Exhibit 10.1

EXECUTION COPY

 

 

SHARES TRANSFER CONTRACT

between

ZHANG HAIBO

(Seller)

and

AFFINIA GROUP INC.

(Buyer)

June 30, 2008

 

 

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

TABLE OF CONTENTS

 

              

Page

1.    GENERAL PROVISIONS    2    1.1.    Definitions    2    1.2.    Terms
Defined Elsewhere in this Contract    5    1.3.    Headings    6    1.4.   
Singular and Plural    6 2.    TRANSFER OF SHARES    6    2.1.    Transfer of
Shares    6    2.2.    Ownership    7    2.3.    Transfer of Shares Free of
Encumbrances    7 3.    PURCHASE PRICE AND PAYMENT    7    3.1.    Purchase
Price    7    3.2.    Adjustment of the Purchase Price    7    3.3.    Fair
Consideration    10    3.4.    Fees and Expenses    10    3.5.    Payment of the
Purchase Price    10    3.6.    Exchange Rate    10 4.    ACTIONS TAKEN PRIOR TO
CLOSING    11    4.1.    Board Approval    11    4.2.    Approval of the
Transfer    11    4.3.    Amendment of Corporate Documents and Registrations   
11    4.4.    Covenants regarding Conduct of Business to the Closing Date    11
   4.5.    Covenants regarding Operation of the Company    13    4.6.   
Meetings and Operations    14    4.7.    Transfer of all Business from Haiyun   
14    4.8.    Permits and Licenses    15    4.9.    Entitlement    15    4.10.
   Execution of Certain Contracts    15    4.11.    Amendment of Business
Licenses    17    4.12.    Action of Haimeng    18    4.13.    New Trademark
License Agreement    18    4.14.    Debt Reduction    19 5.    CLOSING DATE   
19    5.1.    Conditions in Connection with the Seller    19    5.2.    Payment
of the Purchase Price by the Buyer    22    5.3.    Duties in relation to
Conditions or Actions in Sections 4 and 5    22    5.4.    Fulfillment by a
Waiver    23    5.5.    Failure of Sections 5.1 and 5.2    23 6.   
REPRESENTATIONS, WARRANTIES AND COVENANTS    23    6.1.    Representations and
Warranties of the Parties    23    6.2.    Representations and Warranties of the
Seller    24    6.3.    Further Representations, Warranties and Covenants of the
Seller    34 7.    INVESTMENT CERTIFICATES    35    7.1.    Issuance of New
Certificates    35

 

i

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

8.    CONFIDENTIALITY AND RESTRICTIONS ON PUBLICITY    35    8.1.   
Confidentiality Obligation of the Parties    35    8.2.    Confidentiality
Obligation of the Seller and the Existing Employees of the Company and Haimeng
   36    8.3.    Exceptions    36    8.4.    Information    37    8.5.   
Publicity    37    8.6.    Security Measures    38    8.7.    Provision of
Assistance    38 9.    NON-COMPETITION    38    9.1.    Prohibited Competition
   38    9.2.    Further Acknowledgement    39    9.3.    Reasonableness    40
10.    TERMINATION    40    10.1.    Termination    40    10.2.    Survival
After Termination    41 11.    INDEMNIFICATION    41    11.1.    Indemnification
   41    11.2.    Indemnification by the Seller    41    11.3.    Maximum
Indemnification    42 12.    GOVERNING LAW AND DISPUTE RESOLUTION    42    12.1.
   Governing Law    42    12.2.    Friendly Consultation    42    12.3.    Place
and Rules of Arbitration    43    12.4.    Arbitration Proceedings    43   
12.5.    Preservation of Rights    43    12.6.    Consent to Jurisdiction    43
13.    NOTICE    44    13.1.    Delivery of Notice    44 14.    MISCELLANEOUS
PROVISIONS    45    14.1.    Entire Agreement    45    14.2.    Schedules    45
   14.3.    Successors and Assigns    45    14.4.    Waivers    45    14.5.   
Amendments    45    14.6.    Provisions Severable    45    14.7.    Counterparts
   46    14.8.    Further Assurances    46    14.9.    Language    46    14.10.
   Opportunity for Legal Counsel    46

 

ii

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

Schedules

 

              

Section

Schedule    1.    Details of the Company on the Contract Execution Date   
Recitals Schedule    2.    Employment Contract    Section 1.1 Schedule    3.   
List of Retained Key Employees    Section 1.1 Schedule    4.    Retention
Agreement    Section 1.1 Schedule    5.    List of Permits and Licenses   
Section 4.8 Schedule    6.    List of Affiliated Agreements Excluded    Section
4.9 Schedule    7.    Shareholders’ Agreement and Restated Articles of
Association in Hong Kong    Section 4.10(a) Schedule    8.    List of Written
Contracts and Agreements    Section 6.2(h) Schedule    9.    List of Tangible
and Intangible Properties    Section 6.2(q) Schedule    10.    List of
Third-Party IP Rights    Section 6.2(aa) Schedule    11.    List of Wastes
Disposal Locations    Section 6.2(qq) Schedule    12.    Loans, Debts and Credit
Lines    Section 6.2(ss) Schedule    13.    List of Commissioned Agents   
Section 6.3(e) Schedule    14.    Financial Statements    Section 6.2(t)
Schedule    15.    Disclosure Required in Section 6.2(u)    Section 6.2(u)
Schedule    16.    Affiliate Agreements    Section 4.4(b) Schedule    17.   
List of Banks and Signatories    Section 6.3(f) Schedule    18.    Working
Capital Calculation    Section 1.1 Schedule    19.    Disclosure Required in
Section 6.2(w)    Section 6.2(w) Schedule    20.    Disclosure Required in
Section 6.2(aa)    Section 6.2(aa) Schedule    21.    Disclosure Required in
Section 6.2(hh)    Section 6.2(hh) Schedule    22.    Disclosure Required in
Section 6.2(mm)    Section 6.2(mm) Schedule    23.    Disclosure Required in
Section 6.2(oo)(ix)    Section 6.2(oo)(ix) Schedule    24.    Aggregate
Retention Fee Payment and Payment Breakdown to Each Retained Key Employee   
Section 1.1

 

iii

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

SHARES TRANSFER CONTRACT

THIS SHARES TRANSFER CONTRACT (this “Contract”) is made this 30th day of June,
2008 (the “Contract Execution Date”), by and between Mr. Zhang Haibo, a citizen
of the People’s Republic of China (“China”), with his identification card number
of 370623196008292414 and his registered residential address at 198 Suijia
Village, Huangshanguan Town, Longkou City, Shandong Province, China (the
“Seller”), and Affinia Group Inc., a company duly organized and validly existing
under the laws of the State of Delaware in the United States of America
(“U.S.A.”), with its principal place of business at 1101 Technology Drive, Ann
Arbor, MI 48108, U.S.A. (the “Buyer”). (The Seller and the Buyer are referred to
collectively as the “Parties,” and each individually as a “Party.”)

Recitals

WHEREAS, the Seller is the one hundred percent (100%) legal and beneficial owner
and shareholder of HBM Investment Limited, a company duly organized and validly
existing under the laws of the Hong Kong Special Administrative Region of China
(“Hong Kong”), with its principal place of business at Unit D, 10/F, China
Overseas Building, 139 Hennessy Road, Wanchai, Hong Kong (the “Company,” further
details of which are set out in Schedule 1 hereto);

WHEREAS, the Seller wishes to transfer to the Buyer and the Buyer wishes to
accept from the Seller 8,500 ordinary shares of the Company, representing
eighty-five percent (85%) of the issued share capital of the Company (the “Sale
Shares”) on the terms and conditions set forth in this Contract, and upon the
consummation of the shares transfer transaction as specified herein, the Buyer
shall become an eighty-five percent (85%) owner and shareholder of the Company
and the Seller shall remain as a fifteen percent (15%) owner and shareholder of
the Company;

WHEREAS, (a) the Company previously owned and controlled a
twenty-one-point-zero-seven-percent (21.07%) equity interest in the registered
capital of Longkou Haimeng Machinery Company Limited (“Haimeng”), a Sino-foreign
equity joint venture duly organized and validly existing under the laws of
China, with its registered corporate address at Huangshan Haimeng Industrial
Park, Longkou City, Shandong Province 265715, China; (b) Longkou Haibo Machinery
Company Limited (“LHM”), a local Chinese company duly organized and validly
existing under the laws of China, with its principal place of business in the
Export-Oriented Industrial Processing Zone of Longkou City, Shandong Province,
previously owned and controlled a sixty-three-point-one-nine-percent
(63.19%) equity interest in the registered capital of Haimeng; (c) the Seller
previously owned and controlled a seven-point-eight-seven-percent (7.87%) equity
interest in the registered capital of Haimeng; and (d) Yu Lei, the wife of the
Seller, previously owned and controlled the remaining
seven-point-eight-seven-percent (7.87%) equity interest in the registered
capital of Haimeng;

WHEREAS, the Company has purchased from LHM, the Seller and Yu Lei all of their
respective equity interests in the registered capital of Haimeng and has now
owned and controlled a one hundred percent (100%) equity interest in the
registered capital of Haimeng;

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

WHEREAS, the Company and LHM, the Seller and Yu Lei have had all the legally
required formalities and procedures under Chinese law duly satisfied to have
converted Haimeng from a Sino-foreign equity joint venture into a wholly foreign
owned enterprise with the Company being the sole equity interests owner and
investor of Haimeng; and

WHEREAS, the Seller and the Buyer will amend and restate any and all the
corporate documents, including, but not limited to, the articles of association,
records, certificates and other corporate registrations of the Company, and
handle any and all other matters in connection therewith under the laws of Hong
Kong to reflect the transaction contemplated in this Contract.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereby agree as follows:

 

1. GENERAL PROVISIONS

 

1.1. Definitions. In this Contract, the following words and expressions have the
following meanings:

“Affiliate” means any person that directly or indirectly controls or is
controlled by or is under common control with the other person. “control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of registered capital or voting securities, by contract or otherwise,
and includes, without limitation (i) ownership directly or indirectly of 50% or
more of the shares in issue, registered capital or other equity interests of
such person, (ii) ownership, directly or indirectly of 50% or more of the voting
power of such person or (iii) the power directly or indirectly to appoint a
majority of the members of the board of directors or similar governing body of
such person, and the terms “controlled” and “controlling” shall have correlative
meanings.

“Best Knowledge” means the best knowledge of the officers or principals of a
Party, based upon reasonable investigation.

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in China, Hong Kong and the U.S.A. are required or authorized
by law or executive order to be closed.

“Cash” means either physical legal tender or immediately available funds kept in
a bank account.

“Closing” means the completion of the sale and purchase of the Sale Shares on
the Closing Date in accordance with Section 5 herein.

“Closing Date Cash” means Cash owned by Haimeng or the Company (whether
restricted or unrestricted) as of the Closing Date, calculated in a manner
consistent with GAAP and with that used to compute the amount of Cash shown on
the Financial Statements for December 31, 2007.

 

2

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

“Closing Date Debt” means all Debt, obligations and liabilities (including any
guarantees) of Haimeng or the Company as of the Closing Date, calculated in a
manner consistent with GAAP and with that used in preparation of the Financial
Statements for December 31, 2007.

“Debt” means borrowed money or a record of money borrowed or payable.

“Encumbrance” means an interest or power that (i) is reserved in or over an
interest in an asset, including any retention of title; (ii) is created or
arising in or over an interest in an asset under a bill of sale, mortgage,
charge, lien, pledge, hypothecation, preferential right, trust or other similar
instrument, device or power, or any other adverse right, title or interest of
any nature, by way of security for the payment of a Debt or the performance of
any other obligation; and (iii) includes any agreement or arrangement (whether
legally binding or not) to grant or create any of the above.

“Employment Contract” means the employment contract, in the form and substance
as attached hereto as Schedule 2, to be entered into between Haimeng and the
Seller, pursuant to which the Seller shall work for Haimeng as a full-time
employee. The Employment Contract may also be modified to form an employment
relationship between Haimeng and any other key employees deemed necessary by the
Buyer.

“Escrow Agreement” means the escrow agreement to be entered into among an escrow
agent, the Buyer and the Seller, pursuant to which a portion of the Purchase
Price shall be held by the escrow agent.

“Escrow Account” means a bank account created for holding that portion of the
Purchase Price which will be held in escrow pursuant to Section 3.5(a) and the
Escrow Agreement.

“Escrow Funds” mean the amount of money held in the Escrow Account from time to
time.

“Final Closing Date Working Capital” means the definitive Closing Date Working
Capital, agreed to (or deemed to be agreed to) by the Buyer and the Seller, or
the definitive Closing Date Financial Data resulting from the determinations
made by the Neutral Auditors, in accordance with Section 3 below (in addition to
those items theretofore agreed to by the Buyer and the Seller).

“Final Closing Date Cash and Final Closing Date Debt” means the definitive
Closing Date Cash and Closing Date Debt, respectively, agreed to (or deemed to
be agreed to) by the Buyer and the Seller, or the definitive Closing Date
Financial Data resulting from the determinations made by the Neutral Auditors,
in accordance with Section 3 below (in addition to those items theretofore
agreed to by the Buyer and the Seller).

 

3

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

“Fiscal Year” means the period commencing on January 1 and ending on
December 31.

“GAAP” means the generally accepted accounting principles of China, applied
consistently during all periods presented.

“Intellectual Property Rights” mean all present and future intellectual and
industrial property rights conferred by any law, including, without limitation,
(i) patents, designs, copyright, trade marks, know how, brand names, domain
names, keywords, inventions, moral rights, product names, trade secrets, the
right to have confidential information kept confidential and other results of
intellectual effort in the scientific, technological, industrial and commercial
fields, whether or not registered or capable of registration; and (ii) any
application or right to apply for registration of any of those rights; and
(iii) all renewals and extensions of these rights.

“Records” mean all original and copy records, documents, books, files, reports,
accounts, plans, correspondence, letters and papers of every description and
other material regardless of their form or medium belonging or relating to or
used by the Company and Haimeng, respectively, including certificates of
incorporation, minute books, statutory books and registers, books of account,
tax returns, title deeds and other documents of title, customer lists, price
lists, computer programs and software, and trading and financial records.

“Restricted Persons” mean the Seller and each Retained Key Employee and any and
all the family members thereof, including, but not limited to, spouses,
children, siblings, grandparents, parents, cousins, nephews, nieces and in-laws,
with cousins, nephews, nieces and in-laws subject to the Best Knowledge of the
Seller and/or a relevant Retained Key Employee, as the case may be.

