make Good Shares
 
(c) For purposes hereof, "Earnings Per Share on a Fully-Diluted Basis," for a
given fiscal year ending December 31, 2010 or December 31, 2011 (as applicable)
shall be calculated on a weighted average basis in accordance with the GAAP
calculation of diluted earnings per share of Common Stock, except that (i)
11,685,617 shares of Common Stock issued in the Exchange and the total PIPE
Common Shares shall be deemed to have been issued on January 1, 2010, (ii) the
Warrant Shares, the shares of Common Stock issuable upon exercise of the
warrants issued to the Placement Agents pursuant to the Letter Agreement dated
January 28, 2010 by and between WFOE and [intentionally omitted], as amended by
the Amendment and Joinder Agreement dated June 10, 2010 by and among WFOE,
[intentionally omitted], and the shares of Common Stock issuable upon the
exercise of the warrants issued to [intentionally omitted] for their financial
advisory services to the Company, shall not be included in the calculation, and
(iii) expenses incurred by the Company as a result of the release of any of the
2011 Make Good Shares to the Make Good Pledgor shall not be deemed to be an
expense, charge, or any other deduction from revenues even though GAAP may
require contrary treatment or the Annual Report for the respective fiscal years
filed with the Commission by the Company may report otherwise.  Notwithstanding
anything to the contrary set forth herein and in Section 4.7(a) and (b) of the
Securities Purchase Agreement, in the event that the Company reports a net loss
in the 2010 Annual Report, the Actual 2010 Make Good Shares shall be equal to
the 2010 Make Good Shares and in the event that the Company reports a net loss
in the 2011 Annual Report, the Actual 2011 Make Good Shares shall be equal to
the 2011 Make Good Shares.
 
(d) In connection with the foregoing, the Make Good Pledgor agrees that (i)
within five Business Day following the Closing, the Make Good Pledgor will
deposit all 2010 Make Good Shares into escrow, and (ii) within five Business Day
following the 2010 Delivery Date, the Make Good Pledgor will deposit the
Replenishment Shares into escrow, each in accordance with this Make Good
Agreement along with stock powers executed in blank (or such other signed
instrument of transfer acceptable to the Company's transfer agent), and the
handling and disposition of the 2010 Make Good Shares and 2011 Make Good Shares
shall be governed by this Make Good Agreement and the Securities Purchase
Agreement. The Company shall notify the Investors as soon as the 2010 Make Good
Shares and the Replenishment Shares have been deposited with the Make Good
Escrow Agent. The Make Good Pledgor understands and agrees that the Investors'
right to receive the Actual 2010 Make Good Shares and the Actual 2011 Make Good
Shares pursuant to this Make Good Agreement and the Securities Purchase
Agreement shall continue to run to the benefit of each Investor even if such
Investor shall have transferred or sold all or any portion of its Shares, and
that each Investor shall have the right to assign its rights to receive all or
any such shares of Common Stock to other Persons in conjunction with negotiated
sales or transfers of any of its Shares. The Make Good Pledgor represents and
warrants that he has carefully considered and understands his obligations and
rights under this Make Good Agreement and the Securities Purchase Agreement, and
in furtherance thereof (x) has consulted with his legal and other advisors with
respect thereto and (y) hereby forever waives and agrees that he may not assert
any equitable defenses in any Proceeding involving either of the 2010 Make Good
Shares and/or 2011 Make Good Shares.
 
 
 
- 104 -

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

 
 
(e) The Investor Agent will deliver to the Escrow Agent a letter which shall
contain its calculation of the Actual make Good Shares for the applicable year
(with a copy to the Company).  The Escrow Agent need only rely on such letter
from the Investor Agent and will disregard any contrary or further calculations
or instructions in such regard delivered by or on behalf of the Company.  In the
event that the Earnings Per Share on a Fully-Diluted Basis for 2010 is equal to
or greater than the 2010 Guaranteed EPS, no transfer of the 2010 Make Good
Shares shall be required by the Make Good Pledgor to the Investors under this
Section and such 2010 Make Good Shares shall remain in escrow in accordance with
the Securities Purchase Agreement and this Make Good Agreement.  In the event
that the Earnings Per Share on a Fully-Diluted Basis" for 2011 is equal to or
greater than the 2011 Guaranteed EPS, no transfer of the 2011 Make Good Shares
shall be required by the Make Good Pledgor to the Investors under this Section
and the Escrow Agent will, without any further action on the part of the
Investors, return the 2011 Make Good Shares to the Make Good Pledgor.
 
