AMENDMENT AND WAIVER AGREEMENT
 
This Amendment and Waiver Agreement (the “Agreement”) is made and entered into
as of August 6, 2009, by and among China Architectural Engineering, Inc., a
Delaware corporation (the “Company”), KGE Group Limited (“KGE Group”), ABN AMRO
Bank N.V., London Branch (“ABN AMRO”), and CITIC Capital China Mezzanine Fund
Limited (formerly known as “CITIC Allco Investments Limited.”) (“CITIC,” and
together with ABN AMRO, the “Bondholders”) and ABN AMRO Bank (China) Co., Ltd.,
Shenzhen Branch (the “Overdraft Lender” and together with ABN AMRO and CITIC,
the “Creditors”).
 
Recitals
 
WHEREAS, on April 12, 2007, the Company sold and issued to ABN AMRO US
$10,000,000 Variable Rate Convertible Bonds due 2012 (the “2007 Bonds”) and
warrants to purchase 800,000 shares of common stock of the Company expiring 2010
(the “2007 Warrants”);
 
WHEREAS, the 2007 Bonds were issued pursuant to a trust deed dated April 12,
2007, as amended and restated on August 29, 2007 (the “2007 Trust Deed”),
entered into by and between the Company and The Bank of New York, London Branch
(the “Trustee”);
 
WHEREAS, the 2007 Warrants have been fully exercised pursuant to the terms of
the 2007 Warrants and are no longer outstanding;
 
WHEREAS, on April 15, 2008, the Company issued to the Bondholders an aggregate
amount of US$20,000,000 12% Convertible Bonds due 2011 (the “2008 Bonds,” and
together with the 2007 Bonds, the “Bonds”) and 300,000 warrants to purchase
300,000 shares of common stock of the Company expiring 2013 (the “2008
Warrants”);
 
WHEREAS, the 2008 Bonds were issued pursuant to a trust deed dated April 15,
2008, as amended and restated on September 29, 2008 (the “2008 Trust Deed,” and
together with the 2007 Trust Deed, the “Trust Deeds”), entered into by and
between the Company and the Trustee;
 
WHEREAS, the 2008 Warrants, none of which have been exercised as of the date of
this Agreement, were issued pursuant to a Warrant Instrument dated April 15,
2008 (the “2008 Warrant Instrument”) entered into by and between the Bondholders
and the Company;

 

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WHEREAS, the 2007 Trust Deed and 2008 Trust Deed each provide that the
then-current conversion price of the respective Bonds shall be adjusted downward
upon certain triggering events, including upon the sale and issuance by the
Company of shares of the Company’s common stock, $0.001 par value per share
(“Shares”) for consideration per Share that is less than the then-current
conversion price of the respective Bonds;
 
WHEREAS, paragraph 8.1(e) of the 2008 Warrant Instrument provides that an the
occurrence of an adjustment to the conversion price of the 2008 Bonds shall
result in an identical adjustment to the exercise price of the 2008 Warrants;
 
WHEREAS, the Company has agreed to provide a guarantee over an Overdraft
Facility letter (reference number CZ2008003C) provided by ABN AMRO Bank (China),
Shenzhen Branch, dated 13 May 2009 (the “Bank Overdraft Facilities”);
 
WHEREAS, Condition 12(A)(xiv) of the Terms and Conditions of the 2008 Trust Deed
provide that it is an event of default if KGE Group ceases to own at least 45%
of the outstanding Shares;
 
WHEREAS, ABN AMRO holds 100% of the issued and outstanding 2007 Bonds, and the
Bondholders in aggregate hold 100% of the issued and outstanding 2008 Bonds and
100% of the 2008 Warrants;
 
WHEREAS, the Company and KGE Group are currently contemplating the issue and
sale by the Company and the sale by KGE Group of Shares to certain investors on
the terms and conditions described in Appendix A attached to this Agreement (the
“Proposed Sale”) ;
 
WHEREAS, if consummated, the Proposed Sale (a) would trigger a reduction in the
conversion price of each of the Bonds and a reduction in the exercise price of
the 2008 Warrants pursuant to the terms of the Bonds and the 2008 Warrants (the
“Adjustment Rights”) and (b) would result in an event of default under Condition
12(A)(xiv) of the 2008 Bonds;
 