“Retained Key Employees” mean those employees to be continuously employed by
Haimeng after the completion of the transaction contemplated under this Contract
deemed necessary by the Company, Haimeng and the Buyer from time to time as
attached hereto as Schedule 3.

“Retention Agreement” means the retention agreement, in the form and substance
as attached hereto as Schedule 4, to be entered into between the Buyer and each
of the Retained Key Employees, pursuant to which the Buyer shall pay each of
them a certain retention fee in an aggregate amount set forth in Schedule 24,
which will be paid in Renminbi at the US$/Renminbi exchange rate officially
published by the People’s Bank of China on the date of payment.

“Renminbi” or “RMB” means the lawful currency of China.

“Sale Shares” mean 8,500 ordinary shares of the Company, representing 85% of the
total issued share capital of the Company.

“Shareholders’ Agreement” means the shareholders’ agreement, in the form and
substance as attached hereto as Schedule 7, to be entered into between the

 

4

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

Seller, the Buyer and the Company, pursuant to which the Seller, the Buyer and
the Company shall set up certain rights and obligations with respect to the
management and operation of the Company.

“Target Working Capital Range” means Working Capital not less than RMB
82 million and not more than RMB 120 million.

“US$” or “United States Dollar” means the lawful currency of the U.S.A.

“Working Capital” means accounts receivable plus any amounts due from Affiliates
or Restricted Persons plus inventory plus the amount of any prepaid accounts
MINUS account payable minus other payables minus any amounts owed to an
Affiliate or Restricted Person, all calculated in a manner consistent with GAAP
and with that used in preparation of the Financial Statements for December 31,
2007. An example Working Capital calculation based on Haimeng’s December 31,
2007 Financial Statements is attached hereto as Schedule 18.

 

1.2. Terms Defined Elsewhere in this Contract. The following terms are defined
in this Contract as follows:

 

“Adjustment Notice”

   Section 4.10(d)(iii)

“Affiliate Agreements”

   Section 4.4(b)

“Amount Owed”

   Section 4.10(d)(iii)

“Arbitration Center”

   Section 12.3

“Board of Directors” or “Board”

   Section 4.1

“Buyer”

   above Recitals

“China”

   above Recitals

“Claims”

   Section 6.2(z)

“Closing Date”

   Section 5.1

“Closing Date Cash Consideration”

   Section 3.2(a)

“Closing Date Debt Consideration”

   Section 3.2(a)

“Closing Date Financial Data”

   Section 3.2(c)

“Closing Date Working Capital”

   Section 3.2(b)

“Closing Date Working Capital Statement”

   Section 3.2(b)

“Company”

   Recitals

“Contract”

   above Recitals

“Contract Execution Date”

   above Recitals

“Deferred Amount”

   Section 3.5(b)

“Documents”

   Section 6.2(rr)

“Escrow Period”

   Section 4.10(d)(ii)

“Estimated Closing Date Working Capital”

   Section 3.2(a)

“Estimated Closing Date

  

Working Capital Statement”

   Section 3.2(a)

“Field of Interest”

   Section 9.1

“Financial Statements”

   Section 6.2(t)

“Governmental Bodies”

   Section 6.2(y)

“Haimeng”

   Recitals

“Haiyun”

   Section 4.7(a)

“Hazardous Materials”

   Section 6.2(qq)

“Hong Kong”

   Recitals

 

5

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

“Initial Cash Consideration”

   Section 3.2(a)

“Indemnification Amount”

   Section 11.2(d)

“Indemnification Shortfall”

   Section 11.2(d)

“Indemnified Party”

   Section 11.1

“Indemnifying Party”

   Section 11.1

“Information”

   Section 8.4

“Insurance Contract”

   Section 6.2(ii)

“Laws”

   Section 6.2(y)

“LHM”

   Recitals

“Liabilities”

   Section 6.2(u)

“Manufacturing License”

   Section 6.2(d)

“Most Recent Financial Statements”

   Section 6.2(t)

“Most Recent Fiscal Month End”

   Section 6.2(t)

“Most Recent Fiscal Year End”

   Section 6.2(t)

“Neutral Auditors”

   Section 3.2(e)

“Orders”

   Section 6.2(y)

“Parties”

   above Recitals

“Party”

   above Recitals

“Permits”

   Section 6.2(bb)

“Permitted Person”

   Section 4.4(e)

“Purchase Price”

   Section 3.1

“Remaining Amount”

   Section 4.10(d)(iv)

“Remaining Shares”

   Section 2.2

“Resolution Period”

   Section 3.2(d)

“Restricted Term”

   Section 9.1

“Sale Shares”

   Recitals

“Seller”

   above Recitals

“SGAQSIQ”

   Section 6.2(d)

“Stamp Duty”

   Section 3.4

“Tax” or “Taxes”

   Section 6.2(cc)

“Third Party Claim”

   Section 11.2(c)

“Undistributed Profits”

   Section 6.3(c)

“Unresolved Buyer Claims”

   Section 4.10(d)(iv)

“U.S.A”

   above Recitals

 

1.3. Headings. The headings in this Contract are inserted for convenience only
and shall not affect the construction of this Contract.

 

1.4. Singular and Plural. Words importing the singular also include the plural
and vice versa where the context requires. Words importing the masculine also
include other genders where the context requires.

 

2. TRANSFER OF SHARES

 

2.1. Transfer of Shares. Subject to the terms and conditions of this Contract,
and for the consideration set forth in Section 3, on the Closing Date, the
Seller, being the legal and beneficial owner of the Sale Shares, shall sell and
transfer to the Buyer or its nominee, and the Buyer or its nominee shall
purchase and accept from the Seller, the Sale Shares. If a nominee of the Buyer
is the purchaser of the Sale Shares in accordance with this Contract, the Buyer
shall not be released from any obligations under this Contract.

 

6

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

2.2. Ownership. Upon the transfer by the Seller to the Buyer or its nominee, as
the case may be, of the Sale Shares, the Buyer or its nominee, as the case may
be, shall own eight-five percent (85%) of the share capital of Company, and the
Seller shall own the remaining fifteen percent (15%) of the share capital of the
Company (the “Remaining Shares”).

 

2.3. Transfer of Shares Free of Encumbrances. The Seller shall transfer to the
Buyer or its nominee, as the case may be, in accordance with this Contract, free
from any Encumbrances, the Sale Shares together with any and all benefits and
rights including, without limitation, dividend or voting rights attached or
accrued to them on or after the Closing Date, and undistributed profits rights
attached or accrued to them before, on or after the Closing Date.

 

3. PURCHASE PRICE AND PAYMENT

 

3.1. Purchase Price. Subject to Sections 3.5 and 3.6, the total purchase price
for the sale and transfer by the Seller to the Buyer or its nominee, as the case
may be, of the Sale Shares shall be Forty-Nine Million Two Hundred Forty Five
Thousand Six Hundred United States Dollars (US$49,245,600) (the “Purchase
Price”).

 

3.2. Adjustment of the Purchase Price.

 

  (a) At least three (3) Business Days prior to the Closing Date, the Seller
shall, and shall cause the Company and Haimeng to, prepare and deliver to the
Buyer a good-faith estimated statement of the Working Capital of the Company and
Haimeng, respectively, as of the opening of business on the Closing Date (the
“Estimated Closing Date Working Capital Statement”), and a certificate setting
forth a good-faith estimate of the Working Capital as of the opening of business
on the Closing Date (the “Estimated Closing Date Working Capital”) and a
good-faith estimate of the Closing Date Cash and the Closing Date Debt. The
Estimated Closing Date Working Capital Statement shall be prepared in accordance
with GAAP and consistent with the accounting principles, procedures, policies
and methods that were used in preparation of the Financial Statements for
December 31, 2007. The “Initial Cash Consideration” shall be (i) (A) increased
dollar for dollar to the extent the Estimated Closing Date Working Capital
exceeds the Target Working Capital Range, or (B) decreased dollar for dollar to
the extent the Estimated Closing Date Working Capital is less than the Target
Working Capital Range, (ii) (A) increased dollar for dollar to the extent that
the Estimated Closing Date Cash is greater than RMB 90 million, or (B) decreased
dollar for dollar to the extent that the Estimated Closing Date Cash is less
than RMB 90 million (the Initial Cash Consideration, as adjusted pursuant to
this sentence, the “Closing Date Cash Consideration”), and (iii) (A) increased
dollar for dollar to the extent that the Estimated Closing Date Debt is less
than RMB 239 million, or (B) decreased dollar for dollar to the extent that the
Estimated Closing Date Debt is greater than RMB 239 million (the Initial Debt
Consideration, as adjusted pursuant to this sentence, the “Closing Date Debt
Consideration”).

 

7

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

  (b) Within forty-five (45) calendar days following the Closing Date, the Buyer
shall, and shall cause the Company and Haimeng, to prepare and deliver to the
Seller a statement of the Working Capital of the Company and Haimeng,
respectively, as of the opening of business on the Closing Date (as such may be
adjusted following resolution of any disputes, the “Closing Date Working Capital
Statement”), and a certificate setting forth a calculation of the Working
Capital as of the opening of business on the Closing Date (the “Closing Date
Working Capital”) and a calculation of the Closing Date Cash and the Closing
Date Debt. The Closing Date Working Capital Statement shall be prepared in
accordance with GAAP and consistent with the accounting principles, procedures,
policies and methods that were used in preparation of the Financial Statements
for December 31, 2007.

 

  (c) During the preparation of the Closing Date Working Capital Statement and
the calculation of Closing Date Working Capital and Closing Date Cash and the
Closing Date Debt (the “Closing Date Financial Data”), and the Resolution
Period, a Party shall, and shall cause the Company and Haimeng, respectively,
to: (i) provide the other Party and the Permitted Persons with full access to
all relevant books, records, facilities and employees of the Company and
Haimeng, respectively, to the extent reasonably necessary to prepare the Closing
Date Financial Data; and (ii) cooperate fully with the other Party and the
Permitted Persons, including by providing on a timely basis all information to
the extent necessary or useful in preparing the Closing Date Financial Data.

 

 

(d)

After receipt of the Closing Date Financial Data, the Seller shall have
forty-five (45) calendar days to review the Closing Date Financial Data,
together with all the related documents and any other materials in writing used
in the preparation thereof. During the review of the Closing Date Financial
Data, and during the Resolution Period, the Buyer shall, and shall cause the
Company and Haimeng, respectively, to: (i) provide the Seller and the Permitted
Persons with full access to all relevant books, records, facilities and
employees of the Company and Haimeng to the extent reasonably necessary to
complete their review of the Closing Date Financial Data; and (ii) cooperate
fully with the Seller and the Permitted Persons, including by providing on a
timely basis all information to the extent reasonably necessary or useful in
reviewing the Closing Date Financial Data. Unless the Seller delivers written
notice to the Buyer on or prior to the forty-fifth (45th) calendar day after the
Seller’s receipt of the Closing Date Financial Data specifying in reasonable
detail the amount, nature and basis of all disputed items, the Seller shall be
deemed to have accepted and agreed to the calculation of the Closing Date
Working Capital, the Closing Date Cash and the Closing Date Debt. If the Seller
so notifies the Buyer of its objection to the calculation of the Closing Date
Financial Data, the Buyer and Seller shall, within thirty (30) calendar days
following such notice (the “Resolution Period”), attempt to resolve their
differences and any resolution by them as to any disputed amounts shall be
final, binding and conclusive.

 

8

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

  (e) If, at the conclusion of the Resolution Period, any amounts remain in
dispute with respect to either the Closing Date Working Capital or the Closing
Date Cash or the Closing Date Debt, then all amounts remaining in dispute shall
be submitted to KPMG, LLP (the “Neutral Auditors”). Each Party agrees to
execute, if requested by the Neutral Auditors, a reasonable engagement letter,
including customary indemnities in favor of the Neutral Auditors. All fees and
expenses relating to the work, if any, to be performed by the Neutral Auditors
shall be borne pro rata as between the Seller, on the one hand, and the Buyer,
on the other, in proportion to the allocation of the dollar value of the amounts
remaining in dispute between the Seller and Buyer made by the Neutral Auditors
such that the prevailing Party pays the lesser proportion of the fees and
expenses. The Neutral Auditors shall act as an arbitrator to determine, based
solely on the provisions of this Section 3.2(e) and the presentations by the
Seller and the Buyer, and not by independent review, only those issues still in
dispute and only as to whether such amounts were arrived at in conformity with
GAAP, as modified by the accounting principles, procedures, policies and methods
that were used in preparation of the Financial Statements for December 31, 2007.
The Seller and the Buyer agree that (i) they shall request the Neutral Auditors
to make their determination within thirty (30) calendar days of their selection,
in a written statement delivered to the Seller and the Buyer, and (ii) such
determination shall be final, binding and conclusive.

 

  (f) The Closing Date Cash Consideration shall be (i) (A) increased dollar for
dollar to the extent the Final Closing Date Working Capital exceeds the
Estimated Closing Date Working Capital, or (B) decreased dollar for dollar to
the extent the Final Closing Date Working Capital is less than the Estimated
Closing Date Working Capital, and (ii) (A) increased dollar for dollar to the
extent that the Final Closing Date Cash is greater than the Estimated Closing
Date Cash, or (B) decreased dollar for dollar to the extent that the Final
Closing Date Cash is less than the Estimated Closing Date Cash, and
(iii) (A) increased dollar for dollar to the extent that the Final Closing Date
Debt is less than the Estimated Closing Date Debt, or (B) decreased dollar for
dollar to the extent that the Final Closing Date Debt is greater than the
Estimated Closing Date Debt. Any adjustments to the Closing Date Cash
Consideration made pursuant to this Section 3.2(f) shall be paid by wire
transfer of immediately available funds (together with interest thereon at the
rate officially published by the People’s Bank of China covering the period from
the date of occurrence of such increase or decease to the date immediately
preceding the date of such payment) to the account or accounts specified by the
Seller, if Seller is owed payment, or to the account or accounts specified by
Buyer, if the Buyer is owed payment, within five (5) Business Days after the
Final Closing Date Working Capital and the Final Closing Date Cash and the Final
Closing Date Debt are agreed to by the Buyer and the Seller or any remaining
disputed items are ultimately determined by the Neutral Auditors.

 

9

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

3.3. Fair Consideration. The Parties acknowledge and agree that the Purchase
Price payable to the Seller pursuant to Section 3.1 constitutes a fair and
equitable consideration for the Sale Shares.