(f) If, prior to June 30, 2014, the Company or the auditors of the Company's
financial statements for fiscal years 2010 and/or 2011 report or recognize that
the financial statements contained in the Company's 2010 Annual Report or the
2011 Annual Report are subject to amendment or restatement which would result in
the Company's adjusted "Earnings Per Share on a Fully-Diluted Basis" for 2010
and/or 2011 being less than the 2010 Guaranteed EPS or the 2011 Guaranteed EPS
(as applicable), then notwithstanding any prior return of any Make Good Shares
to the Make Good Pledgor, the Make Good Pledgor will, without any further action
on the part of the Investors, within 10 Business Days following the earlier of
the filing of such amendment or restatement or recognition, deliver the number
of the Shares to the Investors so that the total number of Make Good Shares
delivered to the Investors shall be equal to the sum of the Actual 2010 Make
Good Shares and the Actual 2011 Make Good Shares each as calculated in
accordance with the Securities Purchase Agreement and this Make Good Agreement
using the adjusted "Earnings Per Share on a Fully-Diluted Basis" for the
applicable year.
 
(g) Pursuant to Section 4(e), if the Investor Agent delivers a notice to the
Escrow Agent that the Escrow Shares are to be transferred to the Investors, then
the Escrow Agent shall immediately forward either the 2010 Make Good Shares or
2011 Make Good Shares, as the case may be, to the Company's Transfer Agent for
reissuance to the Investors in an amount to each Investor in accordance with
this Make Good Agreement.  The Company covenants and agrees that upon any
transfer of 2010 Make Good Shares or 2011 Make Good Shares to the Investors in
accordance with this Make Good Agreement, the Company shall promptly instruct
its Transfer Agent to reissue such 2010 Make Good Shares or 2011 Make Good
Shares in the applicable Investor's name and deliver the same, or cause the same
to be delivered as directed by such Investor.  If the Company does not provide
such instructions to the Transfer Agent of the Company within five (5) Business
Days of receipt of the notice that the Escrow Shares are to be transferred to
the Investors, then the Investor Agent is hereby irrevocably authorized and
directed by the Company to give such re-issuance instruction to the Transfer
Agent of the Company.  If a notice from the Investor Agent pursuant to Section
4(e) indicates that the Escrow Shares are to be returned to the Make Good
Pledgor, then the Escrow Agent will promptly deliver either the applicable
number of Shares to the Make Good Pledgor in accordance with instructions
provided by the Make Good Pledgor at such time.
 
 
 
- 105 -

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

 
 
(h) The Company agrees that any Actual 2010 Make Good Shares and Actual 2011
Make Good Shares to be issued to the Investors will be properly treated for
United States tax purposes as constituting a non-taxable purchase price
adjustment within the meaning of U.S. Treasury Regulation Section 1.305-1(c)
and, accordingly, the Company shall effect all applicable tax reporting and all
withholding tax determinations on a basis consistent with such non-taxable
purchase price adjustment treatment.
 
(i) If the Company shall at any time after the date hereof (A) declare and pay a
dividend or make a distribution on Common Stock, or (B) subdivide or split the
outstanding shares of Common Stock into a greater number of shares, or (C)
combine or reclassify the outstanding shares of Common Stock into a smaller
number of shares, or (D) make any other similar changes to its share capital,
the Investors shall be entitled to receive (i) the proportionately adjusted
number of the Actual 2010 Make Good Shares or the Actual 2011 Make Good Shares,
as applicable, and (ii) all dividends and other distributions made on the Actual
2010 Make Good Shares or the Actual 2011 Make Good Shares, as applicable, that
the Investors would have received had the Investors received such Actual Make
Good Shares at the Closing.
 
(j) The Company and the Make Good Pledgor covenant and agree to provide the
Escrow Agent with certified tax identification numbers by furnishing appropriate
forms W-9 or W-8 and such other forms and documents that the Escrow Agent may
request, including appropriate W-9 or W-8 forms for each Investor.  The Company
and the Make Good Pledgor understand that if such tax reporting documentation is
not provided and certified to the Escrow Agent, the Escrow Agent may be required
by the Internal Revenue Code of 1986, as amended, and the Regulations
promulgated thereunder, to withhold a portion of any interest or other income
earned on the investment of the Escrow Shares.
 
(k) If any term or provision of Section 4.7 of the Securities Purchase Agreement
contradicts or conflicts with any term or provision of this Make Good Agreement,
the terms of the this Make Good Agreement shall control.
 
5. Notice of Filings
 
  The Company agrees to promptly provide the Investor Agent written notice of
the filing with the Commission of any financial statements or reports referenced
herein.
 
 
 
- 106 -

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

 
 