WHEREAS, the proceeds of the Proposed Sale will be applied in accordance with
the terms hereof and as specifically set forth in Appendix B, and the Proposed
Sale will provide the Company with additional resources to assist the Company in
strengthening its financial position and operations;

 
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WHEREAS, the Proposed Sale is subject to the NASDAQ Stock Exchange and United
States federal securities law requirements described in Appendix A;
 
WHEREAS, the Proposed Sale is expected to occur in two separate steps and
consummation of the second step is subject to certain approvals that may not be
received;
 
WHEREAS, the use of the net proceeds of the Proposed Sale shall be applied in
the order described in Appendix B;
 
WHEREAS, each of the Bondholders desires to waive their Adjustment Rights only
as it relates to the Proposed Offering and Condition 12(A)(xiv) of the 2008
Bonds, and only for the sole purpose of allowing the Proposed Sale to take place
and be completed no later than Three (3) months from the effective date of this
Agreement; and
 
WHEREAS, if any portion of the Proposed Sale is consummated but the Agreed
Bondholder Payments, as defined in Appendix B, are not paid to the Creditors in
accordance with the time periods, amounts and order set forth in Appendix B;
then no rights of the Bondholders, including those rights under Condition
12(A)(xiv) of the 2008 Bonds and Adjustment Rights, shall be waived and
appropriate adjustments shall be made to the conversion prices of the Bonds and
the exercise price of the 2008 Warrant to reflect the Shares sold by the Company
in the Proposed Sale, subject to the terms and conditions of this Agreement.
 
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, the parties hereto, intending to be legally bound, agree
as follows:
 
1.           Waivers.  Subject to compliance by the Company and KGE Group with
the terms and conditions set forth herein, and for the sole purpose of allowing
the Proposed Sale to take place, each of the parties hereby agrees that, with
respect to Shares sold pursuant to and in accordance with the terms for the
Proposed Sale set forth herein (including in Appendix A and Appendix B):
 
(A)           notwithstanding any provisions of the Trust Deeds or the 2008
Warrant Instrument, or any other related documents or agreements, the Adjustment
Rights that would otherwise be triggered by the Proposed Sale shall not be
applicable and shall be waived, and there shall be no adjustment to the
conversion price of the Bonds or the exercise price of the 2008 Warrants; and

 
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(B)           no default shall occur under Condition 12(A)(xiv) of the 2008
Trust Deed relating to the minimum percentage ownership requirements by KGE
Group due to the sale of such Shares,
 
in each case provided, that the Company and KGE Group shall comply with Section
2 of this Agreement.
 
2.           Agreed Use of Net Proceeds. The Company and KGE Group hereby agree
to use the net proceeds of the Proposed Sale strictly in accordance with the
terms set forth in Appendix B.
 
3.           Failure to Pay Agreed Bondholder Payments.  If any portion of the
Proposed Sale occurs and the Agreed Bondholders Payments are not paid to the
Creditors in the amounts, within the stipulated time periods and order provided
in Appendix B then no rights of the Bondholders, including those rights under
Condition 12(A)(xiv) of the 2008 Bonds and the Adjustment Rights, shall be
waived and appropriate adjustments shall be made to the conversion prices of the
Bonds and the exercise price of the 2008 Warrants to reflect the impact of the
Shares sold in the Proposed Sale.
 
4.           No Prepayment of Other Debt.  Until those certain Agreed
Bondholders Payments specified in Step No. 2 of Appendix B are made by the
Company after the sale of the Company Shares, as defined in Appendix B, the
Company agrees that the Company will not use its proceeds from the Proposed Sale
to repay or prepay any debt prior to its currently scheduled due date.
 
5.           Reinstatement of Waived Rights.  If any part of the Proposed Sale
is cancelled or not consummated within three months from the effective date of
this Agreement and otherwise in accordance with the terms of this Agreement and
Appendix A, then all rights previously waived or to be waived hereunder
(including under Section 1), shall not be waived and shall be reinstated, and
any previous waivers shall be null and void.
 
6.           Failure to Use Proceeds as Agreed.  The parties hereby agree that
the terms of each of the Bonds and of the Bank Overdraft Facility are hereby
amended so that it shall be an immediate event of default under each if any
applicable Agreed Bondholder Payments are not paid to the relevant Creditor in
the amount, within the stipulated time periods  and order provided in Appendix
B.