 

3.4. Fees and Expenses. Each of the Seller and the Buyer shall be responsible
for any and all of its own taxes, fees, charges and expenses that may be imposed
in Hong Kong, China or U.S.A. by the related governmental authorities under
relevant applicable law and rules. Notwithstanding the above, the Buyer and the
Seller shall each pay an equal half of the Stamp Duty charged by the Hong Kong
Internal Revenue Department under the Stamp Ordinance (Cap. 117 of the Laws of
Hong Kong) (the “Stamp Duty”). Each of the Seller and the Buyer shall be
responsible for any and all of its own attorney’s fees and any and all other
fees charged by any other professionals, including, but not limited to,
accountants and environmental matters consulting professionals.

 

3.5. Payment of the Purchase Price.

 

  (a) Twenty percent (20%) of the total Purchase Price shall be held in an
interest bearing Escrow Account at a commercial bank in Hong Kong as mutually
agreed and accepted by the Seller and the Buyer for six (6) months after the
Closing Date under the terms and conditions of the Escrow Agreement. Upon
expiration of such six-month period, the escrow agent shall release the Escrow
Funds in accordance with the terms of the Escrow Agreement.

 

  (b) The Seller shall have caused Haimeng to, within 15 Business Days after the
Closing Date, cancel all guarantees described in Section 6.3(h). Until all such
guarantees have been canceled to the reasonable satisfaction of the Buyer, the
Buyer shall withhold US$12 million out of the Purchase Price (the “Deferred
Amount”). Promptly after cancellation of all such guarantees and delivery of
evidence thereof to the Buyer, the Buyer shall pay the Deferred Amount (or the
portion thereof remaining after any reduction as a result of the application of
the next sentence) to the Seller, and such payment to be made in Renminbi at the
exchange rate calculated pursuant to Section 3.6 below. If the Seller has not
caused the cancellation of all such guarantees within 30 calendar days after the
Closing Date, the Buyer shall reduce the Deferred Amount by US$1.0 million on
day 31 and by US$1.0 million on expiration of each 30 day period thereafter
(i.e., day 61, day 91, etc.) until all such guarantees have been canceled.

 

  (c) Subject to Sections 3.2, 3.5(a), 3.5(b) and 5 hereunder, the Buyer shall
pay the Seller the remaining amount of the total Purchase Price on the Closing
Date.

 

3.6. Exchange Rate. The Buyer shall pay the Seller the Purchase Price in
Renminbi at:

the exchange rate = (the exchange rate officially published by the People’s Bank
of China on the date immediately preceding the Closing Date + the exchange rate
of US$ to Renminbi of 1:7.37) ÷ 2

 

10

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

4. ACTIONS TAKEN PRIOR TO CLOSING

 

4.1. Board Approval. Promptly after the Contract Execution Date, the Seller
shall have a board resolution of the board of directors of the Company (the
“Board of Directors” or the “Board”) unanimously adopted to approve this
Contract (including all the schedules hereto), the transfer of the Sale Shares,
and the amendment and restatement of any and all the corporate documents,
including, but not limited to, the articles of associations, records and
registrations of the Company to reflect the transaction contemplated in this
Contract. The Seller agrees and acknowledges that the Seller shall not need an
approval by any third party or parties, including, but not limited to, the other
director(s) of the Company (if any), creditors or business partners, for this
Contract and the transaction set forth hereunder.

 

4.2. Approval of the Transfer. Promptly after the Contract Execution Date, the
Buyer shall have a board resolution of its board of directors duly adopted to
approve this Contract (including all the schedules hereto) and the purchase of
the Sale Shares, and obtain any other necessary internal approvals of the Buyer
for this Contract and the transaction set forth herein.

 

4.3. Amendment of Corporate Documents and Registrations. On or before the
Closing Date, the Seller shall, together with the Buyer, prepare for amendment
to and restatement of any and all the corporate documents, including, but not
limited to, the articles of association, records, certificates and registrations
of the Company, and handle any and all other matters in connection therewith
under the laws of Hong Kong in order to reflect the transaction contemplated in
this Contract.

 

4.4. Covenants regarding Conduct of Business to the Closing Date. From the
Contract Execution Date until the Closing Date, the Seller covenants that:

 

  (a) except as contemplated by this Contract, the Seller shall, and shall cause
the Company and Haimeng to, refrain from taking any action that would cause any
significant corporate action to be taken by the Company or Haimeng without
receiving the prior written consent of the Buyer;

 

  (b) the Seller shall not himself, nor shall he permit any of his Affiliates or
Restricted Persons to, amend, supplement or otherwise modify any contracts,
agreements and commitments or understandings, in each case written or oral,
relating to the Company and Haimeng, respectively, their business or assets to
which he or any of his Affiliates or Restricted Persons is a party or by which
any of them is bound (the “Affiliate Agreements” as attached hereto as Schedule
16), nor will any of them enter into any additional contract, agreement,
commitment or understanding obligating them to the Company and Haimeng,
respectively, or obligating the Company and Haimeng, respectively, to them,
without receiving the prior written consent of the Buyer;

 

11

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

  (c) the Seller shall not, and shall cause the Company not to, acquire, merge
with, or consolidate with, or agree to acquire, merge with, or consolidate with,
any business entity, or amend the constitution and bylaws of the Company or the
articles of association of Haimeng (or similar corporate documents), without
receiving the prior written consent of the Buyer;

 

  (d) the Seller shall, and shall cause the Company and Haimeng, respectively,
to, promptly advise the Buyer of the occurrence of any event or condition that
materially and adversely affects the transactions contemplated by this Contract
or the assets or business of the Company and Haimeng, respectively, or the
imposition of any lien, pledge, or encumbrance on any of the Sale Shares;

 

  (e) With the Buyer’s prior notification to and consultation with the Seller,
without unduly burdening the normal operation of the Company and/or Haimeng, as
the case may be, and without unreasonably delaying the Closing Date, the Seller
shall, and shall cause the Company and Haimeng, respectively, to, give the Buyer
and any person who has the Buyer’s written authority (“Permitted Person”),
during business hours and consistent with the normal operation of its business,
access to the locations owned or leased by the Company or Haimeng and to the
documents, books and Records relating to the business of the Company and
Haimeng, respectively, to the extent necessary to enable the Buyer to make a
thorough investigation of the business, to make a physical examination of the
assets and business of the Company and Haimeng, respectively, to conduct
environmental examinations and to examine their documents, books and records;

 

  (f) With the Buyer’s prior notification to and consultation with the Seller,
without unduly burdening the normal operation of the Company and/or Haimeng, as
the case may be, and without unreasonably delaying the Closing Date, the Seller
shall, and shall cause the Company and Haimeng, respectively, to, give the Buyer
and any Permitted Person access during normal business hours to any premises at
which the Company and Haimeng, respectively, carry on their business or
activities, allow the Buyer and any Permitted Person to observe the conduct of
the business and activities of the Company and Haimeng, respectively, supply to
the Buyer and such Permitted Person any information or document in their
possession or control reasonably requested by the Buyer concerning the Company
and Haimeng, respectively, or their business, assist the Buyer and such
Permitted Person, at the Buyer’s request, in gaining knowledge with respect to
the Company and Haimeng, respectively, and their affairs and business, and allow
the Buyer and such Permitted Person to investigate the truthfulness and accuracy
of the Seller’s representations and warranties set forth in Section 6;

 

12

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

  (g) the Seller shall, and shall cause the Company and Haimeng, respectively,
to, obtain all consents, approvals and waivers, either official or non-official,
required to permit the transactions contemplated by this Contract;

 

  (h) the Seller shall, and shall cause the Company and Haimeng, respectively,
to, cause the conditions set forth in Sections 4 and 5 to be satisfied on or
prior to the Closing Date as specified in that section, and shall not take any
other action inconsistent with their obligations hereunder or that could hinder
or delay the consummation of the transactions contemplated by this Contract; and

 

  (i) the Seller shall discontinue and refrain from any negotiations,
discussions, or communications with any potential third party purchaser other
than the Buyer relating to the possible acquisition of the Sale Shares or of
Haimeng’s shares or assets. The Seller shall not solicit, directly or
indirectly, offers from any potential third party purchaser other than the Buyer
relating to the possible acquisition of the Sale Shares or of Haimeng’s shares
or assets, and the Seller shall not provide to any potential third party
purchaser other than the Buyer access to the properties, books, Records,
financial statements, contracts and documents of the Company and Haimeng,
respectively.

 

4.5. Covenants regarding Operation of the Company. Between the Contract
Execution Date and the Closing Date, the Seller covenants that the Seller shall
cause the Company and Haimeng, respectively, to operate their businesses in the
ordinary course of business and consistent with past procedures heretofore
followed in connection with such operation and otherwise in a commercially
reasonable manner and in compliance with this Contract. Without limiting the
foregoing:

 

  (a) the Seller agrees that the Seller shall not, and shall not permit the
Company and Haimeng, respectively, to, without the prior written approval of the
Buyer:

 

  (i) enter into or consent to the entering into of any contract binding on the
Company and Haimeng, respectively, including without limitation any contract
imposing geographic or market segment restrictions thereon which will limit
their respective ability to sell products and services to other persons or
entities, except in the ordinary course of business operations of the Company
and Haimeng consistent with the past practices thereof;

 

  (ii) modify, extend, renew or terminate any contract binding on the Company
and Haimeng, respectively, (including contracts evidencing, securing and
otherwise relating to indebtedness of the Company and Haimeng), except otherwise
expressly set forth in this Contract, or except in the ordinary course of
business operations of the Company and Haimeng consistent with the past
practices thereof;

 

13

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

  (iii) incur any additional indebtedness, or enter into any agreement that
would constitute an Encumbrance on, otherwise mortgage or encumber, the Company
and Haimeng or their assets;

 

  (iv) dispose of, agree to dispose of, or otherwise transfer the Company and
Haimeng, respectively, or their assets, except for sales of inventories or
collection of receivables or any other items otherwise expressly set forth in
this Contract;

 

  (v) engage any new employees, terminate the employment of any employees or
alter the terms of employment of any employees, outside the ordinary course of
its business consistent with its past practice, except otherwise expressly set
forth in this Contract; and

 

  (vi) declare or pay any dividend.

 

  (b) the Seller shall cause the Company and Haimeng, respectively, to:

 

  (i) maintain the profitability and value of the businesses of the Company and
Haimeng, and protect and maintain each of their assets; and

 

  (ii) keep and perform all of the obligations to be performed by the Company
and Haimeng under all existing contracts.

 

4.6. Meetings and Operations. In addition to any other rights that the Buyer may
have under this Contract, after the Contract Execution Date, subject to the
Seller’s consent, the Buyer shall have the right to attend any meetings of the
Company and Haimeng, respectively, and to attend to all matters in relation to
the business operations of the Company and Haimeng, respectively, and the Seller
shall, and the Seller shall cause the Company and Haimeng, respectively, to,
take any or all actions as the Buyer may reasonably require from time to time,
and render full cooperation and support to the Buyer so as to effectuate the
Buyer’s rights hereunder.

 

4.7. Transfer of all Business from Haiyun. Before the Closing Date,

 

  (a) the Seller shall, and he shall procure that LHM and Yu Lei shall, have had
any and all the operations and businesses of Longkou Haiyun Vehicle Brake System
Company Limited (“Haiyun”), a local Chinese company, duly merged into Haimeng
and cause such merger to be legally effective by satisfying any and all the
legal and tax requirements in connection therewith as required by Chinese law in
this regard, including, but not limited to, handling any and all registration
formalities, executing any and all documents, changing, amending and obtaining
any and all necessary permits and licenses and doing any and all acts in respect
of transfer of all businesses together with necessary equipment, machinery and
other assets currently carried out by Haiyun to Haimeng, and upon transfer
Haiyun shall cease to engage in any business activities previously and in the
future carried out by Haimeng;

 

14

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

  (b) the Seller shall, and he shall procure Haimeng to, have carried out any
and all necessary formalities and procedures to deregister Haiyun from any and
all the governmental authorities in China, including without limitation, tax
authorities and administration of industry and commerce;

 

  (c) the Seller shall, and he shall procure LHM and Yu Lei to, have sold and
assigned, any and all of their respective equity interests in the registered
capital of Haimeng to the Company, and the Seller shall procure the Company to
have purchased and accepted all of the above equity interests, so that the
Company has become the sole investor of Haimeng; and

 

  (d) the Seller shall, and he shall procure the Company and/or Haimeng to, have
converted Haimeng into a wholly foreign owned enterprise, which shall have
become legally effective by satisfying any and all the legal and tax
requirements in connection therewith as required by Chinese law in this regard,
including, but not limited to, handling any and all registration formalities,
executing any and all documents, and changing, amending and obtaining any and
all necessary permits and licenses.

 

4.8. Permits and Licenses. Prior to the Closing Date, the Seller shall procure
that the Seller and Haimeng shall have duly obtained any and all the permits,
licenses and any other official documents or paperwork of legal effect under
Chinese law necessary for the business operations of Haimeng, including, but not
limited to, those as attached hereto as Schedule 5.

 

4.9. Entitlement. Except those as attached hereto as Schedule 6, the Buyer shall
be entitled to determine to terminate all Affiliate Agreements without any
further responsibility, liability or commitment on the part of the Company and
Haimeng, either severally or jointly. Such termination shall include waivers and
releases by the parties thereto of all claims against the Company or Haimeng for
money, services or other obligations due or arising under the terms of such
agreements, and shall be in form and substance satisfactory to the Buyer.