6. Escrow Shares.
 
(a) If any Escrow Shares are deliverable to the Investors in accordance with
this Make Good Agreement, (i) the Make Good Pledgor covenants and agrees to
execute all such instruments of transfer (including stock powers and assignment
documents) as are customarily executed to evidence and consummate the transfer
of the Escrow Shares from Make Good Pledgor to the Investors, to the extent not
done so in accordance with Section 2, and (ii) following its receipt of the
documents referenced in Section 6(i), the Company and Escrow Agent covenant and
agree to cooperate with the Transfer Agent so that the Transfer Agent may
promptly reissue such Escrow Shares in the applicable Investor's name and
deliver the same as provided herein or otherwise directed in writing by the
applicable Investors.  Until such time as (if at all) the Escrow Shares are
required to be delivered pursuant to the Securities Purchase Agreement and in
accordance with this Make Good Agreement, (i) any dividends payable in respect
of the Escrow Shares and all voting rights applicable to the Escrow Shares shall
be retained by the Make Good Pledgor and (ii) should the Escrow Agent receive
dividends or voting materials, such items shall not be held by the Escrow Agent,
but shall be passed immediately on to the Make Good Pledgor and shall not be
invested or held for any time longer than is needed to effectively re-route such
items to the Make Good Pledgor.  In the event that the Escrow Agent receives a
communication requiring the conversion of the Escrow Shares to cash or the
exchange of the Escrow Shares for that of an acquiring company, the Escrow Agent
shall solicit and follow the written instructions of the Make Good Pledgor;
provided, that the cash or exchanged shares are instructed to be redeposited
into the Escrow Account.  Make Good Pledgor shall be responsible for all taxes
resulting from any such conversion or exchange; provided, however, that the
portion of the taxes attributable to the conversion of the Escrow Shares can be
paid from, and deducted from, the proceeds to be redeposited into the Escrow
Account.
 
(b) Assuming the Make Good Pledgor provides good and valid title to the Escrow
Shares to be transferred and delivered on behalf of the Make Good Pledgor to the
Investors hereunder, free and clear of all liens, encumbrances, equities or
claims, the Escrow Agent will ensure that upon delivery of the Escrow Shares,
good and valid title to the Escrow Shares, free and clear of all liens,
encumbrances, equities or claims will pass to the Investors.  The Escrow Agent
shall not take any action which could impair Investors' rights in the Escrow
Shares.  The Escrow Agent shall not sell, transfer, assign or otherwise dispose
of (by operation of law or otherwise) or grant any option with respect to any
Escrow Shares prior to the termination of this Make Good Agreement.
 
7. Interpleader.  Should any controversy arise among the parties hereto with
respect to this Make Good Agreement or with respect to the right to receive the
Escrow Shares, Escrow Agent and/or the Investor Agent shall have the right to
consult and hire counsel and/or to institute an appropriate interpleader action
to determine the rights of the parties.  Escrow Agent and/or the Investor Agent
are also each hereby authorized to institute an appropriate interpleader action
upon receipt of a written letter of direction executed by the parties so
directing either Escrow Agent or the Investor Agent.  If Escrow Agent or the
Investor Agent is directed to institute an appropriate interpleader action, it
shall institute such action not prior to thirty (30) days after receipt of such
letter of direction and not later than sixty (60) days after such date.  Any
interpleader action instituted in accordance with this Section 7 shall be filed
in any court of competent jurisdiction in the State of New York, and the Escrow
Shares in dispute shall be deposited with the court and in such event Escrow
Agent and the Investor Agent shall be relieved of and discharged from any and
all obligations and liabilities under and pursuant to this Make Good Agreement
with respect to the Escrow Shares and any other obligations hereunder.
 
 
 
- 107 -

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

 
 
8. Exculpation and Indemnification of Escrow Agent and the Investor Agent.
 
(a) Escrow Agent is not a party to, and is not bound by or charged with notice
of any agreement out of which this escrow may arise.  Escrow Agent acts under
this Make Good Agreement as a depositary only and is not responsible or liable
in any manner whatsoever for the sufficiency, correctness, genuineness or
validity of the subject matter of the escrow, or any part thereof, or for the
form or execution of any notice given by any other party hereunder, or for the
identity or authority of any person executing any such notice.  Escrow Agent
will have no duties or responsibilities other than those expressly set forth
herein.  Escrow Agent will be under no liability to anyone by reason of any
failure on the part of any party hereto (other than Escrow Agent) or any maker,
endorser or other signatory of any document to perform such person's or entity's
obligations hereunder or under any such document.  Except for this Make Good
Agreement and instructions to Escrow Agent pursuant to the terms of this Make
Good Agreement, Escrow Agent will not be obligated to recognize any agreement
between or among any or all of the persons or entities referred to herein,
notwithstanding its knowledge thereof.  The Investor Agent's sole obligation
under this Make Good Agreement is to provide written instruction to Escrow Agent
(following such time as the Company files certain periodic financial reports as
specified in Section 4 hereof) directing the distribution of the Escrow
Shares.  The Investor Agent will provide such written instructions upon review
of the relevant After Tax Net Income amount reported in such periodic financial
reports as specified in Section 4 hereof.  The Investor Agent is not charged
with any obligation to conduct any investigation into the financial reports or
make any other investigation related thereto.  In the event of any actual or
alleged mistake or fraud of the Company, its auditors or any other person (other
than the Investor Agent) in connection with such financial reports of the
Company, the Investor Agent shall have no obligation or liability to any party
hereunder.
 