 
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7.           Continued Effect of Trust Deeds and 2008 Warrant Instrument.  All
terms and conditions of the Trust Deeds and 2008 Warrant Instrument, and related
documents, not expressly amended or waived by this Agreement remain unchanged
and in full force and effect, and the parties reserve all existing rights
thereunder.  To the extent there is any conflict between the terms of the Bonds
and the 2008 Warrants and the express terms hereof, the terms of this Agreement
shall take precedence.
 
8.           Ownership of the Bonds and 2008 Warrants.  ABN AMRO hereby
represents and warrants that it owns 100% of the 2007 Bonds, 37.5% of the 2008
Bonds and 37.5% of the 2008 Warrants.  CITIC represents and warrants that it
owns 62.5% of the 2008 Bonds and 62.5% of the 2008 Warrants.  Each of ABN AMRO
and CITIC represents and warrants that it is the sole and lawful owner of all
rights, title and interest in and to all ownership interests indicated in the
immediately preceding sentence, and there has been no assignment or other
transfer of any such interests.
 
9.           Accuracy of the Appendices.  The Company and KGE Group (x)
represent and warrant to each Creditor that, as of the date of this Agreement,
Appendix A and Appendix B are accurate and complete descriptions of the Proposed
Sale, the use of proceeds therefrom and the required approvals therefor and (y)
covenant and agree to use their best efforts to consummate the Proposed Sale and
use the proceeds therefrom in accordance with such terms.  The Company and KGE
Group acknowledge that the Creditors are executing this Agreement in reliance on
these representations and warranties, covenants and agreements.
 
10.           Compliance with Laws and Regulations.  The Company and KGE Group
shall comply with all relevant Laws and Regulations applicable to them,
including satisfying all filings, notification and other requirements of Nasdaq,
the United States Securities and Exchange Commission and U.S. Securities Laws.
 
11.           Duly Authorized.  The execution, delivery and performance of this
Agreement have been duly authorized by all required corporate action by each of
the parties hereto.
 
12.           Notice to Trustee.  The execution of this Agreement, and
instructions related to the actions contemplated hereunder, shall be provided to
the Trustee in accordance with the terms of the Bonds and 2008 Warrants.
 
13.           Counterparts.  This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

 
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14.           Successors and Assigns.  It is expressly understood and agreed by
the parties that this Agreement and all of its terms shall be binding upon the
parties’ respective representatives, executors, administrators, successors and
assigns.
 
[SIGNATURE PAGES TO FOLLOW]

 
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by
their duly authorized respective officers, as of the date first written above.

 

 
CHINA ARCHITECTURAL ENGINEERING,
INC.
       
By:
/s/  Luo Ken Yi
 
Name:  Luo Ken Yi
 
Title:    Chief Executive Officer
       
KGE GROUP LIMITED
       
By:
/s/  Luo Ken Yi
 
Name:
 
Title:
       
ABN AMRO BANK N.V., LONDON BRANCH
       
By:
/s/  Peter [ILLIGIBLE]
 
Name:  Peter [ILLEGIBLE]
 
Title:    Head of Equities
       
By:
/s/  James [ILLEGIBLE]
 
Name:  James [ILLEGIBLE]
 
Title:    Regional Counsel

 
[Amendment and Waiver Agreement – Page 1 of 2]
 
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CITIC CAPITAL CHINA MEZZANINE FUND
LIMITED (formerly known as CITIC Allco
Investments Limited.)
       
By:
[ILLEGIBLE SIGNATURE]
 
Name:
 
Title:
       
By:
   
Name:
 
Title:
       
ABN AMRO BANK (CHINA) CO., LTD.,
SHENZHEN BRANCH
       
By:
       /s/  Chen Han Rui  
Name:  Chen Han Rui
 
Title:    Vice President
       
By:
/s/  Moy Chin Khan
 
Name:  Moy Chin Khan
 
Title:    Vice President

 
[Amendment and Waiver Agreement – Page 2 of 2]

 
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APPENDIX A
PROPOSED SALE
 
KGE Group intends to sell 5,000,000 previously-issued shares of common stock of
the Company to an investor at a per share price of US$0.90.  In addition, the
Company intends to sell approximately 17,000,000 shares of newly issued shares
of common stock to certain investors at a per share price of
$1.65.  Accordingly, a total of approximately 22,000,000 shares of common stock
of the Company is intended be sold to the investors.
 