 

4.10. Execution of Certain Contracts.

 

  (a) On or before the Closing Date, the Seller, the Buyer and the Company shall
have executed the Shareholders’ Agreement and the restated articles of
association as attached hereto as Schedule 7;

 

  (b) On or before the Closing Date, the Seller and Haimeng shall have executed
the Employment Contract;

 

  (c) On or before the Closing Date, each of the Retained Key Employees shall
have executed the Retention Agreement with Haimeng;

 

15

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

  (d) On or before the Closing Date, the escrow agent, the Seller and the Buyer
shall have executed the Escrow Agreement in the form and substance reasonably
satisfactory to all the parties thereof, which shall include the following major
terms and conditions or terms similar to that effect:

 

  (i) On the Closing Date, in accordance with the terms of Section 3.5 hereof,
the Buyer will deposit with the escrow agent 20% of the total Purchase Price in
US$, which will be converted to Renminbi at the exchange rate calculated
pursuant to Section 3.6 herein and then reconverted at the then-current exchange
rate available into a currency of the Seller’s selection, which selection must
be made not less than five (5) Business Days prior to the Closing Date, in the
Escrow Account located in Hong Kong;

 

  (ii) The escrow agent shall hold the Escrow Funds in the Escrow Account in
trust for six (6) months from the Closing Date (the “Escrow Period”) and the
Escrow Funds shall be used solely as a source of payment of the Seller’s
obligations under Sections 3.2 and 11 hereof and Section 10 of the Shareholders’
Agreement. The Escrow Account shall be an interest-bearing account. As allowed
by any applicable law, the Seller shall have the right, from time to time as
permitted by the escrow agent’s normal business practice, to request for
conversion of the Escrow Funds in the Escrow Account in one type of currency
into another type of currency at his election and any losses or gains in the
Escrow Funds due to such conversion shall be for the Seller’s account. Any
interest earned on the Escrow Funds and any other earnings in respect thereof
are the property of the Seller;

 

  (iii)

If the Buyer is owed any amount required to be paid by the Seller pursuant to
the terms hereof and of the Shareholders’ Agreement (the “Amount Owed”), the
Buyer shall have the right, but not the obligation, to deliver a written notice
(an “Adjustment Notice”) to the escrow agent (with a copy to the Seller)
(i) setting forth the Amount Owed, (ii) requesting that such amount be paid from
the Escrow Account in US$, and (iii) containing payment instructions. Within
three (3) Business Days after receipt of an Adjustment Notice, the Seller shall
make a decision on payment of the Amount Owed requested by the Buyer and deliver
the same to the escrow agent and the Buyer. Upon the Seller’s consent, the
escrow agent shall pay the Amount Owed consented by the Seller (to the extent of
funds available in the Escrow Account) to the Buyer in immediately available
funds according to the Buyer’s instructions within three (3) Business Days after
receipt of the Seller’s consent. If the Seller fails to consent to the Buyer’s
above request for payment, the dispute arising therefrom shall

 

16

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

 

be resolved by arbitration as set forth in Section 10. The escrow agent shall
make payment to the Buyer in accordance with the arbitration award so obtained
if payment to the Buyer is required by such arbitration award;

 

  (iv) On the Business Day following the last day of the Escrow Period, the
escrow agent shall pay, in accordance with the written instructions of the
Seller and the Buyer, the balance remaining in the Escrow Account less the
aggregate amounts set forth in all pending unresolved Buyer claims made in
accordance with the terms hereof and of the Shareholders Agreement (the
“Unresolved Buyer Claims”) and the amount in the Escrow Funds equal to the
Unresolved Buyer Claims (the “Remaining Amount”) shall still be held by the
escrow agent in the Escrow Account until they are resolved by arbitration in
accordance with Section 10. The Remaining Amount shall be paid to the Seller or
the Buyer, as the case may be, based on the relevant final binding arbitration
award(s); and

 

  (v) As between the Seller and the Buyer, all the fees for the escrow services
to be rendered by the escrow agent in connection with carrying out all its
duties set forth in the Escrow Agreement shall be borne 50% by the Seller and
50% by the Buyer severally and not jointly.

 

  (e) On or before the Closing Date, any and other documents deemed necessary
and appropriate by the Buyer (including the documents required by Section 3.2)
shall have been entered into by the relevant parties thereto.

 

4.11. Amendment of Business Licenses. The Seller acknowledges that he currently
owns and controls Ellen Industries (Hong Kong) Limited, Shandong Longkou Haimeng
Industry and Trade Company Limited, Longkou Haibo Machinery Company Limited,
Longkou Haibo Machinery Company Limited Retrieval Waste and Old Metals Branch
Company, Tianjin Haimeng Filter Company Limited and Bolei International Inc. and
some of the above companies’ business scopes as stated in their business
licenses contain the same or similar business scopes that are currently included
in the business license of Haimeng. The Seller covenants that he shall procure
the above relevant companies, before the Closing Date, to carry out any and all
necessary formalities and procedures, including, but not limited to, handling
any and all approval and registration formalities with the governmental
authorities in China or elsewhere, including without limitation, tax authorities
and administration of industry and commerce, executing any necessary documents,
and changing, amending and obtaining new business licenses, in order to delete
any and all of the following wordings from their business licenses “development,
manufacturing, sale and promotion of brake drums, brake rotors and adapters” or
words with similar meanings, so that the most recent business licenses of the
above companies no longer contain any of the above wordings or words with
similar meanings. On or before the Closing Date, the Seller shall have delivered
to the Buyer a copy of the most recent business licenses of the above companies
to evidence such deletions.

 

17

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

4.12. Action of Haimeng. Before the Closing Date,

 

  (a) the Seller shall procure Haimeng and/or the Company to amend the articles
of association of Haimeng in the form and substance reasonably acceptable to the
Buyer, which shall reflect the board structure and management methodology set
forth in the Shareholders’ Agreement and the articles of association of the
Company, and for avoidance of any doubt, the Seller agrees that he shall procure
the Company to appoint four (4) directors on the board of Haimeng nominated by
the Buyer and one (1) director on the board of Haimeng nominated by the Seller;

 

  (b) the Buyer shall, upon reasonable request by the Seller or Haimeng, timely
render its assistance in providing necessary documents in order for Haimeng to
handle the relevant governmental procedures and registrations for validation of
the above director appointments as set forth in Section 4.12(a); and

 

  (c) the Seller shall procure the Company and/or Haimeng to carry out any and
all necessary approval and registration formalities and procedures to validate
the above amendment to the articles of association of Haimeng and appointment of
new directors nominated by the Buyer.

 

4.13. New Trademark License Agreement. The Seller acknowledges that as of the
Contract Execution Date Haimeng and Tianjin Haimeng Filter Company Limited have
an existing trademark license contract with a term from January 1, 2008 to
December 31, 2018 under performance. Promptly after the Contract Execution Date,
the Seller covenants that he shall procure that Haimeng and Tianjin Haimeng
Filter Company Limited shall, prior to the Closing Date, terminate the trademark
existing license contract and cause it to cease to be of any legal force and
effect. The Seller shall procure Haimeng and Tianjin Haimeng Filter Company
Limited to enter into a new trademark licensing agreement with respect to use of
the trademarks “Haimeng” and/or related logos, which shall only be used by
Tianjin Haimeng Filter Company Limited, free of charge, on filtration products
of high quality within the geographic limits of Asia and the Asian Pacific
areas. The Seller shall procure Haimeng and Tianjin Haimeng Filter Company
Limited to enter into the new trademark license contract with the terms and
conditions reviewed and approved by the Buyer. The Seller shall procure the
parties in the new trademark license contract to agree that the term of the new
trademark license contract shall end on the date on which the Seller no longer
owns 50% or more of the equity interest in Tianjin Haimeng Filter Company
Limited, and upon the expiration of such term, Tianjin Haimeng Filter Company
Limited shall have a three-year grace period to use the trademarks “Haimeng”
and/or related logos, royalty-free, under the same terms and conditions as set
forth in the new trademark license contract.

 

18

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

4.14. Debt Reduction. The Buyer shall inform the Seller, at least 10 Business
Days prior to the Closing Date, whether the Debt of Haimeng must be reduced to
an aggregate amount not to exceed US$19 million (computed at the then-current
exchange rate officially published by the People’s Bank of China) effective on
or immediately prior to the Closing Date. If the Buyer does so inform the
Seller, then the Buyer, to facilitate such reduction of the Debt, shall prepay a
portion of the accounts receivable owed to Haimeng in an amount sufficient for
Haimeng to so reduce the Debt of Haimeng. The effect of such prepayment and such
Debt reduction on Haimeng’s Debt, cash, and accounts receivable shall not be
taken into account for purposes of the calculations in Section 3.2 and such
calculations shall be made as though such prepayment and such Debt reduction had
not occurred.

 

5. CLOSING DATE

 

5.1. Conditions in Connection with the Seller. The Closing shall take place at
the Shanghai Representative Office of Dorsey & Whitney LLP within ten
(10) Business Days upon fulfillment of the conditions set forth in Section 4 and
this Section 5 or such other date as agreed upon by the Seller and the Buyer
(the “Closing Date”), provided, however, that the Closing Date shall be a date
at least sixty (60) days after the Contract Execution Date or an earlier date
mutually agreed upon by the Parties. On or before the Closing Date, the Seller
shall, and he shall have caused the Company, Haimeng, Ms. Yu Lei and Ms. Yu
Ping, to have fulfilled all of the following conditions unless any such
condition set forth in this Section 5.1 is waived by the Buyer in exchange for
delivery to the Seller of the Purchase Price by the Buyer:

 

  (a) Fulfillment of Section 4. On or before the Closing Date, terms and
conditions as set forth in Section 4 shall have been fulfilled and/or complied
with by the relevant party or parties thereunder.

 

  (b) Certificates and Permits. All related certificates and the permits and
licenses as set forth under Section 4.8 above shall have been issued to the
Company or Haimeng, as the case may be, by each of the relevant and necessary
governmental authorities, and any and all the official documents evidencing that
the Company and Haimeng, respectively, have complied with all regulations
regarding annual inspection or audits or tax filing or that any necessary fines
that may have been imposed on the Company and Haimeng, respectively, have been
paid in full thereby;

 

  (c) Settlement of Accounts. The Seller shall, and shall have caused the
Company and Haimeng, respectively, to, have settled in full any and all accounts
between or among, as the case may be, the Company, Haimeng, the Seller and any
Affiliate or Restricted Person;

 

  (d)

Resignations. On or before the Closing Date, the Seller shall have executed and
delivered to the Buyer written resignations in form and substance reasonably
satisfactory to the Buyer of the directors and other appointees or nominees
appointed by the Seller, the Company, Haimeng, Ms. Yu Lei and Ms. Yu Ping in
connection with the

 

19

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

 

Company, and Haimeng as instructed by the Buyer, and any and all the power of
attorney or authorization of any kind or nature granted to such directors,
appointees or nominees by the Seller, the Company, Haimeng, Ms. Yu Lei and
Ms. Yu Ping shall be duly revoked. All such directors and any other appointees
or nominees shall be duly replaced by those as instructed by the Buyer with all
the legally required registration procedures in connection therewith being duly
satisfied under the laws of Hong Kong and China.

 

  (e) Officer’s Certificate. On the Closing Date, the Seller shall have executed
and delivered to the Buyer a certificate in his own name or in the name of an
authorized signatory of the Seller to the effect that:

 

  (i) such Seller’s representations and warranties made in this Contract are
true, correct and accurate as of the Closing Date;

 

  (ii) the Seller shall have performed and complied with all of his obligations
under this Contract that are to be performed or complied with thereby prior to
the Closing Date, and the Seller is not otherwise in default under any of the
provisions of this Contract, as of the Closing Date; and

 

  (iii) no litigation, proceeding, investigation, or inquiry is pending or
threatened which, if sustained, would hinder or prevent the consummation of the
transactions contemplated by this Contract or would adversely affect the Buyer
and the Seller’s right to carry on the business of the Company and Haimeng,
respectively, as presently conducted.

 

  (f) Delivery of Documents. On or before the Closing Date, the Seller shall,
and the Seller shall cause the Company and Haimeng, respectively, to, have
executed and delivered to the Buyer at a location designated and instructed by
the Buyer, including, but not limited to, the current location:

 

  (i) any consents, waivers or documents necessary to evidence to the Buyer’s
reasonable satisfaction in good faith that each of the conditions has been and
remains fulfilled or waived as specified under this Contract;

 

  (ii) copies of resolutions adopted by the Board of Directors and shareholders
(if more than the Seller alone as presently recorded) of the Company and duly
executed thereby as of the Closing Date, approving the execution and delivery of
this Contract and the performance by the Seller of his obligations under this
Contract;

 

  (iii)

the articles of association, certificate of incorporation or registration
(including any certificate of incorporation or registration on change of name),
all statutory registers, minute books and other Records of directors’ and
shareholders’

 

20

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

 

meetings of the Company and Haimeng, respectively, in proper order and
condition, fully entered up to the Closing Date and otherwise complying with all
requirements under any law;

 

  (iv) all check books, financial and accounting books and Records, copies of
any tax returns lodged and assessments issued under any tax laws or regulations,
fringe benefits tax returns, business activity statements, land use rights fee
Records, mortgages, leases, agreements, insurance policies, title documents,
licenses, certificates and all other Records of the Company and Haimeng,
respectively;

 

  (v) a duly completed authorization for the alteration of the signatories of
every bank account of the Company and Haimeng, respectively, in a manner
required by the Buyer; and

 

  (vi) the permits and licenses as set forth under Section 4.8 above and all
other current permits, licenses, certificates, approvals and other documents
issued to the Company and Haimeng, respectively, under any law relating to their
business activities.

 

  (g) Execution of Certain Contracts. On or before the Closing Date, the Seller
shall have executed the contracts and agreements contemplated in Section 4.10.

 

  (h) Other Conditions.

 

  (i) On or before the Closing Date if requested by Buyer, the Seller shall have
introduced the Buyer to the top ten (10) customers and suppliers of the Company
and Haimeng, respectively, which may vary from time to time. If requested by
Buyer, the Seller shall have arranged for meetings between the Buyer and each of
these customers and suppliers, and the Buyer has actually met each of these
customers and suppliers;

 

  (ii)

On or before the Closing Date, if requested by the Buyer, the Seller shall, and
shall have caused the Company and Haimeng, respectively, to, have gone with the
Permitted Person to all the banks that the Company and Haimeng maintain bank
accounts, have duly amended signature registers of any management personnel of
the Company and Haimeng with such banks in order to invalidate such signature
registers, have replaced them with the signature registers of the management
personnel appointed by the Buyer, and have turned to the Buyer any and all chops
of the Company and Haimeng, whether with the corporate name of the Company and
Haimeng, respectively, or with the name of any individuals, which have the power
of authorization of the business operations of the Company and Haimeng,
respectively, or access to the above bank accounts, including, without
limitation, the corporate chop, the financial matters chop and the contract chop
of the Company or

 

21

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

 

Haimeng, as the case may be, the chop for the Chairman of the Board, the General
Manager and the Financial Manager of the Company or Haimeng, as the case may be;

 

  (iii) On or before the Closing Date, subject to applicable legal requirements,
the Seller shall have delivered to the Buyer a letter executed under seal by
each resigning director or officer of the Company and Haimeng acknowledging that
he or she has no claim of any kind or nature against the Company Haimeng or the
Buyer for breach of contract, loss of office, redundancy, unfair dismissal,
compensation, payment or repayment of loans;

 

  (iv) On or before the Closing Date, the Seller shall, and he shall have caused
the Company and Haimeng, respectively, to have done all other acts and executed
all other documents that this Contract requires the Seller to do, or execute and
deliver; and

 

  (v) On or before the Closing Date, in addition to the covenants as set forth
herein, the Seller shall, and shall cause Ms. Yu Lei, Ms. Yu Ping, the Company
and Haimeng to have ensured, that the Seller, Ms. Yu Lei, Ms. Yu Ping, the
Company and Haimeng shall not take any action, engage in any activities or enter
into any contracts or agreements, which shall regenerate or cause any adverse
impact on or jeopardize in any manner the business operations of the Company and
Haimeng or change the operational practice or business mode thereof in any
manner detrimental to the Company and Haimeng.