(b) Neither Escrow Agent nor the Investor Agent will be liable for any action
taken or omitted by it, or any action suffered by it to be taken or omitted,
absent gross negligence or willful misconduct.  Escrow Agent and the Investor
Agent may each rely conclusively on, and will be protected in acting upon, any
order, notice, demand, certificate, or opinion or advice of counsel (including
counsel chosen by Escrow Agent or the Investor Agent, as applicable), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information therein contained) which is reasonably
believed by Escrow Agent or the Investor Agent, as applicable, to be genuine and
to be signed or presented by the proper person or persons.  The duties and
responsibilities of Escrow Agent and the Investor Agent hereunder shall be
determined solely by the express provisions of this Make Good Agreement and no
other or further duties or responsibilities shall be implied, including, but not
limited to, any obligation under or imposed by any laws of the State of New York
upon fiduciaries.  NEITHER THE ESCROW AGENT NOR THE INVESTOR AGENT SHALL BE
LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING
OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES
WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW
AGENT'S OR THE INVESTOR AGENT'S, AS THE CASE MAY BE, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY
KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS), EVEN IF THE
ESCROW AGENT OR THE INVESTOR AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.
 
 
 
- 108 -

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

 
 
(c) The Company and the Make Good Pledgor each hereby, jointly and severally,
indemnify and hold harmless each of Escrow Agent, the Investor Agent and any of
their principals, partners, agents, employees and affiliates from and against
any expenses, including reasonable attorneys' fees and disbursements, damages or
losses suffered by Escrow Agent or the Investor Agent in connection with any
claim or demand, which, in any way, directly or indirectly, arises out of or
relates to this Make Good Agreement or the services of Escrow Agent or the
Investor Agent hereunder; except, that if Escrow Agent or the Investor Agent is
guilty of willful misconduct or gross negligence under this Make Good Agreement,
then Escrow Agent or the Investor Agent, as the case may be, will bear all
losses, damages and expenses arising as a result of its own willful misconduct
or gross negligence.  Promptly after the receipt by Escrow Agent or the Investor
Agent of notice of any such demand or claim or the commencement of any action,
suit or proceeding relating to such demand or claim, Escrow Agent or the
Investor Agent, as the case may be, will notify the other parties hereto in
writing.  For the purposes hereof, the terms "expense" and "loss" will include
all amounts paid or payable to satisfy any such claim or demand, or in
settlement of any such claim, demand, action, suit or proceeding settled with
the express written consent of the parties hereto, and all costs and expenses,
including, but not limited to, reasonable attorneys' fees and disbursements,
paid or incurred in investigating or defending against any such claim, demand,
action, suit or proceeding.  The provisions of this Section 8 shall survive the
termination of this Make Good Agreement, and the resignation or removal of the
Escrow Agent.
 
9. Compensation of Escrow Agent.  Escrow Agent shall be entitled to compensation
for its services as stated in the fee schedule attached hereto as Exhibit B,
which compensation shall be paid by the Company.  The fee agreed upon for the
services rendered hereunder is intended as full compensation for Escrow Agent's
services as contemplated by this Make Good Agreement; provided, however, that in
the event that Escrow Agent renders any material service not contemplated in
this Make Good Agreement, or there is any assignment of interest in the subject
matter of this Make Good Agreement, or any material modification hereof, or if
any material controversy arises hereunder, or Escrow Agent is made a party to
any litigation pertaining to this Make Good Agreement, or the subject matter
hereof, then Escrow Agent shall be reasonably compensated by the Company for
such extraordinary services and reimbursed for all costs and expenses, including
reasonable attorney's fees, occasioned by any controversy, litigation or event,
and the same shall be recoverable from the Company.  Prior to incurring any
costs and/or expenses in connection with the foregoing sentence, Escrow Agent
shall be required to provide written notice to the Company of such costs and/or
expenses and the relevancy thereof and Escrow Agent shall not be permitted to
incur any such costs and/or expenses which are not related to litigation prior
to receiving written approval from the Company, which approval shall not be
unreasonably withheld.
 
10. Resignation of Escrow Agent.  At any time, upon ten (10) Business Days'
written notice to the Company and the Investors, Escrow Agent may resign and be
discharged from its duties as Escrow Agent hereunder.  As soon as practicable
after its resignation, Escrow Agent will promptly turn over to a successor
escrow agent appointed by the Company and the Investor Agent the Escrow Shares
held hereunder upon presentation of a document appointing the new escrow agent
and evidencing its acceptance thereof.  If, by the end of the ten (10) Business
Day period following the giving of notice of resignation by Escrow Agent, the
Company and the Investor Agent shall have failed to appoint a successor escrow
agent, Escrow Agent shall deposit the Escrow Shares as directed by the Investor
Agent with the understanding that such Escrow Shares will continue to be subject
to the provisions of this Make Good Agreement.
 