Nasdaq Marketplace Rules require that the Company complete and submit an
additional listing application to the Nasdaq Stock Market and receive approval
from NASDAQ before the Company may issues any new shares in the Proposed
Sale.  In addition, Nasdaq Marketplace Rule 5635 requires that, among other
things, the Company obtain shareholder approval of the issuances of securities
in private placements where (i) the issuance (together with sales by officers,
directors, or substantial shareholders), equals 20% or more of the
pre-transaction outstanding shares; and (ii) the sales price is less than the
greater of book or market value.  Because the 22,000,000 shares of common stock
of the Company intended to be sold exceeds the 20% threshold as set forth in the
Nasdaq Marketplace Rules, the Company must obtain shareholder approval, which is
subject to compliance with Section 14 of the Securities Exchange Act of 1934, as
amended.
 
The sale of shares is intended to occur as follows:
 
Step 1.
 
Private Sale of Shares by KGE Group to Investor
 
5.0 million shares
             
This sale is intended to occur as soon as practicable after the execution of
this Amendment and Waiver Agreement and the completion of sale transaction
documents and required processing in connection therewith.  Upon completion of
this step, the percentage ownerships of the Company share capital by KGE Group
and the new investor are expected to be approximately 49.1% and 9.4%,
respectively, based on 53,256,874 shares of common stock outstanding.
   

 

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APPENDIX A (cont.)

Step 2.
 
Private Placement of Company  Shares by the Company to certain Investors
 
17 million shares
             
This private placement of shares is intended to occur after the Nasdaq Stock
Market reviews and approves an additional listing application for the shares to
be sold by the Company, and after execution of a Securities Purchase Agreement
between the Company and the investors and after shareholder approval of the
transaction is obtained in accordance with Nasdaq Marketplace Rules.  Approval
from Nasdaq of the additional listing application for the shares is expected to
take approximately two weeks from date of application, depending on Nasdaq
requests for information. Shareholder approval is subject to US Federal
Securities laws and is expected to take approximately seven weeks, which is
subject to review and comments from the Securities and Exchange
Commission.  Upon completion of this step, the percentage ownership of the
Company by KGE Group is expected to be approximately 37.2%, based on 70,256,874
shares of common stock outstanding.
   

 
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APPENDIX B
 
USE OF PROCEEDS
 
The net proceeds from the Proposed Sale shall be used as follows:
 
1.
 
Private Sale of Shares by KGE Group to Investor
 
5.0 million shares
   
Net proceeds from this sale of these shares shall be used to fund the operations
of KGE Group itself, including salary and rent, or in the discretion of the
Board of Directors and Management, in the best interests of KGE Group and its
shareholders.
             
2.
 
Private Placement of Company Shares by the Company to the Investosr
 
17  million shares
   
Net proceeds from this sale of these shares (the “Company Shares”) shall be used
solely for the following purposes and in the following order:
 
(i)   to pay the interest payments of the Bonds that are outstanding and due for
payment in accordance with the terms of the Trust Deeds; and (ii)  to pay all
amounts owed to ABN AMRO Bank (China) Co. Ltd., Shenzhen Branch or any other ABN
AMRO affiliate in connection with the Bank Overdraft Facility in the amount of
CNY33,628,983.88 and any outstanding interest on the facility as at the date of
payment (collectively, the “Agreed Bondholder Payments”). Such payments shall be
made no later than the earlier of (i) Seven (7) Business Days after the sale of
the Company Shares and (ii) three (3) months from the date of this Amendment and
Waiver Agreement.  Remaining net proceeds shall be used to fund the operations
of the Company, or in the discretion of the Board of Directors and Management,
in the best interests of the Company and its shareholders. Until the Agreed
Bondholders Payments of are made by the Company after the sale of the Company
Shares, the Company agrees that the Company will not use its proceeds from the
sale of the Company Shares to repay or prepay any debt prior to its currently
scheduled due date.
   

 
 

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