 

5.2. Payment of the Purchase Price by the Buyer. Upon the fulfillment of the
conditions set forth in Section 5.1, on the Closing Date, the Buyer shall do the
following:

 

  (a) pay to the Seller the Purchase Price, or that part of the Purchase Price
as is required to be paid on the Closing Date in accordance with Section 3; and

 

  (b) do all other acts and execute all other documents that this Contract
requires the Buyer to do, or execute and deliver on the Closing Date.

 

5.3.

Duties in relation to Conditions or Actions in Sections 4 and 5. Each Party
shall use its best efforts to ensure that the conditions, actions, approvals,
documents, contracts, or agreements referred to in Sections 4 and 5 are
fulfilled or waived, taken, obtained, and executed and delivered, as the case
may be, on or before the date specified in that section. Each party shall supply
the other Party with copies of all applications made and documents supplied for
the purpose of fulfilling any conditions, taking any actions, obtaining any
approvals, and executing and delivering any documents, contracts or agreements
as set forth in Sections 4 and 5. Each Party shall not take any actions that
would, or would be likely to, prevent or hinder the fulfillment of any
conditions, taking of any actions, obtaining of any approvals, and

 

22

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

 

execution and delivery of any documents, contracts or agreements as contemplated
under Sections 4 and 5. Each Party shall, within two (2) Business Days of such a
Party becoming aware that a condition set forth in Section 5 has been fulfilled,
notify the other Party in writing of that fact.

 

5.4. Fulfillment by a Waiver. A Party may waive a condition set forth in
Section 5, but only to the extent set out in the waiver:

 

  (a) where the condition is expressed to be for the benefit of such Party, if
such Party gives a written notice of waiver of the condition to the other Party;
or

 

  (b) otherwise, if the Seller and the Buyer agree in writing to waive the
condition.

 

5.5. Failure of Sections 5.1 and 5.2. The Closing is conditional on and will not
be taken to have occurred until both the Buyer and the Seller have complied with
all of their respective obligations under Sections 5.1 and 5.2, unless waived in
accordance with Section 5.4. If either the Seller or the Buyer fails to fully
comply with his or its obligations under Sections 5.1 and 5.2, which have not
been waived in accordance with Section 5.4, without prejudice to any other
rights the other Party may have in respect of that failure, then each Party
shall:

 

  (a) return to the other Party all documents delivered to such Party under this
Section 5;

 

  (b) repay to the paying Party all payments received by such Party under this
Section 5; and

 

  (c) agree to terminate this Contract without any further responsibility or
liability to the other Party.

 

6. REPRESENTATIONS, WARRANTIES AND COVENANTS

 

6.1. Representations and Warranties of the Parties. The Seller represents and
warrants to the Buyer, and the Buyer represents and warrants to the Seller, as
of each of the days from the Contract Execution Date to those thereafter,
including, but not limited to, the Closing Date, that:

 

  (a) such Party has the full power and authority to enter into, execute and
deliver this Contract and to perform the transactions contemplated hereby and
such Party is duly incorporated or organized and existing under the laws of the
jurisdiction of its incorporation or organization;

 

  (b) the execution and delivery by such Party of this Contract and the
performance by such Party of the transactions contemplated hereby have been duly
authorized by all necessary corporate or other action of such Party;

 

  (c)

assuming the due authorization, execution and delivery hereof by the other
Party, this Contract constitutes the legal, valid and binding obligation of such
Party, enforceable against such Party in accordance

 

23

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

 

with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights in general; and

 

  (d) the execution, delivery and performance of this Contract by such Party and
the consummation of the transactions contemplated hereby will not (i) violate
any provision of the organizational or governance documents of such Party;
(ii) require such Party to obtain any consent, approval or action of, or make
any filing with or give any notice to, any governmental authority in such
Party’s jurisdiction of organization or any other person pursuant to any
instrument, contract or other agreement to which such Party is a party or by
which such Party is bound, except for the consent, approval, action or filing as
set forth in Section 5.1(b); (iii) conflict with or result in any material
breach or violation of any of the terms and conditions of, or constitute (or
with notice or lapse of time or both constitute) a default under, any
instrument, contract or other agreement to which such Party is a party or by
which such Party is bound; (iv) violate any order, judgment or decree against,
or binding upon, such Party or upon its respective securities, properties or
businesses; or (v) violate any law or regulation of such Party’s jurisdiction of
organization or any other jurisdiction in which it maintains its principal
office.

 

6.2. Representations and Warranties of the Seller. The Seller hereby represents
and warrants to the Buyer, and the Seller covenants that the Seller shall cause
Ms. Yu Lei, Ms. Yu Ping, the Company and Haimeng to represent and warrant to the
Buyer, as of each of the days from the Contract Execution Date to those
thereafter, including, but not limited to, the Closing Date, that:

 

  (a) the Sale Shares are and will be free from any charges, pledges,
Encumbrances and any third party rights of any kind or nature and shall have
constituted eighty-five percent (85%) of all the share capital of the Company
and, indirectly, through the Company, eighty-five percent (85%) of all the
equity interests of Haimeng, after transfer to the Buyer, and the Remaining
Shares are solely owned and controlled by the Seller as an individual, free from
any charges, pledges, Encumbrances and any third party rights of any kind or
nature and shall have constituted fifteen percent (15%) of all the share capital
of the Company and, indirectly, through the Company, fifteen percent (15%) of
all the equity interests of Haimeng;

 

  (b) there are no lawsuits, arbitral, legal, administrative or other
proceedings or governmental investigations pending or, to the Best Knowledge of
the Seller, threatened against the Company or Haimeng with respect to the
subject matter of this Contract or that could affect in any way his ability to
enter into or perform this Contract;

 

  (c) the Seller has, and has caused Ms. Yu Lei, Ms. Yu Ping, the Company and
Haimeng to have, obtained and shall maintain in effect all the permits and
licenses as set forth under Section 4.8 above and other related approvals
required to execute and perform their respective obligations under this
Contract;

 

24

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

  (d) the Seller specifically represents and warrants to the Buyer that Haimeng
does not need an industrial product manufacturing license (the “Manufacturing
License”) issued by the State General Administration of Quality Supervision,
Inspection and Quarantine (the “SGAQSIQ”), the governmental approval authority
in charge of issuing licenses with respect to manufacturing brake discs and
brake drums in China, to be duly licensed by the SGAQSIQ to manufacture brake
discs and brake drums or any other products currently produced by Haimeng under
related Chinese law, and the Seller hereby covenants that the Seller shall have
applied for and obtained, and shall cause Haimeng to have applied for and
obtained, the Manufacturing License in the event the Manufacturing License is
required under related Chinese law;

 

  (e) other than the share capital of the Company subscribed by the Seller and
the one hundred percent (100%) equity interest owned by the Seller in Haimeng
through the Company, none of the Restricted Persons, or any of their Affiliates,
or any other person or entity owns, or has any other interest in, any of the
assets owned by, used in or pertaining to the business of the Company and
Haimeng, whether real or personal, tangible or intangible, including without
limitation, inventions, patents, trademarks or trade names;

 

  (f) the Seller or any of his Affiliates or Restricted Persons that may be
parties to any of the Affiliate Agreements has performed and is performing all
obligations required to be performed thereby, and neither the Seller nor any of
his Affiliates that is a party thereto, is in default under any Affiliate
Agreements;

 

  (g) neither the Seller nor any of the Seller’s Affiliates, Restricted Persons
or shareholders of the Company or Haimeng owes, or will owe at the Closing, any
money, or has any outstanding liability, to the Company and Haimeng,
respectively, nor does the Company or Haimeng owe, or will owe at the Closing,
any money, or has any outstanding liability, to the Seller or any of the
Seller’s Affiliates, Restricted Persons or shareholders of the Company or
Haimeng;

 

  (h) any and all the written contracts, agreements or transactions between and
among the Company, Haimeng and the Seller, or between and among the Company,
Haimeng, the Seller’s Affiliates or any of the Restricted Persons, or to which
the Seller, the Company, Haimeng, any of the Seller’s Affiliates or any of the
Restricted Persons is a party and each of which has a total value of the subject
matter involved exceeding fifty thousand United States Dollars (US$50,000) a
year as attached hereto as Schedule 8 have been entered into at arm’s length,
and prices paid or received in connection with these contracts, agreements and
transactions were fair and computed at arm’s length;

 

25

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

  (i) Haimeng has not made any sales of whatsoever kind or nature to Durabrake
since January 1, 2005, the sales contract between Haimeng and Durabrake shall
have been terminated prior to the Closing Date and will not be renewed by
Haimeng and Durabrake and the sales contract between Haimeng and Juratek had
been terminated as of February 28, 2008 and will not be renewed by Haimeng and
Juratek;

 

  (j) no customer or supplier of the business of the Company and Haimeng,
respectively, has canceled or otherwise terminated, or made any written threat
to the Company and Haimeng, respectively, to cancel or otherwise terminate, its
relationship with the Company and/or Haimeng for any reason, including the
consummation of the transactions contemplated hereby. None of the top ten
(10) customers or suppliers (based on sales or purchases value) of the business
of the Company and Haimeng, respectively, nor any customer or supplier which may
constitute a “sole source” for the Company and Haimeng, intends to cancel or
otherwise terminate its relationship with the Company and/or Haimeng, or change
the terms of its relationship with the Company and/or Haimeng, or to decrease
materially its services or supplies to the Company and/or Haimeng or its usage
of the services or products of the Company and/or Haimeng, and since January 1,
2008, the Company and/or Haimeng has not lost any of the businesses with such
customers and suppliers. To the Best Knowledge of the Seller, there are not any
existing or anticipated changes in the policies or conditions, financial or
otherwise, of such customers, suppliers or sales representatives that will
adversely affect the business of the Company and/or Haimeng either as now
conducted or subsequent to the Contract Execution Date;

 

  (k) to the Best Knowledge of the Seller, there are not any facts inconsistent
with the Buyer’s intention of carrying on the business of the Company and
Haimeng, respectively, substantially as heretofore conducted, or of any existing
or anticipated changes in the practices and policies (including production and
procurement practices and policies) of the Company and/or Haimeng’s customers,
suppliers, or others with whom it transacts business or in the availability of
materials, supplies, transportation or fuel or utilities that will adversely
affect the future prospects for profitable operation of such business. To the
Best Knowledge of the Seller, no persons who provide services or sell goods to
the Company and/or Haimeng will or may cease to provide such services or sell
such goods at any time in the future;

 

  (l) the minute books of the Company and Haimeng, respectively, which have been
made available to the Buyer for its inspection, contain true and complete
records of all meetings of the Board and written resolutions in lieu of meeting
of the Board since the date of issuance of the Company and/or Haimeng’s initial
certificate of incorporation or business license and accurately reflect all
transactions referred to in such minutes and written resolutions in lieu of
meeting;

 

26

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

  (m) no meetings have been convened, resolution proposed, petition presented or
order made for the winding up of the Company and/or Haimeng and no receiver,
receiver and manager, provisional liquidator, liquidator, administrator or other
officer of the court has been appointed in relation to the Company and/or
Haimeng or any part of its undertaking or assets;

 

  (n) no resolutions have been passed by the members or directors of the Company
and Haimeng, respectively, except in the ordinary course of business of the
Company and/or Haimeng and those necessary to give effect to this Contract and
all other documents in connection with the transaction as contemplated
hereunder;

 

  (o) the conduct of the business of the Company and Haimeng is in compliance
with all applicable Laws of Hong Kong and China, respectively;

 

  (p) there have not been any material changes in the accounting methods being
used by the Company and/or Haimeng since its establishment, which may adversely
affect the operations and accounting practice of the Company and/or Haimeng;

 

  (q) except as otherwise disclosed in Schedule 9 hereto with respect to the
leased buildings and land, the Company and Haimeng have good and valid title to
all the tangible and intangible properties used or held for use in the business,
and with respect to all real property, valid and subsisting title or granted
land use rights, in each case free and clear of any Encumbrance, which has been
duly and solely registered under the name of Haimeng, as attached hereto as
Schedule 9;

 

  (r) the facilities, machinery, equipment, furniture, buildings, fixtures,
vehicles and other tangible property of the Company and Haimeng, respectively,
are in good operating condition and repair and are suitable for their intended
use;

 

  (s) all the assets of the Company and Haimeng are maintained at a reliable and
sufficient level both in quality and in quantity as required by the regular
operations thereof during their respective ordinary course of businesses;

 

  (t) attached hereto as Schedule 14 are the following financial statements (the
“Financial Statements”): (i) balance sheets and statements of income as of and
for the fiscal years ended December 31, 2006, and December 31, 2007 (the “Most
Recent Fiscal Year End”), for the Company and Haimeng, respectively; and
(ii) balance sheet and statement of income (the “Most Recent Financial
Statements”) as of and for the period ended March 31, 2008 (the “Most Recent
Fiscal Month End”), for the Company and Haimeng. The Financial Statements were
prepared in accordance with GAAP and fairly present in all respects the
financial position of the Company and Haimeng and the results of operations of
the Company and Haimeng as of such dates.