 
 
- 109 -

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

 
 
11. Records.  Escrow Agent shall maintain accurate records of all transactions
hereunder.  Promptly after the termination of this Make Good Agreement or as may
reasonably be requested by the parties hereto from time to time before such
termination, Escrow Agent shall provide the parties hereto, as the case may be,
with a complete copy of such records, certified by Escrow Agent to be a complete
and accurate account of all such transactions.  The authorized representatives
of each of the parties hereto shall have access to such books and records at all
reasonable times during normal business hours upon reasonable notice to Escrow
Agent and at the requesting party's expense.
 
12. Notice.  All notices, communications and instructions required or desired to
be given under this Make Good Agreement must be in writing and shall be deemed
to be duly given if sent by registered or certified mail, return receipt
requested, or overnight courier, to the addresses listed on the signature pages
hereto.
 
13. Assignment and Modification.  This Make Good Agreement and the rights and
obligations hereunder of the Company may be assigned by the Company only
following the prior written consent of the Investor Agent.  This Make Good
Agreement and the rights and obligations hereunder of the Escrow Agent may be
assigned by the Escrow Agent only with the prior consent of the Company and the
Investor Agent.  This Make Good Agreement and the rights and obligations
hereunder of the Make Good Pledgor may not be assigned by the Make Good
Pledgor.  Subject to the requirements under federal and state securities laws,
an Investor may assign its rights under this Make Good Agreement without any
consent from any other party.  This Make Good Agreement may not be changed
orally or modified, amended or supplemented without an express written agreement
executed by the Escrow Agent, the Company, the Make Good Pledgor and the
Investor Agent.  This Make Good Agreement is binding upon and intended to be for
the sole benefit of the parties hereto and their respective successors, heirs
and permitted assigns, and none of the provisions of this Make Good Agreement
are intended to be, nor shall they be construed to be, for the benefit of any
third person, except for the Investors under the Securities Purchase
Agreement.  No portion of the Escrow Shares shall be subject to interference or
control by any creditor of any party hereto, or be subject to being taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of any such party hereto prior to the disbursement thereof to such
party hereto in accordance with the provisions of this Make Good Agreement.
 
14. Merger or Consolidation of Escrow Agent.  Any corporation or association
into which the Escrow Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer all or substantially all of
its corporate trust business and assets as a whole or substantially as a whole,
or any corporation or association resulting from any such conversion, sale,
merger, consolidation or transfer to which the Escrow Agent is a party, shall be
and become the successor escrow agent under this Make Good Agreement and shall
have and succeed to the rights, powers, duties, immunities and privileges as its
predecessor, without the execution or filing of any instrument or paper or the
performance of any further act.
 
 
 
- 110 -

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

 
 
15. Applicable Law.  This Make Good Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York,
without regard to the conflicts of laws and principles thereof.  The
representations and warranties contained in this Make Good Agreement shall
survive the execution and delivery hereof and any investigations made by any
party.  Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Make Good Agreement shall be commenced exclusively in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the "New York
Courts").  Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith, and hereby irrevocably waives, and agrees
not to assert in any such proceeding, any claim that it is not personally
subject to the jurisdiction of any such New York Court, or that such proceeding
has been commenced in an improper or inconvenient forum.  Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Make Good Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof.  Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.
 
16. Attorneys' Fees.  If any action at law or in equity, including an action for
declaratory relief, is brought to enforce or interpret the provisions of this
Make Good Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees from the other party (unless such other party is the
Escrow Agent), which fees may be set by the court in the trial of such action or
may be enforced in a separate action brought for that purpose, and which fees
shall be in addition to any other relief that may be awarded.
 
17. Waiver.  No waiver of, or  any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
the time for performance of any other obligation or act.
 
18. Entire Agreement.  This Make Good Agreement and the Securities Purchase
Agreement are the final expression of, and contain the entire agreement between,
the parties with respect to the subject matter hereof and supersedes all prior
understandings with respect thereto. This Make Good Agreement may not be
modified, changed, supplemented or terminated, nor may any obligations hereunder
be waived, except by written instrument signed by the parties to be charged or
by its agent duly authorized in writing or as otherwise expressly permitted
herein.
 
19. Headings.  The headings contained in this Make Good Agreement are for
convenience of reference only and shall not affect the construction of this Make
Good Agreement.
 
 
 
- 111 -

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

 
 
20. Construction.  Whenever required by the context of this Make Good Agreement,
the singular shall include the plural and masculine shall include the feminine.
This Make Good Agreement shall not be construed as if it had been prepared by
one of the parties, but rather as if all parties had prepared the same.
 
21. Further Instruments.  If this Make Good Agreement reasonably requires other
or further instruments in connection with this Make Good Agreement or
obligations in respect hereto, the necessary parties hereto shall use its best
efforts to join in furnishing such instruments.
 
22. Execution in Counterparts.  This Make Good Agreement may be executed in
counterparts and may be delivered by facsimile transmission or electronic mail
in portable document format or other means intended to preserve the original
graphic content of a signature.  Each such counterpart shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
 
- 112 -

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

 
 

 
 
 
IN WITNESS WHEREOF, the parties have duly executed this Make Good Agreement as
of the date set forth opposite their respective names.
 
COMPANY:
 
SMSA PALESTINE ACQUISTION CORP.
 

 
By: ____________________                                                     
Name:
Title:  Chief Executive Officer
 

 
Address:
 
Facsimile:
Attn.:  Chief Executive Officer
 

 
MAKE GOOD PLEDGOR:

_______________________
Cai Yangbo
 
Address:
 
Facsimile:
 

 
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK –
SIGNATURE PAGE FOR OTHER PARTIES FOLLOWS]
 
 
 
- 113 -

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

 
 
ESCROW AGENT:
 
SECURITIES TRANSFER CORPORATION
 

 
By:  ____________________                                                      
Name:
Title:
 

 
Address:
 
Facsimile:
Attn.:
 

 

 
INVESTOR AGENT
 
By:  ____________________                                                      
Name:
Title:  President and CEO
 

 
Address:
 
Facsimile:
Attn.:
 

 
- 114 -

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

 
 
Exhibit A

ESCROW SHARES TO BE ISSUED TO INVESTORS

Investor's Legal Name
Investor's Investment Amount
                                                                               
                                               

Totals:
 

 
 
 
 
 
- 115 -

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

 
 
Exhibit B

SECURITIES TRANSFER CORPORATION ESCROW AGENT FEE SCHEDULE

ESCROW AGENT SERVICES
 
Escrow Agent Account fee
$2,000.00 per year
Examine, Process and issue share distribution as per the Agreements
$10.00 per Shareholder.
Envelopes & Postage
Included

 

 
- 116 -

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

 
 
EXHIBIT F

LOCK UP AGREEMENT

THIS LOCK-UP AGREEMENT (the "Agreement") is made and entered into on July [●],
2010 between Cai Yangbo (the "Founder"), and each other stockholders set forth
on Schedule A attached hereto and on the signature page to this Agreement (each,
a "Non-Founder Holder"; together with the Founder, each a "Holder" and
collectively, the "Holders") and SMSA Palestine Acquisition Corp., a Nevada
corporation (the "Company"), with respect to the following facts:
 
A.           The Company has determined that it is advisable and in its best
interest to enter into that certain Securities Purchase Agreement, dated July
[●], 2010 (the "Purchase Agreement") with the Investors named therein (the
"Investors") and certain other parties named therein, pursuant to which the
Company will issue and sell in a private offering securities of the Company (the
"Offering").  Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement will have the meanings given such terms in the
Purchase Agreement.
 
B.           In connection with the Offering, the Company has agreed to provide
the Investors certain registration rights, and in furtherance thereof has agreed
to file a registration statement to enable the Investors to resell certain of
the securities subject of the Offering.
 
C.           It is a condition to the Investors' respective obligations to close
under the Purchase Agreement and provide the financing contemplated by the
Offering that each Holder executes and deliver to the Company this Agreement.
 
D.           In contemplation of, and as a material inducement for the Investors
to enter into, the Purchase Agreement, each of the Holders and the Company have
agreed to execute and deliver this Agreement.
 
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
set forth herein, and intending to be legally bound, the parties, intending to
be legally bound, agree as follows:
 
1. Representations and Warranties.  Each of the parties hereto, by their
respective execution and delivery of this Agreement, hereby represents and
warrants to the others and to all third party beneficiaries of this Agreement
that (a) such party has the full right, capacity and authority to enter into,
deliver and perform its respective obligations under this Agreement, (b) this
Agreement has been duly executed and delivered by such party and is the binding
and enforceable obligation of such party, enforceable against such party in
accordance with the terms of this Agreement and (c) the execution, delivery and
performance of such party's obligations under this Agreement will not conflict
with or breach the terms of any other agreement, contract, commitment or
understanding to which such party is a party or to which the assets or
securities of such party are bound.
 
 
 
- 117 -

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

 
 
Each Holder has independently evaluated the merits of its decision to enter into
and deliver this Agreement, and such Holder confirms that it has not relied on
the advice of the Company or any other person.
 
2. Beneficial Ownership.  Each Holder hereby represents and warrants that it
does not beneficially own (as determined in accordance with Section 13(d) of the
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder) any shares of Common Stock, or any economic interest therein or
derivative therefrom, other than those shares of Common Stock specified on its
signature page to this Agreement.  For purposes of this Agreement (i) the shares
of Common Stock beneficially owned by the Founder as specified on his signature
page to this Agreement is referred to as the "Founder Shares;" and (ii) the
shares of Common Stock beneficially owned by a Non-Founder Holder as specified
on its signature page to this Agreement are collectively referred to as the
"Non-Founder Shares," and together with the Founder Shares, collectively, the
"Holders' Shares."
 