 

27

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

  (u) except as disclosed on Schedule 15, as of the Most Recent Fiscal Year End,
the Company and/or Haimeng, respectively, has not had any material direct or
indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, unaccrued, absolute,
contingent or otherwise, whether or not of a kind required by GAAP to be set
forth on a financial statement or in the notes thereto (“Liabilities”) that were
not fully and adequately reflected or reserved against on the Financial
Statements for December 31, 2007. The Company and/or Haimeng has not, except in
the ordinary course of business, incurred any Liabilities since the Most Recent
Fiscal Year End. To the Best Knowledge of the Seller, there is not any
circumstance, condition, event or arrangement that may hereafter give rise to
any Liabilities of the Company and/or Haimeng except in the ordinary course of
business;

 

  (v) any financial information, documents or other data, which are disclosed by
the Company and/or Haimeng to the independent certified public accountants for
the purpose of preparing the Closing Date Financial Data, present a true and
fair view of the affairs, financial positions, assets, and liabilities of the
Company and Haimeng, respectively, and of their income, expenses and results of
operations for the financial year ended thereon;

 

  (w) except as otherwise disclosed in Schedule 19 hereto, since the Most Recent
Fiscal Year End, there has been no adverse change in the business, properties,
operations or condition (financial or otherwise) of the Company and Haimeng,
respectively, and to the Best Knowledge of the Seller, there has not been any
such change that is threatened, nor has there been any damage, destruction or
loss that could have or has had an adverse effect on the business, properties,
operations or condition (financial or otherwise) of the Company and/or Haimeng,
whether or not covered by insurance;

 

  (x) no dividend or distribution of capital or income has been declared, made
or paid in respect of any capital of the Company and Haimeng, respectively,
whether of Cash, specific assets or otherwise, since the Most Recent Fiscal Year
End;

 

  (y) the Company is not in violation of any applicable order, judgment,
injunction, award, decree or writ naming the Company and/or Haimeng
(collectively, “Orders”) or any applicable law, regulation, rule or other
requirement (collectively, “Laws”), of any government or any agency of any such
government, or any court or arbitrator (collectively, “Governmental Bodies”),
and neither the Company and/or Haimeng nor the Seller has received notice that
any such violation is being or may be alleged;

 

28

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

  (z) there are no outstanding Orders against or involving the Company and/or
Haimeng. There are no actions, suits, claims or legal, administrative or
arbitral proceedings or investigations (collectively, “Claims”) (whether or not
the defense thereof or liabilities in respect thereof are covered by insurance)
pending or, to the Best Knowledge of the Seller, threatened, against or
involving the Company and/or Haimeng or any of its properties or assets;

 

  (aa) except as otherwise disclosed in Schedule 20 hereto, the Company and
Haimeng have not granted to any third party any rights in respect of the
Intellectual Property Rights that the Company or Haimeng owns or uses by ways of
licensing or in any other manners, and has not infringed the Intellectual
Property Rights of any third party, nor has the Company or Haimeng used any of
the Intellectual Property Rights of any third party, except those as attached
hereto as Schedule 10, in conduct of its normal businesses. To the Best
Knowledge of the Seller, there is not any allegation or basis on which an
allegation could be made that the Company or Haimeng has infringed the
Intellectual Property Rights of any third party;

 

  (bb) including, but not limited to, those as set forth under Section 4.8
above, the Company and Haimeng, respectively, have in their own names all
licenses, permits, exemptions, consents, waivers, rights, orders or approvals
of, and has made all required registrations with, any Governmental Body that are
deemed necessary and appropriate by the Buyer to the conduct of the business of,
or the intended use of any properties of, the Company and Haimeng (collectively,
“Permits”). All Permits are in full force and effect; no violations are or have
been recorded in respect of any of the Permits; and no proceeding is pending or,
to the Best Knowledge of the Seller, threatened to revoke or limit any of the
Permits. No action by the Seller or the Company or Haimeng is required in order
that all Permits will remain in full force and effect immediately after the
consummation of the transactions contemplated hereby;

 

  (cc)

the Company and Haimeng have paid all income tax, value-added tax, business tax,
stamp duties, customs tariffs, and other taxes, whether or not measured in whole
or in part by net income, or whether or not measured in whole or part by any
transaction amount, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with contesting any proposed adjustment related to any of the foregoing
(collectively, “Taxes” or, individually, a “Tax”) required to be paid thereby
through the Closing Date, and shall have timely paid any Taxes required to be
paid thereby on or before the Closing Date. The Company and Haimeng have timely
filed all Tax returns required through the Contract Execution Date, and shall
prepare and timely file, in a manner consistent with prior years and applicable
laws and regulations, all Tax returns required on or before the Closing Date. No
penalties or other charges are or will become due with respect to the late
filing of any

 

29

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

 

Tax returns of the Company and Haimeng required to be filed on or before the
Closing Date. The Company and Haimeng, respectively, do not expect any authority
to assess any additional Taxes for any period for which Tax returns have been
filed. There is no dispute or claim concerning any Tax liability of the Company
or Haimeng either (i) claimed or raised by any authority in writing or (ii) as
to which the Seller has knowledge;

 

  (dd) all amounts of Taxes, including, but not limited to, the individual
income tax and the social welfare contribution, required by law to be deducted
by the Company and Haimeng, respectively, from the salary or wages of the
employees, and agents of the Company and Haimeng, respectively, or payments to
contractors have been deducted and remitted to the relevant tax authorities
within the time allowed by the relevant tax law or the relevant tax authorities;

 

  (ee) any withholding Taxes that are required to be withheld from any payment
made by the Company and Haimeng, respectively, have been duly withheld and
remitted to the relevant tax authorities within the time allowed by the relevant
tax law or the relevant tax authorities;

 

  (ff) the Company or Haimeng is not in default under any contract to which the
Company or Haimeng is a party, nor does any condition exist that with notice or
lapse of time or both would constitute a default thereunder. To the Best
Knowledge of the Seller, no other party to any such contract is in default
thereunder nor does any condition exist that with notice or lapse of time or
both would constitute a default thereunder;

 

  (gg) all inventories of Haimeng are in good and merchantable condition, and
suitable and usable or salable in the ordinary course of business for the
purposes for which they are intended. Haimeng’s stock of finished goods,
including packaging, is adequate for the current business trading requirements
of the Company and Haimeng. Haimeng’s unfinished goods and packaging materials
are in good condition and capable of being used to produce the Haimeng’s current
products. The packaging and labels for Haimeng’s finished goods are not false,
misleading, deceptive or in any other way contrary to any law. The stock in
trade of the Company and Haimeng is in good condition and is capable of being
sold by the Company and Haimeng in the ordinary course of business in accordance
with their respective current price lists, without rebate or allowances to a
buyer. Haimeng’s level of stock is sufficient to meet the requirements of the
business operations of the Company and Haimeng and is not materially surplus to
the requirements of the Company and Haimeng. To the Best Knowledge of Seller,
there is not any adverse condition affecting the supply of materials available
to Haimeng;

 

  (hh)

Except as otherwise disclosed in Schedule 21 hereto, all accounts receivable of
the Company and Haimeng, respectively, at the Closing will be good, current, not
more than 30 days past due and fully

 

30

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

 

collectable in the ordinary course of business, and none of the accounts
receivable will be subject to a valid defense, counterclaim or set-off. All
accounts payable are current and not more than 30 days past due;

 

  (ii) each contract under which the Company or Haimeng is an insured party (the
“Insurance Contract”) is in force and there is no fact or circumstance known to
the Company or Haimeng or the Seller that would lead to any Insurance Contract
being terminated. Under the Insurance Contracts, all of the property and assets
of the Company and Haimeng of an insurable nature are insured in amounts
representing their full replacement or reinstatement value against fire and
other risks normally insured against for similar businesses in similar
industries; and the Company and Haimeng are adequately insured for such amounts
as would be maintained in accordance with prudent business practice in respect
of all risks, including in relation to damage to property, personal injury,
public liability, product liability, workers’ compensation and business
interruption. There are no outstanding claims or insurance premiums payable
under any of the Insurance Contracts;

 

  (jj) the Records of the Company and Haimeng, respectively, are in the
possession or under the control thereof, have been fully, properly and
accurately kept and maintained and are up to date, have accurately recorded the
details of all of the transactions, finances, assets and liabilities of the
Company and Haimeng, and have been prepared in accordance with the requirements
of GAAP;

 

  (kk) no damage to or destruction or loss of any asset of the Company or
Haimeng having a value in excess of fifty thousand United States Dollars
(US$50,000), whether or not covered by insurance, has occurred;

 

  (ll) neither the Company nor Haimeng has entered into, terminated or received
notice of termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit or similar contract to which the Company
or Haimeng is a party, or (ii) any contract or transaction involving a total
remaining commitment by the Company or Haimeng of at least fifty thousand United
States Dollars (US$50,000);

 

  (mm) there has not been any sale (other than sales of inventories in the
ordinary course of business), lease or other disposition of any one or more of
the assets or properties of the Company or Haimeng having a value in excess of
fifty thousand United States Dollars (US$50,000) individually or in the
aggregate or the creation of any Encumbrance on any assets, except as otherwise
disclosed in Schedule 22 hereto;

 

  (nn) there is no strike, labor dispute or campaign or slowdown current,
pending or threatened against the Company and Haimeng in the last three
(3) years. There are no facts or circumstances, to the Best Knowledge of the
Seller, the Company and Haimeng, that may result in an industrial dispute
between the Company or Haimeng and any of its employees and no pay claims have
been made, or are likely to be made, against it;

 

31

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

  (oo) with respect to the employees or directors of the Company or Haimeng, as
the case may be,

 

  (i) it has complied in all respects with all contractual, statutory, legal and
fiscal obligations of and in relation to its employment of its employees,
including, all withholding obligations, all codes of practice, collective
agreements and awards;

 

  (ii) it has not altered any existing bonus, profit share or employee incentive
plans or schemes for its employees, and has not created any new bonus, profit
share or employee incentive plans or schemes for its employees;

 

  (iii) the basis of the remuneration payable to the directors and the employees
is the same as that in force as of January 1, 2008 and that basis will not be
altered before the Closing Date;

 

  (iv) no money other than in respect of remuneration or benefits of employment
is payable to any director or employee of the Company or Haimeng;

 

  (v) it is not under any present or contingent liability to pay compensation
for loss of office or employment to any ex-officer or ex-employee and there are
no payments due in connection with the redundancy of any employee;

 

  (vi) since June 30th, 2007, no remuneration or fees have been paid or agreed
by the Company or Haimeng to be paid to any director of the Company or Haimeng
except remuneration for those otherwise specified under a written Board
resolution or resolutions authorizing such remuneration;

 

  (vii) there are no retirement benefit schemes, pension schemes or other
pension arrangements whether legally enforceable or not, relating to the Company
or Haimeng in operation on the Contract Execution Date, except otherwise
required under Chinese law, and no such schemes or arrangements will be
established and there are no retirees or ex-employees who are or will receive
any payment of any kind or nature from the Company or Haimeng before the Closing
Date;

 

  (viii) it has not entered into or altered any contract of service with its
employees, or increased or agreed to increase the rate of remuneration or
compensation payable to any of its employees, except otherwise expressly set
forth in this Contract for the Retained Key Employees; and

 

32

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

  (ix) it has complied in full with any and all applicable law and rules
regulating and governing worker’s safety, and there has not been any unreported
worker’s injury case which has caused and resulted in one working day or more
missed, except as otherwise disclosed in Schedule 23.

 

  (pp) none of the Seller or the Company or Haimeng or the directors, officers,
employees, agents or representatives of the Company or Haimeng has offered,
promised or given or will offer, promise or give any money or any other thing of
value to any government official, any political party or official thereof, any
candidate for political office, or any other person or organization, while
knowing, or having reason to know that all or any portion of such money or thing
of value has been offered, promised or given directly to any of the
aforementioned persons or organizations, for the purpose of influencing any
action, omission or declaration by the recipient in order to facilitate the
approval or establishment of the Company or Haimeng, the business of the Company
or Haimeng or the approval of any of the transactions contemplated hereby, and
none of the Seller or the Company or Haimeng or the directors, officers,
employees, agents or representatives of the Company or Haimeng has taken any
action that would otherwise violate any law, rules and regulations of China or
any other jurisdictions, including, but not limited to, Hong Kong and U.S.A.,
against corruption and bribery;

 

  (qq) the Company and Haimeng have complied with all the Laws, judgments and
rulings of Hong Kong and China relating to any matters of pollution or of
environmental regulation or control. The Company and Haimeng have not received
any written notice of any actual or claimed or asserted failure so to comply
that alone, or together with any other such notices that have been previously or
concurrently received, might result in an adverse effect on the condition of the
Company and Haimeng. No hazardous wastes, hazardous substances, hazardous
materials, toxic substances or toxic pollutants (collectively “Hazardous
Materials”) are stored or handled on any property of the Company, except the
locations as attached hereto as Schedule 11, in violation of any applicable Law.
The Company or Haimeng has not disposed of any Hazardous Materials in a manner
that may give rise to a Claim against the Company or Haimeng;

 

  (rr)

all documents, contracts, instruments, certificates, notices, statements,
schedules and any other papers whatsoever (collectively, “Documents”) delivered
by or on behalf of the Seller in connection with this Contract and the
transactions contemplated hereby are true, complete and authentic. No
representation or warranty of the Seller contained in this Contract, and no
Document furnished by or on behalf of the Seller pursuant to this Contract or in
connection with the transactions contemplated hereby, contains an untrue
statement of a material fact or omits to state a material fact required to be
stated therein. No representation or warranty of the Seller contained in this

 

33

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

 

Contract, and no Document furnished by or on behalf of the Seller pursuant to
this Contract, or in connection with the transactions contemplated hereby, is
false or misleading. There is no fact that the Seller has not disclosed to the
Buyer in writing that adversely affects or could adversely affect, the business,
properties, operations, prospects or condition (financial or otherwise) of the
Company and/or Haimeng or the ability of the Seller to perform this Contract;

 

  (ss) the Seller has disclosed to the Buyer all the bank loans, letters of
credit, pledges, guarantees, other Debts of any kind or nature and credit lines
of the Company and Haimeng as attached hereto as Schedule 12;

 

  (tt) Haimeng is the legitimate owner of all its properties, either real or
personal, and Haimeng does not use any tools or other items of a third party,
including, but not limited to, its customers or suppliers;

 

  (uu) Neither the Company nor Haimeng owns or has, legally or beneficially, any
equitable, financial, management or other interest in any other company or
person (including any corporation, partnership, unincorporated company or
association in any jurisdiction);

 

  (vv) Neither the Company nor Haimeng has entered into any contract, agreement,
or offering which when performed would alter its registered or issued capital or
result in a change in the percentage of itself held, directly or indirectly, by
the Parties; and

 

  (ww) No person is entitled to receive from the Company, Haimeng or any Party a
commission, brokerage fee or finder’s fee in connection with the sale of the
Sale Shares.