3. Lockup.
 
(a) With respect to 100% of the Founder Shares and 50% of the Non-Founder Shares
(collectively, the "Lockup Shares"), from and after the date of this Agreement
and through and including the one year anniversary of the date on which all of
the Shares and Warrant Shares are listed or quoted on a National Stock Exchange
pursuant to Section 4.11 of the Purchase Agreement, each applicable Holder
irrevocably agrees that, except as set forth below, it will not offer, pledge,
encumber, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, or
announce the offering of, any of the Lockup Shares held by such Holder
(including any securities convertible into, or exchangeable for, or representing
the rights to receive, such shares) or engage in any Short Sales with respect to
any security of the Company.  In furtherance thereof, the Company will (x) place
a stop transfer order with its transfer agent on all such Lockup Shares
including those which are covered by a registration statement, (y) notify its
transfer agent in writing of the stop order and the restrictions on such Lockup
Shares under this Agreement and direct the Transfer Agent not to process any
attempts by the applicable Holder to resell or transfer any Lockup Shares held
by such Holder, except in compliance with this Agreement.
 
(b) Notwithstanding anything to the contrary provided in Section 3.a. hereof, ,
each Holder may transfer any Holders' Shares held by such Holder by (a) bona
fide gift or (b) will or intestate succession to his or her immediate family or
to a trust the sole beneficiaries of which are one or more of the undersigned
and his or her immediate family (the term "immediate family" means, for the
foregoing purposes, the spouse, domestic partner, lineal descendant, father,
mother or sibling of the undersigned); provided, that each resulting transferee
of such Holder's Shares executes and delivers to the Company an agreement
satisfactory to the Company certifying that such transferee is bound by the
terms of this Agreement and has been in compliance with the terms hereof since
the date first above written as if it had been an original party
hereto.  Further, each Holder shall be permitted to pledge, encumber, or create
a security interest in any or all of its Holders' Shares to secure the payment
or performance of indebtedness and other obligations of the Company and/or its
Subsidiaries to bona fide commercial lending institutions in the People's
Republic of China.
 
 
 
- 118 -

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

 
 
4. Third-Party Beneficiaries.  Each Holder and the Company acknowledge and agree
that this Agreement is entered into for the benefit of and is enforceable by the
Investors and their successors and assigns.  Each Holder and the Company
understand and agree that this Agreement is a material inducement to the
willingness of the Investors to enter into the Purchase agreement and the
transactions contemplated thereunder, that each of the Company and the Holders
receive benefits as a result of the investment into the Company by the
Investors.
 
5. No Additional Fees/Payment.  Other than the consideration specifically
referenced herein, the parties hereto agree that no fee, payment or additional
consideration in any form has been or will be paid to the Holder in connection
with this Agreement.
 
6. Enumeration and Headings.  The enumeration and headings contained in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of any of the provisions of this Agreement.
 
7. Successors and Assigns.  This Agreement and the terms, covenants, provisions
and conditions hereof shall be binding upon, and shall inure to the benefit of,
the respective heirs, successors and assigns of the parties hereto.
 
8. Severability.  If any provision of this Agreement is held to be invalid or
unenforceable for any reason, such provision will be conformed to prevailing law
rather than voided, if possible, in order to achieve the intent of the parties
and, in any event, the remaining provisions of this Agreement shall remain in
full force and effect and shall be binding upon the parties hereto.
 
9. Amendment.  This Agreement may not be amended or modified in any manner
except by a written agreement executed by each of the parties hereto if and only
if such modification or amendment is consented to in writing by the Investors
holding a majority in interest of the Common Stock issued or issuable under the
Purchase Agreement.
 
10. Further Assurances.  The Company and the Holder shall each do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any Investor or the Transfer Agent or, in the case of the Holder,
the Company may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
 
11. No Strict Construction.  The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
 
12. Remedies.  The Company and the Investors shall have the right to
specifically enforce all of the obligations of the Holders under this Agreement
(without posting a bond or other security), in addition to recovering damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.  Furthermore, each Holder recognizes that if it
fails to perform, observe, or discharge any of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the Company or
the Investors.  Therefore, each Holder agrees that each of the Company and the
Investors shall be entitled to seek temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages and without
posting a bond or other security.
 
 
 
- 119 -

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

 
 
13. Governing Law.  The terms and provisions of this Agreement shall be
construed in accordance with the laws of the State of New York and the federal
laws of the United States of America applicable therein.  Each party hereto
hereby agrees for its benefit and the benefit of the Investors (who are third
party beneficiaries to the obligations of the Company and the Holders contained
in this Agreement and this Section) as follows: (a) All Proceedings concerning
the interpretations, enforcement and defense of the transactions contemplated by
this Agreement shall be commenced exclusively in the New York Courts.  Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim
that it is not personally subject to the jurisdiction of any such New York
Court, or that such Proceeding has been commenced in an improper or inconvenient
forum.  (b) Each of the Company and the Holders hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  (c) Each of the Company and the Holders hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby.  (d) If any party hereto
or any Investor shall commence a Proceeding to enforce any provisions of this
Agreement, then the prevailing party in such Proceeding shall be reimbursed by
the other party (and in the case of an Investor bringing such a Proceeding, the
Company and the Holders shall jointly and severally reimburse the Investor) for
its reasonable attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
 
14. Counterparts.  This Agreement may be executed in one or more counterparts
and may be delivered by facsimile transmission or electronic mail in portable
document format or other means intended to preserve the original graphic content
of a signature.  Each such counterpart when so executed and delivered shall be
deemed an original, but all of which shall together constitute one and the same
agreement.
 
[Remainder of Page Intentionally Left Blank]
 
 
 
- 120 -

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

 
 
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement as of
the day and year first above written.
 

       
Name:  Cai Yangbo
     
Number of shares of Common Stock beneficially owned:
     
SMSA Palestine Acquisition Corp.
         
By:                                                                                                                               
 
Name:  Yang Yongjie
 
Title:  Chief Executive Officer
   

 

 
 

 
[Signature Page to Lockup Agreement]
 
 
 
 
- 121 -

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

 
 
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement as of
the day and year first above written.
 

 
 
 
 
Name:  
     
Number of shares of Common Stock beneficially owned:
                 
 
 
 
Name:  
     
Number of shares of Common Stock beneficially owned:
                 
 
 
 
Name:  
     
Number of shares of Common Stock beneficially owned:
                 
 
 
 
Name:  
     
Number of shares of Common Stock beneficially owned:
                 
 
 
 
Name:  
     
Number of shares of Common Stock beneficially owned:

 

[Counterpart Signature Page to Lockup Agreement]
 
 
 
- 122 -

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

 
 
Schedule A
 
Schedule of Holders
 
Name of Holder
Number of Shares of
 Common Stock Beneficially
Owned by the Holder
 
Contact Information
                             

 

 

 
- 123 -

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

 
 

APPENDIX A

INVESTOR CERTIFICATE

TO:           SMSA PALESTINE ACQUISITION CORP. (the "Company")

 
In connection with the proposed purchase of the Shares of the Company, the
undersigned represents and warrants that the undersigned has read the following
definition of an "U.S. Accredited Investor" and certifies that the undersigned
is either not a U.S. person or a U.S. Accredited Investor as indicated below
(check one):
 
Non-U.S. Persons:
 
(A)
____
 
 
The undersigned hereby represents and warrants that it IS NOT a U.S. Person as
defined in Rule 902(k) of Regulation S of the Securities Act of 1933, as amended
(the "Securities Act")

U.S. Persons:
 
(B)
____
 
 
The Purchaser hereby represents and warrants that the undersigned IS a U.S.
Person as defined in Rule 902(k) of Regulation S of the Securities Act.

 
"U.S. Accredited Investor" shall mean any of (check one):
 

 

 
A bank, as defined in Section 3(a)(2) of the Securities Act, or savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act, whether acting in its individual or fiduciary capacity;
£
 
A broker or dealer registered pursuant to section 15 of the United States
Securities Exchange Act of 1934, as amended;
£
 
An insurance company (as defined in Section 2(13) of the Securities Act);
£
 
An investment company registered under the United States Investment Company Act
of 1940, as amended (the "1940 Act");
£
 
A business development company (as defined in Section 2(a)(48) of the 1940 Act);
£
 
A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the United States Small Business
Investment Act of 1958, as amended;
£
 
A plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
U.S.$5,000,000;
£

 
 
 
- 124 -

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

 
 
 

 
An employee benefit plan within the meaning of the United States Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (1) whose
investment decision is made by a plan fiduciary as defined in Section 3(21) of
ERISA, which is either a bank, savings and loan association, insurance company
or registered investment advisor, or (2) having total assets in excess of
U.S.$5,000,000, or (3) if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
£
 
A private business development company (as defined in Section 202(a)(22) of the
United States Investment Advisers Act of 1940);
£
 
An organization described in Section 501(c)(3) of the Internal Revenue Code of
1986 as amended, company, or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities offered, having total
assets in excess of U.S.$5,000,000;
£
 
A director or executive officer of the Issuer;
£
 
A natural person with individual net worth, or joint net worth with his or her
spouse, at the time of purchase in excess of U.S.$1,000,000;
£
 
A natural person with an individual income in excess of U.S.$200,000 in each of
the last two years or joint income with his or her spouse in excess of
U.S.$300,000 in each of those years, and who reasonably expects to reach the
same income level in the current year;
£
 
A trust, with total assets in excess of U.S.$5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in section Rule 506 (b)(2)(ii) of the
Securities Act; and
£
 
An entity in which all of the equity owners are U.S. Accredited Investors.
£

 
TERMS NOT DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
SECURITIES PURCHASE AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED.
 

 
- 125 -

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

 
 
The foregoing representation, warranty and certificate are true and accurate as
of the date of this certificate.
                                                      
 

Dated:     , 2010.            Print name of Purchaser (or person signing as
agent)         By:  
                                                                                                                                         
   
Signature
         
Title
         
(please print name of individual whose signature appears above, if different
from name of Investor or agent printed above)
     

 

 
 
- 126 -

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