 

6.3. Further Representations, Warranties and Covenants of the Seller.

 

  (a) The Seller covenants to the Buyer that the Seller shall use his best
efforts, after the Closing Date, to assist the Buyer, the Company and Haimeng in
maintaining the business relationship with the top ten (10) customers in terms
of sales value, which may vary from time to time;

 

  (b) The Seller covenants to the Buyer that the Seller shall cause the relevant
parties to enter into with the Company, Haimeng and/or the Buyer, as the case
may be, and perform the Employment Contract and the Retention Agreement in
accordance therewith;

 

  (c) The Seller hereby represents and warrants to the Buyer, as of the Closing
Date, and the Seller shall cause the Company and Haimeng, respectively, to
represent and warrant, as of the Closing Date, that the Company and Haimeng,
respectively, have certain undistributed profits from January 1, 2008 to the
Closing Date (the “Undistributed Profits”). The Seller covenants to the Buyer
that the Seller shall cause the Company and Haimeng, respectively, not to
declare or distribute any and all part of the Undistributed Profits before the
Closing Date and cause the Company and Haimeng, respectively, to retain the
Undistributed Profits on and after the Closing Date;

 

34

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

  (d) The Seller covenants that prior to the Closing Date, the Seller shall pay
and shall cause the Company or Haimeng, as the case may be, to pay all the
overdue taxes, regardless of nature and kind, to the relevant tax authority
within the time limit as allowed by the relevant tax authority;

 

  (e) The Company and Haimeng have no commissioned agents receiving any payment
of any kind or nature therefrom, except those as attached hereto as Schedule 13;

 

  (f) The Company and Haimeng have no bank accounts or other banking
relationships of any kind or nature, except those on a list as attached hereto
as Schedule 17;

 

  (g) There are no ex-shareholders or investors, if any, of the Company or
Haimeng or any subsidiary, who shall be responsible or liable for any claims or
matters of any kind or nature outstanding and pending on behalf of the Company
or Haimeng and shall not be entitled to any payment of any kind or nature from
the Company or Haimeng;

 

  (h) the Seller shall have caused Haimeng to, within 15 Business Days after the
Closing Date, have cancelled, to the reasonable satisfaction of the Buyer, any
and all the guaranties provided thereby to any of the Restricted Persons or any
of their Affiliates or any other third party or parties, including, but not
limited to, Longkou Longji Machinery Company Limited and Shandong Longji Group
Company Limited, for any of their loans, Debts or other liabilities; and

 

  (i) From and after the Closing Date, the Seller and the Buyer shall cooperate
with each other to cause cancellation of all the guaranties provided to Haimeng
by any of Haimeng’s Affiliates, any of the Restricted Persons or any of their
Affiliates or any other third party or parties, including, but not limited to,
Longkou Longji Machinery Company Limited and Shandong Longji Group Company
Limited.

 

7. INVESTMENT CERTIFICATES

 

7.1. Issuance of New Certificates. On the Closing Date, the Seller shall present
for cancellation to the Buyer the investment certificates previously issued by
Haimeng to the Company, LHM, the Seller and Ms. Yu Lei and the new investment
certificate issued by Haimeng to the Company as a one hundred percent
(100%) equity owner and investor of Haimeng. On the Closing Date, the Seller
shall procure the Company to present to the Buyer the stock certificates of the
Company representing the Sale Shares.

 

8. CONFIDENTIALITY AND RESTRICTIONS ON PUBLICITY

 

8.1. Confidentiality Obligation of the Parties. Each Party undertakes to the
other Party that it shall not, during the term of this Contract or anytime
thereafter,

 

35

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

 

and the Seller undertakes that he shall procure that his respective officers,
employees who have access to secret, confidential or proprietary Information
related to the other Party or Affiliate thereof, which is defined in
Section 8.4, agents, consultants, professional advisors and Affiliates and the
respective officers, employees and agents of each such Affiliate shall not, on
and before the Closing Date, for whatever reason, except in the proper
performance of this Contract and with the prior written consent of the other
Party, use or divulge to any person, or publish or disclose or permit to be
published or disclosed, any secret, confidential or proprietary Information,
which is defined in Section 8.4, relating to the other Party, or an Affiliate
thereof, that such Party has received or obtained or may receive or obtain
(whether or not, in the case of documents, they are marked as confidential) in
connection with the other Party, their business, their assets, this Contract or
the transactions contemplated hereby, except in situations where relevant
disclosure is consistent with the past business practice of such Party.

 

8.2. Confidentiality Obligation of the Seller and the Existing Employees of the
Company and Haimeng. The Seller shall, and he shall, prior to the Closing Date,
cause the Company and Haimeng, to undertake that the Seller and the existing
officers and employees of the Company and Haimeng, during and after their
respective employment with the Company or Haimeng, as the case may be, for
whatever reason, except in the proper performance of this Contract and with the
prior written consent of the Buyer, shall not use or divulge to any person, or
publish or disclose or permit to be published or disclosed, any secret,
confidential or proprietary Information, which is defined in Section 8.4,
relating to the Buyer, the Company, Haimeng or an Affiliate thereof, that such
officers or employees have received or obtained or may receive or obtain
(whether or not, in the case of documents, they are marked as confidential) in
connection with the Buyer, the Company or Haimeng or the respective business or
assets of the Buyer, the Company or Haimeng, this Contract or the transactions
contemplated hereby. The Seller covenants that he shall, and he shall procure
that the respective officers, employees, agents, consultants or professional
advisors of the Company and Haimeng and the Affiliates and the respective
officers, employees and agents of each such Affiliate shall, during the term of
this Contract and anytime thereafter, take all reasonable measures in order to
enforce his, her, its or their, as the case may be, confidential obligations in
Sections 8.1 and 8.2.

 

8.3. Exceptions. The restrictions and obligations of Section 8.1 shall not apply
to:

 

  (a) the disclosure of the Information that the disclosing Party can reasonably
demonstrate was in the public domain through no fault of its own and other than
by reason of any breach by any person of a legally binding obligation of
confidentiality with respect to the relevant Information;

 

  (b)

the disclosure of the Information where the disclosure is required by law,
pursuant to a court order, by the rules and regulations of any securities
exchange on which the securities of a Party or an Affiliate thereof are listed
(or to which a Party (or an Affiliate thereof) is subject) or by any
governmental or other regulatory body; provided

 

36

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

 

that the Party concerned shall, to the extent practicable, provide in advance a
draft of any such required disclosure to the other Party and incorporate any
modifications reasonably requested by the other Party;

 

  (c) the disclosure of the Information in confidence to any professional
adviser to a Party for the purpose of obtaining advice or assistance in
connection with its obligations or rights, or the obligations or rights of such
Party hereunder, if the recipient has entered into, or is otherwise subject to,
obligations of confidentiality substantially similar to those contained in this
Section 8; or

 

  (d) the disclosure of the Information by the Buyer to any person that is not a
competitor of the Seller and is a potential provider of financing or purchaser
or subscriber for any or all of the shares or assets or undertaking of the Buyer
or an Affiliate thereof or for other similar business purposes, if the recipient
has entered into obligations of confidentiality substantially similar to those
contained in this Section 8.

 

8.4. Information. For the purpose of this Section 8, “Information” of a Party
includes the following:

 

  (a) any information disclosed by such Party or any of its representatives to
the other Party or any of their representatives for or in relation to the
transaction contemplated hereunder, whether disclosed verbally, in writing or in
any tangible or intangible form whatsoever (including electronically) or by
inspection of tangible objects or otherwise, relating to any aspect of the
business of such Party or any of its Affiliates, including marketing plans,
commercial or financial information, trade secrets, know-how, demonstrations,
drawings, prototypes, models, samples, devices, specifications, proprietary
data, algorithms, software source, any intellectual properties, object code or
documents, and formulae of whatever description;

 

  (b) any information concerning the affairs or property of such Party or an
Affiliate thereof or any business, property or transaction in which such Party
or an Affiliate thereof may be or may have been concerned or interested; or

 

  (c) any information relating to the business methods of such Party or an
Affiliate thereof.

 

8.5.

Publicity. Subject to Section 8.3(b), no Party shall make, and each Party shall
procure that its respective officers, employees, agents and Affiliates and the
respective officers, employees or agents of each such Affiliate shall not make,
any public announcement or comment regarding this Contract or the transactions
contemplated hereby without first consulting with and obtaining the prior
written consent of the other Party, except to the extent that such announcement
or comment is required by law, pursuant to a court order, by any securities
exchange on which securities of such Party or an Affiliate thereof are listed or
by any governmental or regulatory body; provided that the

 

37

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

 

Party concerned shall, to the extent practicable, provide in advance a draft of
any such required announcement or comment to the other Party and incorporate any
modifications reasonably requested by the other Party.

 

8.6. Security Measures. Each Party that receives the Information shall:

 

  (a) establish and maintain effective security measures to safeguard the
Information of the disclosing Party from unauthorized access or use (including
at a minimum using the degree of care that it takes to protect its own
confidential information of a similar nature);

 

  (b) keep the Information of the disclosing Party under its control; and

 

  (c) immediately notify the disclosing Party of any suspected or actual
unauthorized use, copying or disclosure of the Information of the disclosing
Party.

 

8.7. Provision of Assistance. Each Party that receives the Information shall
provide assistance, reasonably requested by the disclosing Party in relation to
any proceedings that the disclosing Party may take against any person for
unauthorized use, copying or disclosure of the disclosing Party’s Information.

 

9. NON-COMPETITION

 

9.1. Prohibited Competition. The Seller recognizes and acknowledges the
competitive and proprietary nature of the Company and/or Haimeng’s business
operations. The Seller acknowledges and agrees that a business will be deemed
competitive with the Company and/or Haimeng if it engages in a line of business
in which it performs any of the principal services or researches, develops,
manufactures or sells any of the principal products provided or offered by the
Company and/or Haimeng or under development by thereby, or any products designed
or marketed primarily to fulfill the same function, whether or not similar (the
“Field of Interest”).

In consideration of the Buyer’s agreement to purchase and pay for the Sale
Shares in exchange for the Seller’s promise, on his own behalf and on behalf of
his spouse, and the Seller and his spouse’s act, not to compete with the Field
of Interest, from the Closing Date until six (6) years after expiration or
termination of employment of the Seller in the case of the Seller and his
spouse, and in consideration of the Buyer’s agreement to purchase and pay for
the Sale Shares in exchange for the Seller’s promise, on behalf of his children,
and his children’s act, not to compete with the Field of Interest, from the
Closing Date until two (2) years after expiration or termination of employment
of the children in the case of the Seller’s children (each, a “Restricted
Term”), the Seller acknowledges that the consideration paid to him is good,
valuable and sufficient, and he agrees that during the Restricted Term, he shall
not, and he shall procure his spouse and children not to, without the prior
written consent of the Buyer, the Company and Haimeng:

 

  (a)

except for the Remaining Shares owned by the Seller in the Company, directly or
indirectly, either as principal, or through an agent, Affiliate,

 

38

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

 

stockholder, employee, creditor, consultant, representative or in any other
capacity, own, manage, operate or control, or be concerned, connected, or
otherwise associate in any manner with, engage in or have a financial interest
in, any business whose primary line of business is in the Field of Interest, or
in any other business in which such a person or company has any direct operating
or scientific responsibility in the Field of Interest anywhere in the entire
world, except that nothing contained herein shall preclude such a person or
company from purchasing or owning stock in any such competitive business if such
stock is publicly traded, and provided that such a person or company’s holdings
do not exceed one percent (1%) of the issued and outstanding capital stock of
such business;

 

  (b) either individually or on behalf of or through another person or entity,
solicit, divert or appropriate or attempt to solicit, divert or appropriate, for
the purpose of competing in the Field of Interest with the Buyer, the Company or
Haimeng or any present or future parent, subsidiary or other Affiliate thereof
which is engaged in the Field of Interest, any joint venture or collaborative
research partners, customers or patrons of the Buyer, the Company or Haimeng, or
any prospective customers or patrons in the Field of Interest (or similar
offering of services);

 

  (c) directly or indirectly, either as principal, or through an agent,
Affiliate, stockholder, employee, consultant, representative or in any other
capacity, interfere with, or attempt to interfere with, business relationships
(whether formed before, on or after the Contract Execution Date) of the Company,
Haimeng and/or the Buyer or any of its Affiliates with its customers, clients,
suppliers, partners, members or investors;

 

  (d) enter into employment with or render any services to any third party (or
its division or Affiliate) who engages in the Field of Interest; and

 

  (e) either directly or indirectly through another person, entity, agent or an
Affiliate, solicit, hire, employ, or attempt to solicit, hire and employ any
officers and employees of the Company or Haimeng currently under the employment
with the Company or Haimeng as of the Contract Execution Date hereof and three
(3) years thereafter, unless a prior written consent shall have been obtained
from the Buyer.

 

9.2. Further Acknowledgement. The Seller further recognizes and acknowledges
that:

 

  (a) the types of competition that are prohibited by this Section are narrow
and reasonable in consideration of the Buyer’s purchase of and payment for the
Sale Shares; and

 

  (b)

the specified geographical scope of the provisions of this Section is
reasonable, legitimate and fair to the Seller in light of the Company or
Haimeng’s need to perform its research and to develop and market its services
and to develop and sell brake drums, brake rotors, adapters,

 

39

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

 

filters and any other products sold in the preceding twelve (12) months by the
Buyer, the Company and/or Haimeng worldwide, which shall exclude packaging
materials and bags, in a large geographic area in order to have a sufficient
customer base to make the Company or Haimeng’s business profitable and in light
of the limited restrictions on the type of business prohibited herein compared
to the types of business that the Seller is capable of engaging in.

 

9.3. Reasonableness. If any part of this Section should be determined by a court
of competent jurisdiction to be unreasonable in duration, geographic area, or
scope, then this Section is intended to and shall extend only for such period of
time, in such area and with respect to such activities as is determined to be
reasonable.

 

10. TERMINATION

 

10.1. Termination. This Contract may be terminated prior to the Closing Date as
follows:

 

  (a) at the election of the Buyer, if any one of the conditions set forth in
Sections 4 and 5 has not been fulfilled as of the Closing Date;

 

  (b) at the election of either the Seller or the Buyer, if any legal proceeding
is commenced or threatened by any governmental authority seeking to prevent the
consummation of the transactions contemplated hereby and the Seller or the
Buyer, as the case may be, reasonably and in good faith deems it impracticable
or inadvisable to proceed in view of such legal proceeding;

 

  (c) at the election of the Seller, if the Buyer has breached any material
representation, warranty, covenant or agreement contained in this Contract,
which breach cannot be or is not cured by the Buyer by the Closing Date, under
which circumstances, the Buyer shall pay to the Seller a break-up fee of
US$1,000,000 within five (5) Business Days after the termination of this
Contract by the Seller;

 

  (d) at the election of the Buyer, if the Seller has breached any material
representation, warranty, covenant or agreement contained in this Contract,
which breach cannot be or is not cured by the Seller by the Closing Date, under
which circumstances, the Seller shall pay to the Buyer a break-up fee of
US$1,000,000 within five (5) Business Days after the termination of this
Contract by the Buyer;

 

  (e) at any time on or prior to the Closing Date, by mutual written consent of
the Seller and the Buyer; or

 

  (f) at the election of either Party if the Closing Date has not occurred on
November 30, 2008, which election shall be made within sixty (60) days
thereafter.

 

40

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

10.2. Survival After Termination. If this Contract terminates pursuant to
Section 10.1 and the transaction contemplated by this Contract is not
consummated, this Contract shall become null and void and have no further force
or effect, except that any such termination shall be without prejudice to the
rights of a Party on account of the non-satisfaction of the conditions set forth
in Sections 4 and 5 resulting from the intentional or willful breach or
violation of the representations, warranties, covenants or agreements of the
other Party under this Contract. Notwithstanding anything in this Contract to
the contrary, Sections 8, 9, 10.2, 11, 12, 13 and 14 shall survive any
termination of this Contract.

 

11. INDEMNIFICATION

 

11.1. Indemnification. Each Party (an “Indemnifying Party”) shall indemnify,
defend and hold each other Party and such Party’s officers, directors and
employees (each, an “Indemnified Party”) harmless from and against any and all
damages, lawsuits, costs, expenses, fines and penalties, including reasonable
attorney fees and interest incurred by the Indemnified Party, in connection with
or arising from (a) any breach of, or inaccuracy in, any representation or
warranty of the Indemnifying Party contained in this Contract, and (b) any
failure by the Indemnifying Party to perform any covenant or agreement to be
performed by it under this Contract.

 

11.2. Indemnification by the Seller.

 

  (a) The Seller agrees that the Seller shall fully indemnify the Buyer against
any and all loss, cost, liability, or expense (including, without limitation,
costs and expenses of litigation and, to the extent permitted by law, reasonable
attorney’s fees) incurred by the Buyer by reason of (i) the incorrectness of any
of the representations or warranties, or the breach of any of the covenants or
agreements of the Seller contained in this Contract or in any other instrument
executed or delivered by such Seller in connection with this Contract or given
on or before the Closing Date; and (ii) the Seller’s breach, on or before the
Closing Date, of any agreements with third parties in connection with the
Company and/or Haimeng; or (iii) the assertion against the Buyer or the Company
and/or Haimeng of any liability or obligation of the Company and/or Haimeng
arising or accruing prior to the Closing Date.

 

  (b) If a claim is made after the Closing Date against the Buyer, the Company
and/or Haimeng due to a product manufactured or a service provided prior to the
Closing Date, the Seller shall fully indemnify, defend and hold the Buyer, the
Company and/or Haimeng, as the case may be, harmless from and against any and
all damages, lawsuits, costs, expenses, fines and penalties, including
reasonable attorney fees and interest incurred by the Buyer, the Company and/or
Haimeng, as the case may be, in connection with or arising from such claim.

 

  (c)

If after the Closing Date a third party makes a claim against the Buyer, the
Company and/or Haimeng of any liability or obligation of the

 

41

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

 

Company and/or Haimeng indemnified by the Seller in accordance with Sections
11.2(a) and 11.2(b) (a “Third Party Claim”), the Buyer will notify the Seller of
such Third Party Claim and turn over such Third Party Claim to the Seller. The
Seller shall exercise his own discretion to determine whether he wishes to bring
proceedings or to defend such Third Party Claim at his own cost and expense. If
the Seller fails to bring proceedings or defend such Third Party Claim within 90
days or such shorter period as required by any applicable procedural court or
arbitration rules and regulations, during which the Third Party Claim is
required to be answered, after the Buyer notifies the Seller of such Third Party
Claim, the Buyer, the Company and/or Haimeng, as the case may be, shall have the
right, but no obligation, to bring proceedings or to defend such Third Party
Claim at the Seller’s cost and expense and such entity shall have sole control
of any such proceedings or defense.

 

  (d) To recover amounts eligible for indemnification under Sections 11.2(a) and
11.2(b) (each an “Indemnification Amount”), the Buyer may withdraw the Escrow
Funds from the Escrow Account in accordance with the Escrow Agreement. If the
Escrow Funds are less than an Indemnification Amount the Buyer is entitled to
withdraw (the difference is hereinafter referred to as an “Indemnification
Shortfall”), the Seller shall make up the Indemnification Shortfall to the Buyer
through payment of cash with 60 days after such shortfall is ascertained by the
Buyer. If the Seller fails to make up the Indemnification Shortfall within such
60 day period, the Buyer may purchase Remaining Shares from the Seller such that
the value of those Remaining Shares so purchased equals the Indemnification
Shortfall. For the purpose of this Section 11.2 only, the Remaining Shares shall
be valued equally to their option value as determined by Schedule 3 of the
Shareholders’ Agreement attached hereto as Schedule 7. The costs, taxes and fees
associated with such a purchase under this Section shall be borne exclusively by
the Seller and shall not be counted as payment of any Indemnification Amount.

 

11.3. Maximum Indemnification. The Parties agree that the maximum amount that
the Seller shall indemnify under this Section 11 shall not exceed 50% of the
total Purchase Price as set forth in Section 3.1 herein.

 

12. GOVERNING LAW AND DISPUTE RESOLUTION

 

12.1. Governing Law. The formation, validity, interpretation, execution and
settlement of disputes under this Contract shall all be governed by the
officially published and publicly available laws of Hong Kong. When the
officially published and publicly available laws of Hong Kong do not cover a
certain matter, international legal principles and practices will apply.

 

12.2.

Friendly Consultation. Any dispute, controversy or claim arising out of or
relating to this Contract, or the performance, interpretation, breach,
termination or validity hereof, shall first be resolved through friendly
consultation. Such consultation shall begin immediately after one Party has

 

42

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

 

delivered to the other Party written request for such consultation stating
specifically the nature of the dispute, controversy or claim. If within thirty
(30) days following the date on which such notice is given the dispute cannot be
resolved, the dispute shall be submitted to arbitration upon the request of a
Party with notice to the other Party.

 

12.3. Place and Rules of Arbitration. The arbitration shall take place at the
Hong Kong International Arbitration Centre (“Arbitration Center”) in Hong Kong.
Any such arbitration shall be administered by the Arbitration Centre in
accordance with its “Procedures for Arbitration.” There shall be three
arbitrators. The Seller shall select one arbitrator, and the Buyer shall select
one arbitrator within thirty (30) days after giving or receiving the demand for
arbitration. Such arbitrators shall be freely selected, and the Parties shall
not be limited in their selection to any prescribed list. The Arbitration Center
shall select the third arbitrator. If a Party to the dispute does not appoint an
arbitrator who has consented to participate within 30 days after the selection
of the first arbitrator, the relevant appointment shall be made by the
Arbitration Center.

 

12.4. Arbitration Proceedings. If the arbitration proceedings are initiated by
the Seller, the arbitration proceedings shall be conducted in English with
simultaneous Chinese translation being provided. If the arbitration proceedings
are initiated by the Buyer, the arbitration proceedings shall be conducted in
Chinese with simultaneous English translation being provided. The arbitration
tribunal shall apply the UNCITRAL Arbitration Rules in force at the Contract
Execution Date. However, if such rules are in conflict with the provisions of
this Section, the provisions of this Section shall prevail. Each Party shall
cooperate with the other Party in making full disclosure of and providing
complete access to all information and documents requested by the other Party in
connection with such proceedings, subject only to any confidentiality
obligations binding on such Party. The losing Party shall bear the arbitration
costs unless otherwise ruled by the arbitration tribunal. The award of the
arbitration tribunal shall be final and binding upon the Parties, and the
winning Party may, at the cost and expense of the losing Party, apply to any
court of competent jurisdiction for enforcement of such award.

 

12.5. Preservation of Rights. In order to preserve its rights and remedies, a
Party shall be entitled to seek preservation of property, an injunction or other
interim relief in accordance with law from any court of competent jurisdiction
or from the arbitration tribunal pending the final decision or award of the
arbitration tribunal. During the period when a dispute is being resolved, except
for the matter being disputed, the Parties shall in all other respects continue
their implementation of this Contract.

 

12.6. Consent to Jurisdiction. Each Party irrevocably consents to the service of
process, notices or other papers in connection with or in any way arising from
the arbitration or the enforcement of any judgment or arbitral award, by use of
any of the methods and to the addresses set forth in Section 13 hereof for the
giving of notices. Nothing contained herein shall affect the right of a Party to
serve such processes, notices or other papers in any other manner permitted by
applicable law.

 

43

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

13. NOTICE

 

13.1. Delivery of Notice. Notices or other communications required to be given
by a Party pursuant to this Contract shall be written in English and delivered
in person or sent in letter form or by facsimile to the address of each other
Party set forth below or to such other address as may from time to time be
designated by such other Party through written notification to such Party. The
dates on which notices shall be deemed to have been effectively given shall be
determined as follows:

 

  (a) notices given by personal delivery shall be deemed effectively given on
the date of personal delivery;

 

  (b) notices given in letter form shall be deemed effectively given on the
seventh Business Day after the date mailed (as indicated by the postmark) by
registered airmail, postage prepaid, or the fourth Business Day after delivery
to an internationally recognized courier service; and

 

  (c) notices given by facsimile shall be deemed effectively given on the first
Business Day following the date of transmission as indicated on the transmission
confirmation slip of the document in question.

If to the Seller:

Mr. Zhang Haibo

c/o Longkou Haimeng Machinery Company Limited

Huangshan Haimeng Industrial Park, Longkou City

Shandong Province 265715, China

Telephone: 86-535-8887000

Fax: 86-535-8880266

If to the Buyer:

Attention to: General Counsel

Affinia Group Inc.

1101 Technology Drive,

Ann Arbor, MI 48108, U.S.A.

Telephone: 1-734-8275430

Fax: 1-734-8275403

 

44

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

with a copy to Affinia Shanghai

Attention to: Rick Pizarek

2601 Tian’an Center, 338 West Nanjing Road, Shanghai 200003, China

Telephone: 86-21-63723311

Fax: 86-21-63599139

 

14. MISCELLANEOUS PROVISIONS

 

14.1. Entire Agreement. This Contract (including all the Schedules hereto) and
other documents delivered hereunder represent the entire understanding and
constitutes the whole agreement between the Parties with respect to the subject
matter hereof and supersedes all previous agreements, understandings, statements
or representations, either oral or in writing, between the Parties relating to
the subject matter hereof.

 

14.2. Schedules. The Schedules attached hereto and other documents delivered
pursuant hereto are hereby made part of this Contract as if set forth in full
herein.

 

14.3. Successors and Assigns. This Contract will be binding upon the Parties and
their respective successors and assigns. Notwithstanding the immediately
preceding sentence, the Seller may assign his rights (including his rights to
receive payments of money) and delegate his duties under this Contract only upon
the prior written consent of the Buyer. The Buyer may assign its rights and
delegate its duties under this Contract to any of its subsidiaries or
Affiliates.

 

14.4. Waivers. No waiver of any provision of this Contract shall be effective
unless set forth in a written instrument signed by the Party waiving such
provision. No failure or delay by a Party in exercising any right, power or
remedy under this Contract shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or remedy hereunder preclude any
further exercise thereof or the exercise of any other right, power or remedy.
Without limiting the foregoing, no waiver by a Party or any breach by the other
Party of any provision hereof shall be deemed to be a waiver of a subsequent
breach of that or any other provision hereof.

 

14.5. Amendments. This Contract may be amended, modified or supplemented only by
a written instrument or instruments executed by each of the Parties.

 

14.6. Provisions Severable. In the event any one or more of the provisions
contained in this Contract should be held under any law or regulation to be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The Parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

 

45

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

14.7. Counterparts. This Contract (or any agreement that amends, modifies or
supplements this Contract) may be executed in any number of counterparts and by
the Parties in separate counterparts, including counterparts transmitted by
telecopier or facsimile, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.

 

14.8. Further Assurances. Each Party shall execute all such documents and do all
such other things within its power as may be required to give full effect to the
terms of this Contract or to vest in the other Party his or its full rights and
entitlements hereunder.

 

14.9. Language. This Contract is executed in Chinese and English in eight
(8) counterparts in each language. Both language versions shall be of equal
legal effect. Each Party acknowledges that it has reviewed both language texts
of this Contract and that they are the same in all material respects. If there
is a conflict between the Chinese version and the English version, the Parties
shall first attempt to resolve the conflict in accordance with Section 12.2,
failing which the dispute shall be resolved through arbitration in accordance
with Sections 12.3 and 12.4. Both of the Parties have been advised to seek the
advice and counsel of a professional translator with respect to the drafting of
this Contract and the ancillary agreements hereto. Both of the Parties agree
that, whether or not they engaged a professional translator in relation to this
Contract or the ancillary agreements hereto, that they did so of their own free
will and that they have not relied upon translations created or supplied by any
advisor or translator engaged by the other Party hereto, including but not
limited to Dorsey & Whitney.

 

14.10. Opportunity for Legal Counsel. Both of the Parties to this Contract agree
that they were advised to engage legal counsel to protect their interests and to
oversee the drafting and negotiation of this Contract and the ancillary
agreements hereto. Both of the Parties agree that, whether or not they engaged
legal counsel in relation to this Contract or the ancillary agreements hereto,
that they did so of their own free will and that they have not relied upon legal
advice supplied by any law firm or legal advisor engaged by the other Party
hereto. The Seller hereby acknowledges that Dorsey & Whitney acted for the Buyer
only and that any advice rendered by Dorsey & Whitney was for the sole benefit
of the Buyer. Prior to entering into this Contract, the Seller was duly
requested to seek independent legal advice in respect of this Contract.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

 

46

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

IN WITNESS WHEREOF, each of the Seller and the Buyer has caused this Contract to
have been executed as of the date first written above by the Seller and the duly
authorized representative of the Buyer.

 

SIGNED by ZHANG HAIBO

   ) /s/ Zhang Haibo    )    )    )

SIGNED by

   ) /s/ Terry R. McCormack

for and on behalf of

   ) AFFINIA GROUP INC.    ) /s/ R.A. Pizarek    )

Name:

  

Title: