Execution Version
 
 

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ASSET PURCHASE AGREEMENT
 
BY AND AMONG
 
FUQI INTERNATIONAL HOLDINGS CO., LTD.,
 
BEIJING YINZHONG TIANMEI JEWELRY CO., LTD.,
 
SHANGHAI TIANMEI JEWELRY CO., LTD.,
 
AND
 
CHUJIAN HUANG
 
DATED AS OF APRIL 18, 2008
 

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TABLE OF CONTENTS
 
 

       
Page
ARTICLE 1
 Purchase and Sale of Assets; Assumption of Certain Specified Liabilities  
1
1.1
 
The Acquired Assets.
 
1
1.2
 
Excluded Assets.
 
3
1.3
 
Assumption of Certain Liabilities; Retained Liabilities.
 
4
1.4
 
Purchase Price and Payment.
 
5
1.5
 
Allocation of Purchase Price.
 
6
         
ARTICLE 2
 Closing; Deliveries of the Parties at Closing  
6
2.1
 
The Closing.
 
6
2.2
 
Conditions Precedent to Obligation of Buyer.
 
6
2.3
 
Conditions Precedent to Obligation of Sellers.
 
8
2.4
 
Seller Covenants.
 
8
2.5
 
Buyer Covenants.
 
11
2.6
 
Deliveries at the Closing by Sellers.
 
11
2.7
 
Deliveries at the Closing by Buyer.
 
12
2.8
 
Passage of Title.
 
13
2.9
 
Transfer Taxes, Etc.
 
13
2.10
 
Right to Contest.
 
13
2.11
 
Non-assignable Contracts and Rights.
 
13
2.12
 
Casualty Damage.
 
13
2.13
 
Evidence of No Taxes Due.
 
14
2.14
 
Fulfillment of Conditions and Agreements Prior to Closing.
 
14
2.15
 
Termination Prior to Closing.
 
14
         
ARTICLE 3
 Representations and Warranties of Sellers and Seller Principal  
15
3.1
 
Corporate Status; Authority.
 
15
3.2
 
Corporate Action; Authority; Execution.
 
15
3.3
 
No Conflicts.
 
16
3.4
 
Stockholder; Equity Interests/Subsidiaries.
 
16
3.5
 
Financial Statements and Records.
 
16
3.6
 
Undisclosed Liabilities.
 
17
3.7
 
Absence of Certain Changes or Events.
 
17
3.8
 
Licenses, Permits and, Authorizations.
 
18
3.9
 
Assets Used in the Business.
 
18
3.10
 
Acquired Assets.
 
18
3.11
 
Real Property.
 
19
3.12
 
Inventory.
 
19
3.13
 
Intellectual Property.
 
19
3.14
 
Labor and Employee Benefit Matters.
 
20
3.15
 
Litigation.
 
21
3.16
 
Brokers.
 
21
3.17
 
Contracts.
 
22

 
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3.18
 
Compliance with Laws.
 
23
3.19
 
Environmental Matters.
 
23
3.20
 
Taxes.
 
23
3.21
 
Insurance.
 
24
3.22
 
Transactions with Affiliates.
 
24
3.23
 
Customer Relations.
 
24
3.24
 
Solvency; Post-Closing Financial Condition of Sellers.
 
24
3.25
 
Suppliers; Raw Materials.
 
25
3.26
 
Access to Buyer Information.
 
25
3.27
 
Foreign Corrupt Practices Act.
 
25
3.28
 
Additional PRC Representations.
 
26
3.29
 
Disclosure.
 
27
3.30
 
Complete and Accurate Schedules.
 
27
         
ARTICLE 4
 Representations and Warranties of Buyer  
27
4.1
 
Corporate Status; Authority.
 
27
4.2
 
Corporate Action.
 
27
4.3
 
No Conflicts.
 
28
         
ARTICLE 5
 Non-competition  
28
5.1
 
Defined Terms.
 
28
5.2
 
Non-competition.
 
29
5.3
 
Confidentiality.
 
30
5.4
 
Non-solicitation.
 
31
5.5
 
Reasonableness of Restrictions.
 
31
5.6
 
Remedy for Breach and Right to Injunction.
 
31
5.7
 
Severability and Enforceability.
 
31
         
ARTICLE 6
 Additional Covenants  
32
6.1
 
Access to Records.
 
32
6.2
 
Litigation Cooperation.
 
32
6.3
 
Employees.
 
32
6.4
 
Final Sales Tax Return.
 
33
         
ARTICLE 7
 Survival of Representations and Warranties; Indemnification  
33
7.1
 
General Provisions; Survival.
 
33
7.2
 
Indemnification by Sellers.
 
33
7.3
 
Indemnification by Buyer.
 
34
7.4
 
Procedures Relating to Third Party Claims.
 
35
7.5
 
Other Claims.
 
36
         
ARTICLE 8
 Miscellaneous  
37
8.1
 
Costs and Expenses.
 
37
8.2
 
Assignments.
 
37
8.3
 
Further Assurances.
 
37
8.4
 
Public Announcement.
 
37

 
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8.5
 
Notices.
 
37
8.6
 
Amendment and Modification.
 
38
8.7
 
Captions.
 
38
8.8
 
Governing Law.
 
38
8.9
 
Waiver of Provisions.
 
39
8.10
 
Counterparts.
 
39
8.11
 
Entire Agreement.
 
39
8.12
 
Definitions; Construction.
 
39
8.13
 
No Third Party Beneficiaries.
 
41
8.14
 
Jurisdiction; Service of Process.
 
41

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ASSET PURCHASE AGREEMENT
 
THIS ASSET PURCHASE AGREEMENT (this “Agreement”), made effective as of April 18,
2008, is entered into by and among Fuqi International Holdings Co., LTD., a
British Virgin Islands company, Beijing YinZhong TianMei Jewelry Co., Ltd., a
company established under the laws of the PRC (“TianMei Beijing”), Shanghai
TianMei Jewelry Co., Ltd., a company established under the laws of the PRC (the
“TianMei Shanghai” and together with TianMei Beijing, collectively the “Sellers”
and each a “Seller”), and solely for purposes of Article 5 and Article 7,
Chujian Huang, an individual residing in the PRC with holder of PRC identity
card no. 440105196302250950 (the “Seller Principal”).
 
RECITALS
 
WHEREAS, Sellers are engaged in the business of (i) licensing, selling and
distributing jewelry products, and (ii) owning and operating standalone stores
and store counters for distribution of jewelry products, and (iii) licensing,
selling, producing and distributing jewelry products, all under the name “Temix”
(the “Business”);
 
WHEREAS, Sellers desire to sell, assign, and transfer to Fuqi International
Holdings Co., LTD. and/or a subsidiary of Fuqi International Holdings Co., LTD.
(“Buyer”), and Buyer desires to purchase from Sellers, substantially all of the
assets owned, leased or used in connection with the Business, as described in
more detail below, all on the terms and subject to the conditions described
herein. In connection therewith, Buyer will assume only certain specified
liabilities and obligations of the Business as further described herein.
 
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:
 
ARTICLE 1
Purchase and Sale of Assets; Assumption of Certain Specified Liabilities
 
1.1 The Acquired Assets.
 
Subject to and in reliance upon the representations, warranties, and agreements
herein set forth, and subject to the terms and conditions herein contained,
Sellers shall grant, convey, sell, assign, transfer, and deliver to Buyer on the
Closing Date (as such term is defined herein), and Buyer shall purchase on the
Closing Date, free and clear of all covenants, restrictions, liens, security
interests, claims, pledges, assignments, subleases, options, rights of refusal,
charges, leases, licenses, encumbrances and any other restriction of any kind or
nature (collectively, “Liens”), all properties, assets, privileges, rights,
interests and claims, real and personal, tangible and intangible, of every type
and description, wherever located, including the Business as a going concern and
goodwill, that are owned, used, or held for use by Sellers and related to the
Business, except for those assets which are expressly excluded pursuant to
Section 1.2 hereof (collectively, the “Acquired Assets”). Without limiting the
generality of the foregoing, the Acquired Assets shall include, without
limitation, items in the following categories that conform to the definition of
the term “Acquired Assets”:
 

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(a) Inventories. All inventories (including raw materials, work-in-progress, and
finished goods) and supplies of Sellers (collectively, the “Inventory”),
including, without limitation, Inventory held at each of the counter and stores
operated in the Business, except for, if any, inventories held on a consignment
basis for the other suppliers;
 
(b) Prepaid Items. All prepaid items and expenses (other than prepaid Taxes (as
such term is defined herein));
 
(c) Machinery, Equipment, and Other Personal Property. All physical assets,
machinery, equipment, automobiles, trucks, furniture, fixtures, office materials
and supplies, computer hardware and software, spare parts, and other tangible
personal property of every kind and description owned, leased, or licensed by
each Seller and used or held for use in connection with the Business, including
those set forth on Schedule 3.10(b) (the “Tangible Personal Property”);
 
(d) Real Property. Each Seller’s interest in all of the Real Property leased by
each Seller and used or held for use in connection with the Business, including
the properties listed on Schedule 3.11 (collectively, the “Leased Real
Property”);
 
(e) Contracts. Each Seller’s rights under all contracts, leases, licenses,
indentures, agreements, commitments, and all other contractual arrangements,
whether oral or written, express or implied (collectively, the “Contracts”),
including those Material Contracts listed on Schedule 3.17, subject to the
provisions of Section 2.11 (collectively, the “Assumed Contracts”);
 
(f) Intellectual Property. Each Sellers’ rights and goodwill in and to all
trademarks, service marks, franchises, patents, trade names, jingles, slogans,
and logotypes, copyrights and other intangible rights (registered or
unregistered), including any applications therefor and all drawings and designs,
know-how, show-how trade secrets and secret processes and formulas and licenses
with respect to intangible property rights, computer programs and program
rights, and other intangible property and proprietary rights, whether or not
subject to statutory registration or protection (collectively, the “Intellectual
Property”);
 
(g) Files and Records. All files, records, books of account, general, financial,
and accounting records, invoices, computer programs, tapes, electronic data
processing software, customer and supplier lists, correspondence, and other
records of Sellers;
 
(h) Security Deposits. All security deposits held by third parties for the
benefit of any Seller;
 
(i) Goodwill. Each Seller’s goodwill in, and the going concern value of, the
Business;
 
(j) Permits, Licenses, and Authorizations. All governmental permits, licenses,
and authorizations held by any Seller, including, without limitation, those
listed on Schedule 3.8, to the extent the same may be transferred to Buyer,
including membership of Shanghai Diamond Exchange;
 
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(k) Guarantees. All guarantees, warranties, indemnities, and similar rights in
favor of any Seller with respect to the Business or any of the Acquired Assets;
and
 
(l) Asset List. Those items listed on the asset list attached as Schedule 1.1(l)
hereto.
 
1.2 Excluded Assets.
 
The following shall be excluded from the Acquired Assets and retained by Sellers
(collectively, the “Excluded Assets”):
 
(a) Cash and Investments. All cash on hand or in bank accounts and other cash
items, cash equivalents, and short-term investments;
 
(b) Claims for Taxes. Any and all claims of any Seller for refunds, carrybacks,
carryforwards, and credits relative to Taxes paid or attributable to a taxable
period (or portion thereof) ending on or prior to the Closing Date;
 
(c) Employee Benefit Plans. All Employee Benefit Plans (as such term is defined
herein), including, without limitation, employee pension, profit sharing 401(k),
medical benefit or health plans and trusts, ORSO Scheme, MPF Scheme, and related
trust accounts, funds, insurance policies, investments, or other assets;
 
(d) Retained Rights. Any property, right, or asset arising from and directly
related to the defense, release, compromise, discharge, or satisfaction of any
of the Retained Liabilities (as such term is defined herein) unless such
property, right, or asset is included on the Balance Sheet;
 
(e) Corporate Records. The minute books, seal, stock records, tax returns and
tax records of each Seller;
 
(f) Personnel Records. The personnel records of each Seller with respect to the
employees of the Business;
 
(g) Current Assets. The current assets of each Seller listed on Schedule 1.2(g)
hereto; and
 
(h) Equity Interests. The equity interests of each Seller.
 
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1.3 Assumption of Certain Liabilities; Retained Liabilities.
 
(a) Upon the terms and subject to the conditions of this Agreement, effective as
of the Closing Date, Buyer shall assume and agree to pay, honor, perform, and
discharge when due and payable, and indemnify and hold harmless Sellers from and
against the specific liabilities and obligations set forth below which relate to
the operation of the Business or the Acquired Assets as of the Closing Date (the
“Assumed Liabilities”), which assumption by Buyer will be evidenced by the
execution and delivery of an Assignment and Assumption Agreement substantially
in the form of Exhibit A attached hereto (the “Assignment and Assumption
Agreement”). The Assumed Liabilities shall consist solely of (i) all liabilities
and obligations that arise or accrue on or after the Closing Date under the
express terms of the Assumed Contracts, but not including any liability or
obligation for any breach thereof or default thereunder occurring on or prior to
the Closing Date and (ii) those liabilities as set forth on Schedule 1.3(a)
hereto.
 
(b) Buyer shall in no event assume or be deemed to assume, nor shall it be
liable for, any obligations or liabilities of any Seller of any nature
whatsoever (whether express or implied, fixed or contingent, known or unknown)
other than the Assumed Liabilities (all obligations and liabilities of any
Seller other than the Assumed Liabilities are referred to herein collectively as
the “Retained Liabilities”). Without limiting the generality of the foregoing,
Retained Liabilities shall include:
 
(i) liabilities relating to or arising out of the negotiation, preparation,
approval or authorization of this Agreement and the consummation of the
Contemplated Transactions, including all legal and accounting fees and all
brokers’ of finders’ fees or commissions payable by any Seller;
 
(ii) liabilities of Seller relating to or arising out of the Excluded Assets;
 
(iii) liabilities arising out of any lawsuit or claim, whether or not identified
on Schedule 3.15.
 
(iv) liabilities of any Seller to any Related Party;
 
(v) liabilities to, under or with respect to any Employee Benefit Plan and the
administration of any Employee Benefit Plan, or relating to payroll, vacation,
sick leave, workers’ compensation, unemployment benefits with respect to
employees of former employees of any Seller or any of its predecessors, under
any employment, severance, retention or termination agreement with any employee
of any Seller or any of its Related Parties, or arising out of or relating to
any employee grievance whether or not the affected employees are hired by Buyer;
 
(vi) liabilities relating to any Taxes, including transfer Taxes and Taxes based
on net income or attributable to sales or use that are assessed, accrued, or
attributable for periods on or prior to the Closing Date and related penalties
and interest, if any, whether or not be reason of in connection with,
transactions contemplated by this Agreement;
 
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(vii) liabilities relating to any complaint, action, arbitration or regulatory,
administrative or government proceeding or investigation involving any Seller
arising from actions of any Seller on or prior to the Closing Date, other than
collection actions initiated by any Seller relating to the Business;
 
(viii) liabilities of any Seller for borrowed funds, capital leases, and notes
payable;
 
(ix) liabilities arising out of any transaction affecting any Seller, and
liabilities and obligations incurred by any Seller, on or after the Closing
Date;
 
(x) liabilities arising out of any transaction affecting any Seller, and
liabilities and obligations incurred by any Seller, prior to the Closing Date to
the extent such liabilities were not incurred under the express terms of the
Assumed Contracts;
 
(xi) any liability or obligation to indemnify, defend, or hold harmless any
Seller’s officers, managers, employees, agents, or any Related Party;
 
(xii) liabilities of any Seller or any of its predecessors arising out of or
relating to (i) any action, omission, or condition occurring or existing prior
to the Closing Date to the extent that such action, omission, or condition
constitutes a violation or alleged violation by or a liability or obligation of
any Seller or any subsidiary, affiliate or predecessor under any Environmental
Law or (ii) arising from the release, investigation, clean-up or remediation of
any hazardous substance (as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (and any applicable similar state
laws governing the clean-up and remediation of hazardous substances (“CERCLA”)))
in connection with the disposal, treatment, or transport (or arrangement for
disposal, treatment or transport) of such hazardous substance by any Seller o
any subsidiary, affiliate or predecessor of any Seller, pursuant to CERCLA; and
 
(xiii) any liabilities attributable to Excluded Assets.
 
1.4 Purchase Price and Payment.
 
(a) Aggregate Purchase Price. The aggregate purchase price to be paid by Buyer
to the Sellers for the Acquired Assets shall be Eighty Million Yuan Renminbi
(80,000,000 Yuan RMB) (the “Purchase Price”), which amount shall be paid in cash
as more specifically set forth in this Section 1.4.
 
(b) Payment of the Purchase Price at Closing. The Purchase Price shall be
payable to Sellers as follows an aggregate of not exceeding Sixty-Four Million
Yuan Renminbi (64,000,000 Yuan RMB), which is equal to 80% of the Purchase
Price, in cash to be delivered to Sellers at Closing by wire transfer of
immediately available funds pursuant to written instructions provided by Sellers
to Buyer.
 
(c) Escrow Deposit. At Closing, Buyer shall deposit in escrow with Mellon Bank,
N.A., as escrow agent (the “Escrow Agent”), an amount in cash equal to Sixteen
Million Yuan Renminbi (16,000,000 Yuan RMB) (the “Escrow Deposit”), which is
equal to twenty percent (20%) of the Purchase Price. The Escrow Deposit will be
held by the Escrow Agent for a period of six (6) months from the Closing Date
and shall be subject to set-off from undiscovered inventory defects or
descriptions in accordance with the escrow agreement in substantially in the
form attached hereto as Exhibit B (the “Escrow Agreement”).
 
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1.5 Allocation of Purchase Price.
 
The Purchase Price shall be allocated among the Acquired Assets in accordance
with the allocations set forth in Annex 1. Sellers shall timely and properly
prepare, execute, file and deliver any and all documents, forms and
authorizations (including powers of attorney) as Buyer may reasonably request in
order to prepare and report such allocation (including any amendments thereto)
to Taxing authorities. Buyer and Sellers shall report the federal, state and
local income and other tax consequences of the purchase and sale contemplated
hereby, including, if applicable, the PRC Enterprise Income Tax, stamp duty, the
Internal Revenue Code of 1986, as amended (the “Code”), in a manner consistent
with such allocation and shall not take any position inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation, or
otherwise.
 
ARTICLE 2
Closing; Deliveries of the Parties at Closing
 
2.1 The Closing.
 
The consummation of the transactions provided for in this Agreement (the
“Closing”), which shall be deemed to occur at the close of business on the
Closing Date, shall take place at the offices of Kirkpatrick & Lockhart Preston
Gates Ellis LLP, 10100 Santa Monica Boulevard, 7th Floor, Los Angeles, CA 90034,
at 10:00 a.m. PST on the second business day following the date on which the
last to be fulfilled or waived of the conditions set forth in Sections 2.2 and
2.3 of this Agreement shall be satisfied or waived in accordance with this
Agreement (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the fulfillment or waiver of those conditions) or
at such other place and/or on such other date as the parties may agree. The date
on which the Closing shall occur is referred to herein as the “Closing Date.”
 
2.2 Conditions Precedent to Obligation of Buyer.
 
The obligation of Buyer to proceed with the Closing is expressly subject to the
fulfillment prior to or at Closing of the conditions precedent set forth in this
Section 2.2. Any one or more of these conditions precedent may be waived, in
whole or in part, in writing by Buyer at Buyer’s sole option.
 
(a) Representations and Warranties. The representations and warranties of each
Seller and Seller Principal contained in Article 3 shall be, individually and
collectively, true and correct (in the case of any representation or warranty
containing any materiality qualification) or true and correct in all material
respects (in the case of any representation or warranty without any materiality
qualification) (i) at and as of the date of this Agreement and (ii) on and as of
the Closing Date as if made on the Closing Date.
 
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(b) Agreements. Each Seller and each Seller Principal, as applicable, shall have
performed in all material respects all of the agreements and complied with all
of the provisions required by this Agreement and the Seller Transaction
Documents to be performed or complied with by such party at or before the
Closing Date.
 
(c) Litigation. Neither any Seller, any Seller Principal nor Buyer shall be (i)
subject to any restraining order or injunction restraining or prohibiting the
consummation of the transactions contemplated by this Agreement or (ii) have
received written notice from any Governmental Entity of its intention to
institute any action or proceeding seeking to restrain, enjoin, or nullify this
Agreement or the transactions contemplated hereby. Neither any Seller, any
Seller Principal nor Buyer shall have received any claim by any Person (written
or oral) asserting that any Person other than the respective Seller (x) is the
owner of the Acquired Assets, (y) has any Lien on the Acquired Assets, or (z) is
entitled to all or any portion of the Purchase Price.
 
(d) No Material Adverse Effect. Between the date of this Agreement and the
Closing Date, no event or events shall have occurred which, individually or in
the aggregate, has had or could have a Seller Material Adverse Effect.
 
(e) Closing Certificate. The Seller Principal shall have delivered a certificate
relating to each Seller, dated as of the Closing Date, in a form satisfactory to
Buyer, certifying to the fulfillment of the conditions set forth in
subparagraphs (a), (b), (c), and (d) of this Section 2.2. The contents of these
certificates shall constitute a representation and warranty of each Seller and
the Seller Principal as of the Closing Date and shall be deemed fully
incorporated into this Agreement.
 
(f) Audited Financial Statements. Buyer or its Representatives shall have
completed an audit of the books and records of each Seller satisfactory in form
and substance to Buyer, at its sole discretion.
 
(g) Unencumbered Title. Buyer shall have received copies of such releases and
documents, and reviewed other such evidence as Buyer deems necessary to assure
Buyer that the Acquired Assets are being delivered free and clear of all Liens
and encumbrances.
 
(h) Equipment Leases. Any and all equipment leases for Tangible Personal
Property shall have been paid in full by the Sellers and Buyer shall have
received such evidence as Buyer deems necessary, in its sole discretion, to
assure Buyer that such equipment is being delivered free and clear of all Liens
pursuant to the terms of the applicable lease.
 
(i) Leased Real Property. Each landlord under a lease for any Leased Real
Property, to the extent required under such lease, shall have consented in
writing to the assignment of such Leased Property to Buyer as contemplated by
this Agreement, waived in writing any provisions of such lease that would
prevent such assignment, cause the termination of the lease for such Leased Real
Property, or otherwise be inconsistent with the transactions contemplated by
this Agreement.
 
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(j) Material Consents. Each of the third party approvals or consents identified
in Schedule 2.2(j) (the “Material Consents”) shall have been obtained and shall
be in full force and effect.
 
(k) Required Authorizations. Each Seller and each party to this Agreement shall
have received all required authorizations under any applicable law necessary to
consummate the transactions contemplated by this Agreement.
 
(l) Closing Documents. Buyer shall have received the other agreements and
documents referred to in Section 2.6. All certificates, opinions, and other
documents delivered by each Seller to Buyer under this Agreement shall be in
form and substance satisfactory to Buyer.
 
2.3 Conditions Precedent to Obligation of Sellers.
 
The obligation of each Seller to proceed with the Closing is expressly subject
to the fulfillment prior to or at Closing of the conditions precedent set forth
in this Section 2.3. Any one or more of these conditions may be waived, in whole
or in part, in writing by any Seller at the sole option of such Seller.
 
(a) Representations and Warranties. The representations and warranties of Buyer
contained in Article 4 shall be, individually and collectively, true and correct
(in the case of any representation or warranty containing any materiality
qualification) or true and correct in all material respects (in the case of any
representation or warranty without any materiality qualification) (i) at and as
of the date of this Agreement, and (ii) on and as of the Closing Date as if made
on the Closing Date.
 
(b) Agreements. Buyer shall have performed in all material respects all of the
agreements and complied with all of the provisions required by this Agreement
and the Buyer Transaction Documents to be performed or complied with by it at or
before the Closing Date.
 
(c) Litigation. Buyer shall not (i) be subject to any restraining order or
injunction restraining or prohibiting the consummation of the transactions
contemplated by this Agreement, or (ii) have received written notice from any
Governmental Entity of its intention to institute any action or proceeding
seeking to restrain, enjoin, or nullify this Agreement or the transactions
contemplated hereby.
 
(d) Closing Documents. Sellers shall have received the documents and other items
referred to in Section 2.7.
 
2.4 Seller Covenants.
 
Each Seller covenants and agrees as follows:
 
(a) Pre-Closing Conduct of Business.
 
Between the date of this Agreement and the Closing Date, each Seller shall (and
the Seller Principal shall cause each Seller to) operate the Business and
perform its obligations under all Contracts and agreements relating to the
Business in the usual and ordinary course of business and in accordance with
existing policies and past practices, except as expressly contemplated by this
Agreement. Without limiting the generality of the foregoing, no Seller shall
(without the prior written consent of the Buyer, which it may withhold in its
sole discretion):
 
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(i) engage in any transaction outside the ordinary course of business;
 
(ii) incur or commit to incur any indebtedness for borrowed money, or incur any
other indebtedness outside the ordinary course of business consistent with past
practice as disclosed by the Sellers in writing to the Buyer;
 
(iii) assume, guarantee, endorse, or otherwise become responsible for the
obligations of any other Person or make any loans or advances to any Person,
except in the ordinary course of business consistent with past practice as
disclosed by the Sellers in writing to the Buyer;
 
(iv) issue, sell, pledge, lease, dispose of, encumber, or authorize the
issuance, sale, pledge, lease, disposition, or encumbrance of (i) any shares of
capital stock of any class or any other equity interest or any options,
warrants, convertible securities, or other rights of any kind to acquire any
shares of capital stock or equity interest, or any other ownership interest, of
such Seller, or (ii) any assets that are material, individually or in the
aggregate, to the Business except for the sales of Inventory or repair or rental
of equipment in the ordinary course of business and in a manner consistent with
past practice as disclosed by the Sellers in writing to the Buyer;
 
(v) incur any obligations for capital expenditures or purchase any fixed assets
other than in the ordinary course of business and in a manner consistent with
past practice as disclosed by the Sellers in writing to the Buyer;
 
(vi) make any payments for the benefit of any Seller Principal, including
payments of any kind in respect of any Excluded Assets;
 
(vii) grant or pay any bonus, increases in compensation, incentive compensation,
or other employee benefit to, or enter into any contract with, its officers or
its employees;
 
(viii) initiate, settle, or compromise any material claims or litigation, enter
into, modify, amend, or terminate any Contract or, except in the ordinary and
usual course of business, waive, release, or assign any material rights or
claims;
 
(ix) make any material change in its selling, and distribution, marketing,
pricing, advertising or collection practices, including any special effort or
program to sell products to customers or to discount, factor or collect sooner
than normal any accounts receivable;
 
(x) permit any insurance policy naming any Seller as a beneficiary or a loss
payable payee to be canceled or terminated;
 
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(xi) take any action or omit to take any action, which action or omission could
result in any Seller being unable to satisfy any of the conditions set forth in
Article 2; nor
 
(xii) agree or commit to any of the foregoing.
 
(b) Business and Goodwill. Prior to the Closing Date, each Seller shall (and the
Seller Principal shall cause each Seller to) use its reasonable best efforts to
preserve intact the Business, to preserve and maintain its goodwill and business
relationships with customers, suppliers, employees and others having business
relations with it, and to maintain in full force and effect and to protect and
enforce, each in accordance with past practices, all permits, licenses,
authorizations and Intellectual Property rights of Sellers.
 
(c) Insurance. Each Seller shall (and the Seller Principal shall cause each
Seller to) maintain or cause to be maintained, in full force and effect, through
the Closing, all of the insurance policies of or covering each Seller, the
Business, the Acquired Assets and each Seller’s employees in effect on the date
of this Agreement, unless replaced by substantially comparable coverage. Each
Seller shall promptly advise in writing Buyer of any fire, accident, or other
casualty or loss occurring on or before the Closing which individually or in the
aggregate adversely affects the value of the Acquired Assets in an amount in
excess of $25,000.
 
(d) Exclusive Dealing. Until the Closing Date or such time, if any, as this
Agreement is terminated pursuant to the provisions hereof, no Seller or Seller
Principal shall, directly or indirectly, initiate, encourage or solicit any
inquiries or the making of any proposal with respect to, or engage in
discussions or negotiations with, or provide information to any Person in
connection with, the possible acquisition or disposition of the Business, any of
the Acquired Assets, or any other assets of any Seller, or any membership
interest of any Seller or authorize or permit any Person to do so on any
Seller’s behalf.
 
(e) Access to each Seller, Files, and Records. At the reasonable request of
Buyer and upon reasonable advance notice, each Seller each Seller shall (and the
Seller Principal shall cause each Seller to), during normal business hours, give
or cause to be given to the Representatives of Buyer (i) full access to the
Leased Property, management personnel, property, accounts, books, deeds, title
papers, insurance policies, licenses, agreements, contracts, commitments, logs,
records and files of every character, related to the equipment, machinery,
fixtures, furniture, vehicles and notes and accounts payable and receivable, and
(ii) all such other information as Buyer may reasonably request, all as it
relates to the Business; provided, however, that no Seller shall be required to
permit such access or provide such information to the extent it unreasonably
interferes with the operation of the Business by any Seller.
 
(f) Notice of Proceedings. Each Seller shall (and the Seller Principal shall
cause each Seller to) promptly notify Buyer telephonically and in writing upon
that Seller (i) becoming aware of any order or decree or any complaint praying
for an order or decree restraining or enjoining the consummation of this
Agreement or the transactions contemplated hereunder, or (ii) receiving any
notice from any Governmental Entity of its intention (A) to institute an
investigation into, or institute a suit or proceeding to restrain or enjoin, the
consummation of this Agreement or such transactions, or (B) to nullify or render
ineffective this Agreement or such transactions if consummated.
 
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(g) Required Approvals. As promptly as practicable after the date of this
Agreement, each Seller shall (and the Seller Principal shall cause each Seller
to) make all filings required by law to be made by that Seller in order to
consummate the transactions contemplated by this Agreement. Each Seller and the
Seller Principal shall cooperate with Buyer and its Representatives with respect
to all filings that Buyer elects to make or that the Buyer is required by law to
make in connection with the transactions contemplated by this Agreement. Each
Seller and the Seller Principal also shall cooperate with Buyer and its
Representatives in obtaining all Material Consents.
 
2.5 Buyer Covenants.
 
Buyer covenants and agrees to promptly notify Sellers upon Buyer (a) becoming
aware of any order or decree or any complaint praying for an order or decree
restraining or enjoining the consummation of this Agreement or the transactions
contemplated hereunder or (b) receiving any notice from any Governmental Entity
of its intention (i) to institute an investigation into, or institute a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or such
transactions, or (ii) to nullify or render ineffective this Agreement or such
transactions if consummated.
 
2.6 Deliveries at the Closing by Sellers.
 
At the Closing, the Sellers shall deliver to Buyer (unless delivered
previously):
 
(a) a duly executed Bill of Sale in substantially the form of Exhibit C attached
hereto (the “Bill of Sale”), together with assignments, certificates of title
and other instruments of sale, transfer, and assignment in form and substance
reasonably satisfactory to Buyer and its counsel sufficient to sell, transfer,
and assign to Buyer all right, title, and interest of each Seller and good and
valid title to each Seller’s interest in and to the Acquired Assets;
 
(b) the duly executed Assignment and Assumption Agreement;
 
(c) certified copies of resolutions, duly adopted by the Board of Directors and
all equity holders of each Seller, which shall be in full force and effect at
the time of the Closing, authorizing the execution, delivery, and performance by
each Seller of this Agreement and the consummation of the transactions
contemplated hereby and any other authorization required for the transfer of the
Acquired Assets to Buyer;
 
(d) a legal opinion of Shanghai Young-Ben Law Firm, legal counsel to Sellers,
dated as of the Closing Date, substantially in the form of Exhibit D attached
hereto;
 
(e) a duly executed Employment Agreement between Buyer and Seller Principal to
be mutually agreed upon by Seller Principal and Buyer (the “Employment
Agreement”);
 
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(f) a certificate executed by an officer of each Seller certifying the accuracy
of that Seller’s representations and warranties as of the date of this Agreement
and as of the Closing in accordance with Section 7.1 and as to their compliance
with and performance of their covenants and obligations to be performed or
complied with at or before the Closing in accordance with Section 2.4;
 
(g) a certificate of the Secretary of each Seller certifying, as complete and
accurate as of the Closing, attached copies of the charter documents, including
the articles of association and bylaws (the “Governing Documents”), of that
Seller, certifying and attaching all requisite resolutions or actions of that
Seller’s board of directors and equity holders approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement and certifying to the incumbency and signatures of the
officers of that Seller executing this Agreement and any other Transaction
Document;
 
(h) all termination statements and releases necessary or appropriate to
terminate, release, and discharge any Liens (other than Permitted Liens) on or
affecting the Acquired Assets, including, without limitation, any Liens on or
affecting any equipment included in the Tangible Personal Property;
 
(i) a duly executed Intellectual Property Transfer Agreement between Buyer and
Seller Principal, substantially in the form of Exhibit F attached hereto (the
“IP Transfer Agreement”); and
 
(j) such other documents or instruments as Buyer or its counsel may request that
are reasonably required to be delivered by Sellers at or prior to Closing
pursuant to this Agreement or otherwise required in connection herewith (such
items referred to in clauses (a) through (j), together with this Agreement are
collectively referred to as the “Seller Transaction Documents”).
 
2.7 Deliveries at the Closing by Buyer.
 
At the Closing, Buyer shall deliver to Sellers (unless delivered previously):
 
(a) the duly executed Assignment and Assumption Agreement;
 
(b) the duly executed Employment Agreement;
 
(c) the duly executed IP Transfer Agreement;
 
(d) a certificate executed by an officer of Buyer certifying the accuracy of its
representations and warranties as of the date of this Agreement and as of the
Closing in accordance with Section 2.3(a) and as to its compliance with and
performance of its covenants and obligations to be performed or complied with at
or before the Closing in accordance with Section 2.5; and
 
(e) a certificate of the Secretary of Buyer certifying, as complete and accurate
as of the Closing, attached copies the charter documents, including the articles
of association and bylaws, of Buyer, certifying and attaching all requisite
resolutions or actions of Buyer’s board of directors approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement and certifying to the incumbency and signatures of the
officers of Buyer executing this Agreement and any other Transaction Document
(such items referred to in clauses (a) through (e), together with this Agreement
are collectively referred to as the “Buyer Transaction Documents”).
 
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2.8 Passage of Title.
 
Title to all Acquired Assets shall pass from Sellers to Buyer at Closing,
subject to the terms and conditions of this Agreement.
 
2.9 Transfer Taxes, Etc.
 
Sellers shall pay all transfer, documentary, notarization, sales (including bulk
sales), use, value added, stamp duty, stamp gross receipts, registration
conveyance, excise, deed, business, Enterprise Income Tax, import, land
appreciation, and other similar Taxes and fees (including any penalties,
interest and additions to Tax) (“Transfer Taxes”), arising out of or
attributable to the consummation of the transactions contemplated by this
Agreement. Each Seller shall prepare and timely file all Returns required to be
filed in respect of Transfer Taxes. Each Seller and Buyer shall cooperate to
minimize, to the extent permitted by law, the amount of any Transfer Taxes
imposed with respect to the transactions contemplated by this Agreement,
including by utilizing any applicable sales tax exemptions for occasional sales.
 
2.10 Right to Contest.
 
The assumption and agreement by Buyer to pay, perform, and discharge the Assumed
Liabilities shall not prohibit Buyer from contesting with a third party, in good
faith and at the expense of Buyer, the amount, validity, or enforceability of
any Assumed Liability.
 
2.11 Non-assignable Contracts and Rights.
 
To the extent that the assignment by any Seller of any contract, property,
right, or asset to be assigned to Buyer pursuant to this Agreement shall require
the consent or approval of any other party, and such consent or approval shall
not have been obtained at the time of the Closing, this Agreement shall not
constitute a contract to assign the same if an attempted assignment would
constitute a breach thereof or would in any way adversely affect the rights of
the Seller (or Buyer, as assignee) thereunder. If any such consent or approval
is required but not obtained on the Closing Date, the parties covenant and agree
that in such case, the applicable Seller shall continue to deal with the other
contracting party or parties, with the benefits of such contract, property,
right, or asset after the Closing Date accruing to the benefit of Buyer; such
Seller shall hold all moneys received thereunder for the benefit of Buyer and
shall pay the same to Buyer when received. Nothing in this Section 2.11 shall be
deemed a waiver by Buyer of its right to receive an effective assignment of the
Acquired Assets on the Closing Date, nor shall this Section 2.11 be deemed to
constitute an agreement to exclude from the Acquired Assets any assets described
in this Section 2.11.
 
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2.12 Casualty Damage.
 
Notwithstanding anything else in this Agreement to the contrary, if, prior to
Closing, the Acquired Assets (or any portion thereof) are damaged by fire or any
other cause, the reasonable estimate of the immediate repair of which would cost
more than $100,000, Buyer may, at its option, which may be exercised by written
notice given to Sellers within ten (10) business days after Buyer’s receipt of
notice of such loss, declare this Agreement null and void, or Buyer may close
subject to (a) reduction of the Purchase Price by the amount of any applicable
insurance deductible which shall be paid by Buyer and (b) assignment to Buyer of
the proceeds from any insurance carried by any Seller covering such loss. If,
prior to Closing, the Acquired Assets (or any portion thereof) are damaged by
fire or any other cause, the reasonable estimate of the repair of which would
cost $100,000 or less, such event shall not excuse Buyer from its obligations
under this Agreement, but the Cash Purchase Price shall be reduced by an amount
equal to the amount of such loss in excess of any insurance proceeds actually
received by Buyer in connection with such loss.
 
2.13 Evidence of No Taxes Due.
 
On or before the Closing Date, each Seller shall provide to Buyer evidence to
the satisfaction of Buyer indicating that no Taxes are due to any state or other
taxing authority for which Buyer could have liability to withhold or pay Taxes
with respect to the transfer of the Acquired Assets or the Business.
 
2.14 Fulfillment of Conditions and Agreements Prior to Closing.
 
Each party shall use commercially reasonable efforts to satisfy all of those
conditions to the obligations of the other under this Article 2 that are not
beyond its reasonable control on or prior to the Closing Date. Each party shall
use commercially reasonable efforts to take, or cause to be taken, all action
and do, or cause to be done, all things necessary, proper or advisable,
including making or obtaining any and all consents and authorizations, to
consummate and make effective the transactions contemplated by this Agreement,
including making all filings required under applicable law. Notwithstanding the
foregoing, Buyer shall not be required to take any action to comply with any
legal requirement or agree to the imposition of any Governmental Entity order,
judgment, or decree that would (a) prohibit or restrict the ownership or
operation by Buyer of any portion of the Acquired Assets, (b) compel Buyer to
dispose of or hold separate any portion of its assets, or (c) impose any
limitation on the ability of Buyer to own or operate the Business.
 
2.15 Termination Prior to Closing.
 
(a) Events of Termination. This Agreement may be terminated in writing at any
time prior to the Closing by: (i) the mutual consent of Buyer, on the one hand,
and Sellers, on the other hand; (ii) Buyer, if any of the conditions specified
in Section 2.2 shall not have been fulfilled (or if satisfaction becomes
impossible) by August 31, 2008 and shall not have been waived by Buyer; (iii)
Sellers, if any of the conditions specified in Section 2.3 shall not have been
fulfilled (or if satisfaction becomes impossible) by August 31, 2008 and shall
not have been waived by Sellers; (iv) Buyer, if a material breach of any
provision of this Agreement has been committed by any Seller and such breach has
not been cured or waived by Buyer; and (v) Sellers, if a material breach of any
provision of this Agreement has been committed by Buyer and such breach has not
been cured or waived by Sellers.
 
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(b) Consequences of Termination. If this Agreement is terminated by mutual
consent of Sellers and Buyer, no party hereto shall have any obligation to any
other party as a result of that termination. If any party terminates this
Agreement for any other reason described in Section 2.15(a), Buyer, on the one
hand, and Sellers, on the other hand, shall be liable to the other for any
material breach of this Agreement by such party which breach led to such
termination. Each party shall also be entitled to any other remedy to which it
may be entitled at law or in equity, including injunctive relief and specific
performance, in the event of a termination of this Agreement. If the Closing
does not occur on or before August 31, 2008 or such later date as the parties
may agree upon, and no party’s material breach of this Agreement was the cause
of the failure to close by that date, then no party shall have any liability to
the other party under this Agreement, and this Agreement shall terminate. All
rights and obligations of the parties set forth in Article 7 and Sections 8.1,
8.4, and 8.5, and shall survive termination of this Agreement.
 
ARTICLE 3
Representations and Warranties of Sellers and Seller Principal
 
Each Seller and Seller Principal hereby jointly and severally represents and
warrants to Buyer as follows:
 
3.1 Corporate Status; Authority.
 
Each Seller is a corporation duly organized, validly existing and in good
standing under the laws of the place of its incorporation or establishment. Each
Seller is duly qualified and in good standing to do business as a foreign entity
in each jurisdiction in which the conduct or nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure to be so qualified or in
good standing, individually or in the aggregate, have not had and will not have
or be reasonably expected to have a material adverse effect (a) on the condition
(financial or otherwise), liabilities, properties, assets, or results of
operations of the Business, taken as a whole, or (b) on the ability of any
Seller to perform its obligations under or to consummate the transactions
contemplated by this Agreement (a “Seller Material Adverse Effect”). Each Seller
has all requisite corporate power to carry on its business and operations as it
is now being conducted and to own and operate the Business, and to enter into
this Agreement, to perform its obligations hereunder and to complete the
transactions contemplated hereby.
 
3.2 Corporate Action; Authority; Execution.
 
All corporate, individual, board and equity holder actions and proceedings
necessary to be taken by or on the part of each Seller and Seller Principal in
connection with the transactions contemplated by this Agreement and the Seller
Transaction Documents have been duly and validly taken, and this Agreement has
been duly and validly authorized, executed, and delivered by each Seller and
Seller Principal and constitutes, and each of the other Seller Transaction
Documents, as applicable, will be duly and validly authorized, executed, and
delivered by each Seller and will constitute, the legal, valid, and binding
obligation of each Seller and Seller Principal, enforceable against each Seller
and Seller Principal in accordance with and subject to its terms, except as may
be limited by bankruptcy or other laws affecting creditors’ rights and by
equitable principles.
 
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3.3 No Conflicts.
 
Neither the execution, delivery, and performance by each Seller of the Seller
Transaction Documents nor the consummation by each Seller of the transactions
contemplated thereby is an event that, by itself or with the giving of notice or
the passage of time or both, will (a) conflict with any of the Seller’s charter
documents, as the same may have been amended from time to time, (b) constitute a
violation of, or conflict with, or result in any breach of or any default under,
or constitute grounds for termination or acceleration of, any license, mortgage,
indenture, lease, Contract (including the Assumed Contracts), agreement or
instrument to which each Seller is a party or by which any Seller is bound or
result in the creation of any Lien (other than a Permitted Lien) upon any of the
Acquired Assets, or (c) violate (i) any judgment, decree, or order or (ii) any
statute, rule, or regulation, in each such case, applicable to any Seller or
Seller Principal. The execution, delivery, and performance by each Seller of
this Agreement, and the consummation by each Seller of the transactions
contemplated hereby, require no action by or in respect of, or filing with, any
Governmental Entity.
 
3.4 Stockholder; Equity Interests/Subsidiaries.
 
(a) Schedule 3.4 identifies each and every holder of any equity interest of each
Seller and his or her respective equity interests in each Seller. Each holder
identified on Schedule 3.4 hereto is the bona fide owner of the equity interests
set forth opposite his or her name.
 
(b) The Acquired Assets do not include, directly or indirectly, any capital
stock of or other equity interests in any corporation, partnership, limited
liability company, limited liability partnership or other Person, and no Seller
is a member of or participant in any partnership, joint venture, limited
liability company, limited liability partnership or similar Person.
 
3.5 Financial Statements and Records.
 
(a) Each Seller has delivered to Buyer true, correct, and complete copies of the
balance sheet of Seller as at December 31, 2007 and February 29, 2008 (the
“Balance Sheets”) and the statements of income and cash flows of each Seller for
the year then ended, as well as, in each case, the notes thereto (collectively,
the “Financial Statements”). The Financial Statements have been prepared based
on the books, records, accounts and related records of each Seller maintained
with respect to the Business, which books, records, accounts and related records
are complete and accurately and fairly present in detail all of the assets,
liabilities, revenues, expenses, cash flows and transactions of each Seller and
have been maintained in accordance with sound business practices, including the
maintenance of adequate internal controls. The Financial Statements fairly
represent in all respects the financial position of each Seller as at each
Balance Sheet Date, as applicable, and for the period then ended, all in
accordance with GAAP. No Seller has engaged in any transaction with respect to
the Business or used any of the funds of any Seller in the conduct of the
Business except for transactions and funds which have been and are reflected in
the normally maintained books and records of the Business.
 
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(b) The books of account and related records of each Seller reflect accurately
and in detail the Acquired Assets and Assumed Liabilities. The books of account
of each Seller have been maintained in accordance with sound accounting
practices, including the maintenance of adequate internal controls. The minute
books of each Seller contain accurate and complete records of all meetings held
of, and corporate action taken by, the board of each Seller and the committees
of the board of each Seller. No meeting of board members of any Seller or
committees of the board of managers of any Seller has been held for which
minutes have not been prepared and are not contained in the minute books of such
Seller. All minute books of each Seller have been provided to the Buyer.
 
3.6 Undisclosed Liabilities.
 
No Seller has any liabilities or obligations (whether pursuant to Contracts or
otherwise) of any kind whatsoever (whether accrued, contingent, absolute,
determined, determinable or otherwise) except: (a) those reflected or reserved
against on the Balance Sheets in the amounts shown thereon; (b) those reflected
on Schedule 3.6; (c) those of the same nature as those set forth in the Balance
Sheets that have arisen in the ordinary course of the Business after the Balance
Sheet Date through the date hereof, all of which have been consistent in amount
and character with past practice and experience, none of which, individually or
in the aggregate, have or could have a Seller Material Adverse Effect, and none
of which is a liability for breach of contract or warranty or has arisen out of
tort, infringement, violation of law or a lawsuit or threat thereof; or (d)
those arising under this Agreement. From and after the Closing, each Seller
shall have sufficient funds to satisfy its Retained Liabilities.
 
3.7 Absence of Certain Changes or Events.
 
(a) Since January 1, 2007, each Seller has used its best efforts consistent with
past practice to preserve the Business and each Seller’s relationships with
customers, suppliers, lenders, creditors, employees, licensors, licensees,
distributors and others with whom any Seller has a business or financial
relationship, and, as of the date hereof, no such Person or group of Persons
having a business or financial relationship with any Seller has informed any
employee of such Seller that such Person intends to change or discontinue such
relationship. Since January 1, 2007, the Business has been conducted in the
ordinary course consistent with past practice as disclosed by Sellers in writing
to Buyer (including with respect to the collection of receivables, payment of
payables and other liabilities, advertising activities, sales practices
(including promotions, discounts and concessions), capital expenditures and
inventory levels, and contributions to or accruals to or in respect of Benefit
Plans (as defined herein)) and, except as set forth on Schedule 3.7, there has
not occurred with respect to the Business:
 
(i) any event, occurrence, or development which, individually or in the
aggregate, has had or could have Seller Material Adverse Effect;
 
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(ii) any material damage, destruction, or property loss not fully covered by
insurance;
 
(iii) any sale or other disposition of any single capital asset used in the
Business having a book value in excess of $10,000, or any group of capital
assets used in the Business having an aggregate book value in excess of $50,000;
 
(iv) any increase in wage, salary, commission, or other compensation (other than
routine increases granted in the ordinary course of business and consistent with
past practice) payable or to become payable by any Seller to any of its
employees, or any change in any existing, or creation of any new, insurance or
other plan under which such Seller provides benefits to such employees;
 
(v) any release of waiver by any Seller of any claim or right;
 
(vi) any dividends or other distributions to any Seller Principal or Affiliates
of the any Seller (other than the distributions for tax purposes on the dates
and in the amounts set forth on Schedule 3.7); nor
 
(vii) any event that, had it occurred after the signing of this Agreement and
prior to he Closing, would have constituted a breach of Section 2.4(a) if
written consent of the Buyer had not been previously obtained.
 
3.8 Licenses, Permits and, Authorizations.
 
Schedule 3.8 lists and describes all licenses, permits and authorizations that
are currently held by each Seller. The Sellers hold all licenses, permits, and
authorizations required for the conduct of the Business as currently conducted.
 Such licenses, permits and authorizations are not subject to any restrictions
or conditions that would limit the operation of the Business and there are no
applications by any Seller or complaints by others pending or threatened before
any Governmental Entity relating to any licenses, permits or authorizations
involving the Acquired Assets, the Business or any Seller.
 
3.9 Assets Used in the Business.
 
Except for the Excluded Assets, the Acquired Assets constitute all of the assets
or property used or held for use in the Business, and are sufficient to conduct
the Business as the same is now being conducted in all respects and as the same
is to be conducted by Buyer. Each Seller is engaged in the Business and no other
business. The Business has only been conducted through the Sellers and not
through any other division or direct or indirect subsidiary or Affiliate.
 
3.10 Acquired Assets.
 
(a) The Sellers, collectively, have good and valid title to all Acquired Assets,
except those sold or otherwise disposed of in the ordinary course of business
consistent with past practice and not in violation of this Agreement, in each
case, free and clear of all Liens of any kind except (i) such as are set forth
on Schedule 3.10(a), (ii) mechanics’, carriers’, workmen’s, repairmen’s or other
like Liens arising or incurred in the ordinary course of business consistent
with past practice, and (iii) Liens for Taxes, assessments, governmental charges
or claims that are not yet delinquent (such Liens, encumbrances and
imperfections of title described in clauses (i), (ii), and (iii) are hereinafter
referred to collectively as “Permitted Liens”).
 
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(b) Schedule 3.10(b) sets forth a list of all Tangible Personal Property. All
Tangible Personal Property is in good working condition. All leased personal
property used or held for use in the Business is in all respects in the
condition required of such property by the terms of the lease applicable thereto
during the term of the lease and upon the expiration thereof.
 
3.11 Real Property.
 
(a) Schedule 3.11(a) sets forth a complete and accurate list and description of
all interests in any Leased Property and identifies any related leases and
reciprocal easements or operating agreements. Each of the relevant leases is in
full force and effect. No Seller has received any written notice that any Seller
is in default of any such lease, and no Seller has sent to any landlord notice
that such landlord is in default of any such lease. The current use by each
Seller of the plants, offices, and other facilities located on any Leased Real
Property does not violate any local zoning or similar land use or government
regulations in any respect. During the term of the relevant leases, no
condemnation of any portion of any of the Leased Properties has occurred, and no
Seller has received any notice related to any future or proposed condemnation of
any portion of any of the Leased Properties.
 
(b) For purposes of this Agreement, the term “Real Property” means leaseholds,
and other estates in real property and appurtenances thereto, and all easements,
privileges, rights-of-way, lands underlying any adjacent streets or roads,
licenses, permits and other rights pertaining to or accruing to the benefit of
such leasehold interests and estates in real property, buildings, warehouses,
and fixtures and improvements thereon. The Sellers, collectively, have good and
valid title to the leasehold estates in all the Leased Property, in each case
free and clear of all Liens and other similar restrictions of any nature
whatsoever.
 
3.12 Inventory.
 
The Inventory is valued on the books and records of each Seller and in the
Financial Statements at the lower of cost or market. All Inventory is accounted
for using the Perpetual Standard Cost method of accounting. All of the finished
goods Inventory is in good, merchantable, and usable condition and is salable in
the ordinary course of business within a reasonable period of time and at normal
profit margins. All of the raw materials and work-in-progress Inventory of
Sellers can reasonably be expected to be consumed in the ordinary course of
business within a reasonable period of time. None of the Inventory is obsolete,
slow-moving, has been consigned to others or is on consignment from others. The
quantities of Inventory are not excessive, but are reasonable in the present and
anticipated circumstances of the Business.
 
3.13 Intellectual Property.
 
(a) Schedule 3.13(a) sets forth a true and complete list of (i) all Intellectual
Property owned, used, filed by, registered or licensed to each Seller in
connection with the Business, and (ii) with respect to registered trademarks,
all jurisdictions in which such trademarks are registered or applied for and all
registrations and application numbers. The Sellers, collectively, own all right,
title and interest in and to the Intellectual Property, and Sellers,
collectively, have the right to use, execute, reproduce, display, perform,
modify, enhance, distribute, prepare derivative works of and license, without
payment to any other person, all Intellectual Property listed in Schedule
3.13(a), and the consummation of the transactions contemplated hereby will not
conflict with, alter, or impair any such rights. The Sellers, collectively, have
all rights to the Intellectual Property which are necessary in connection with
the Business as it is presently being conducted and the Intellectual Property
identified on Schedule 3.13(a) is all the Intellectual Property necessary for
the operation of the Business.
 
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(b) Except as set forth on Schedule 3.13(b), (i) no Seller has granted any
licenses or contractual rights relating to Intellectual Property or the
marketing or distribution thereof, and (ii) no Seller is bound by or a party to
any Contracts of any kind relating to the Intellectual Property of any other
Person, except for agreements relating to computer software licensed to any
Seller in the ordinary course of business consistent with past practice. Subject
to the rights of third parties set forth on Schedule 3.13(b), each Seller
warrants that all Intellectual Property listed in Schedule 3.13(b) is free and
clear of the claims of others and of all Liens whatsoever. The conduct of the
Business as it is presently being conducted does not violate, conflict with or
infringe the Intellectual Property of any other Person. Except as set forth on
Schedule 3.13(b), no claims are pending or, to the knowledge of any Seller,
threatened against any Seller by any Person with respect to the ownership,
validity, enforceability, effectiveness or use of any Intellectual Property and
no Seller has received any communications alleging that any Seller has violated
any rights relating to Intellectual Property of any Person.
 
3.14 Labor and Employee Benefit Matters.
 
(a) No Seller has any contracts of employment with any employee and no Seller is
a party to or subject to any collective bargaining agreements with respect to
the Business. Each Seller has delivered to Buyer a true and complete list of all
officers and key employees and a complete list of all other employees, in each
case with their job titles and compensation, of the Business as of the Closing
Date. Each of the employees of each of the Sellers who is by law subject to
immigration control, has been granted appropriate permission to remain in PRC or
any other applicable jurisdiction and has a valid work permit issued in relation
to his employment with such Seller and has obtained all necessary extensions to
his leave to remain in Hong Kong, PRC or any other applicable jurisdiction and
so far as the Seller Principal is aware there are in existence no grounds upon
which any such leave to remain or work permit might be curtailed or the employee
may be required to leave PRC or any other applicable jurisdiction in which his
services to such Company are required to be performed.
 
(b) Each Seller does not have an “employee benefit plan” (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), as applied to the jurisdictions of the Sellers and Seller Principals
(“Employee Benefit Plan”)), and each other employment, pension, welfare,
savings, deferred compensation, severance, termination, holiday, vacation, sick
leave, performance, incentive, bonus, insurance, stock option, stock purchase or
other equity-based plan, program, arrangement or understanding with respect to
which any Seller contributes or has aggregate liability in respect of present or
former employees of the Business in excess of $10,000 (collectively with each
Employee Benefit Plan, “Benefit Plan”).

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(c) No employee of any Seller will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any Benefit
Plan as a result of the transactions contemplated by this Agreement.
 
(d) The consummation of the transactions contemplated by this Agreement shall
not give rise to any liability with respect to any Benefit Plan.
 
(e) No Seller is indebted to any of its present or former employees in any
amount whatsoever, other than for accrued wages, bonuses and related benefits
and reasonable reimbursable business expenses incurred in the ordinary course of
business.
 
(f) No Seller has outstanding and unsatisfied, in whole or in part, any loan or
advance to any of its present or former employees, other than reasonable
advances for business and related expenses made in the ordinary course of
business.
 
(g) Each Seller has complied in all respects with all laws relating to
employment practices, terms and conditions of employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining and other requirements, the payment of social security and other
Taxes and occupational safety and health.
 
3.15 Litigation.
 
Schedule 3.15 sets forth an accurate and complete list of pending lawsuits or
claims with respect to which (i) any Seller has knowledge, or (ii) any Seller or
any employee of any Seller has been contacted against or affecting the Acquired
Assets, the Assumed Liabilities, the Business or arising out of the Business.
(a) None of the lawsuits or claims listed in Schedule 3.15 has had or will be
reasonably expected to have, individually or in the aggregate, a Seller Material
Adverse Effect, (b) there are no unasserted or threatened claims that, if
asserted in writing, would be required to be disclosed in Schedule 3.15, (c) no
Seller is a party or subject to or in default under any judgment, order,
injunction, or decree of any Governmental Entity or arbitration tribunal
affecting the Acquired Assets or the transactions contemplated by this
Agreement, (d) there is no lawsuit or claim by any Seller pending, or which any
Seller intends to initiate, against any other Person, and (e) there is no
pending or threatened investigation of or affecting the Acquired Assets or the
Business by any Governmental Entity.
 
3.16 Brokers.
 
There is no investment banker, broker or finder or other Person who will have
any valid claim against any Seller for a commission or brokerage fee in
connection with this Agreement or the transactions contemplated hereby as a
result of any agreement of, or action taken by, any Seller. No Seller has any
knowledge of, nor has taken any action which would give rise to, any claim for a
broker’s or finder’s fee to be paid by Buyer in connection with the consummation
of the transactions contemplated by this Agreement.

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3.17 Contracts.
 
Schedule 3.17 hereto contains a complete and accurate list of all Contracts of
the types described below to which any Seller is currently a party or otherwise
bound (“Material Contracts”):
 
(a) Contracts with any customer or supplier, all engineering service contracts,
and contracts with any agent, advertiser, consultant, advisor, sales
representative, distributor, sales agent or dealer involving an exchange of
consideration with an aggregate value greater than $10,500;
 
(b) covenants not to compete;
 
(c) Contracts with any Governmental Entity;
 
(d) agreements, Contracts or other instruments under which Sellers has borrowed
any money from, or issued any note, bond, debenture or other evidence of
indebtedness to, any Person or any other note, bond, debenture or other evidence
of indebtedness issued to any Person;
 
(e) Contracts under which (i) any Person has directly or indirectly guaranteed
indebtedness, liabilities or obligations of any Seller, or (ii) any Seller has
directly or indirectly guaranteed indebtedness, liabilities or obligations of
any Person;
 
(f) pledges, security agreements, financing statements or other documents
granting a Lien on any of the Acquired Assets (other than Permitted Liens);
 
(g) Contracts under which any Seller has, directly or indirectly, made any
advance, loan, extension of credit or capital contribution to, or other
investment in, any Person;
 
(h) Contracts under which any Seller is lessee of, or holds or operates, any
machinery, equipment, vehicle or other tangible personal property owned by a
third party and used in the Business;
 
(i) Contracts or other arrangements with any current or former officer, manager,
employee, or stockholder, or with any relative, beneficiary, or spouse of the
foregoing Persons, or with any Affiliate of any Seller, or any of its respective
Affiliates (each, a “Related Party”);
 
(j) each joint venture or partnership arrangement or agreement, however named,
involving a sharing of profits, losses, costs or liabilities by any Seller and
any Person or entity;
 
(k) any other Contract, whether or not made in the ordinary course of business,
which is material to the Business or the termination of which has had or may
have a Seller Material Adverse Effect.

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No Seller or any other party is (with or without the lapse of time or the giving
of notice or both) in default in any respect under any Material Contract. The
Sellers have made available to Buyer true and complete copies of all Material
Contracts. Each Material Contract is in full force and effect and constitutes a
legal, valid and binding obligation of the applicable Seller, and the other
parties thereto, enforceable in accordance with its terms except as may be
limited by bankruptcy or other laws affecting creditors’ rights and by equitable
principles. No Seller has received any notice (written or oral) of the intention
of any party to terminate or fail to renew any Material Contract.
 
3.18 Compliance with Laws.
 
The operations of the Business are not now being conducted and have not been
conducted in violation of any applicable law, ordinance, statute, rule or
regulation of any Governmental Entity. No Seller has received any notice from
any Governmental Entity that the operations of the Business are being conducted
in violation of any applicable law, ordinance, statute, rule or regulation of
any Governmental Entity, or of any investigation or review pending or threatened
by any Governmental Entity investigating or reviewing any alleged violation.
 
3.19 Environmental Matters. 
 
Each Seller has operated the Business and Leased Property in full compliance
with all applicable Environmental Laws. No Seller is currently subject to any
liability, penalty or expense (including attorneys’ fees) and will not hereafter
suffer or incur any loss, liability, penalty or expense (including attorneys’
fees) under Environmental Laws in effect on or prior to the Closing Date by
virtue of any violation of any Environmental Laws occurring on or prior to the
Closing Date, any activity conducted on or with respect to any property on or
prior to the Closing Date or any environmental condition existing on or with
respect to any property prior to the Closing Date, in each case whether or not
any Seller permitted or participated in such act or omission. No Seller has
generated, transported, stored, treated or disposed of, nor has either of them
allowed or arranged for any third persons to generate, transport, store, treat
or dispose of, any Hazardous Materials to or at: (a) any location other than a
site lawfully permitted to receive Hazardous Materials for such purposes or
(b) any location designated for remedial action pursuant to federal, state or
local statute and relating to the environment or waste disposal; nor has any
Seller performed, arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any legal requirements; except
where such violation would not have a Seller Material Adverse Effect on the
Business or operations of any Seller.

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3.20 Taxes.
 
For purposes of this Agreement “Taxes” shall mean all Federal, state, local and
foreign taxes or similar charges, including all income, franchise, real
property, withholding, employment, sales, excise, business, value-added, deed,
Enterprise Income Tax, import duty, stamp duty, land appreciation, and transfer
taxes and any interest and penalties thereon. Each Seller has timely filed all
Tax returns and Tax reports which are required to be filed (including proper
filing extensions) on or prior to the Closing Date by the Business (the
“Returns”). All the Returns were complete and correct in all respects at the
time of filing. All Taxes due and payable with respect to taxable periods
covered by the Returns, or with respect to which the Business is or might
otherwise be liable for such periods (including Taxes which the Business may
have been required to withhold from amounts owing to any stockholder, employee,
creditor or third party), have been timely paid or are being contested in good
faith as disclosed on Schedule 3.20. No Seller is delinquent in the payment of
any Tax, nor has any Tax deficiency been proposed, assessed, or threatened
against it. No Liens for Taxes exist with respect to any assets of the Business
(other than Liens for Taxes, assessments, or governmental charges or claims that
are not yet delinquent).
 
3.21 Insurance.
 
Each Seller maintains policies of fire and casualty, liability and other forms
of insurance with respect to the Business in such amounts, with such deductibles
and against such risks and losses, as are appropriate in the Business in which
that Seller is engaged. The insurance policies currently owned and maintained by
each Seller are listed and described on Schedule 3.21. All such policies set
forth on Schedule 3.21 are in full force and effect, all premiums due and
payable thereon have been paid (other than retroactive or retrospective premium
adjustments that are not yet, but may be, required to be paid with respect to
any period ending prior to the Closing Date), and no notice of cancellation or
termination has been received with respect to any such policy which has not been
replaced on substantially similar terms prior to the date of such cancellation.
 
3.22 Transactions with Affiliates.
 
(a) None of the Contracts between any Seller, on the one hand, and any of its
Affiliates or any Related Party, on the other hand, will continue in effect
subsequent to the Closing, (b) after the Closing, no Seller, Affiliate or
Related Party will have any interest in any property (personal, tangible or
intangible) or Contract used in or pertaining to the Business, (c) no Seller,
Affiliate or Related Party has any direct or indirect ownership interest in any
Person in which the Business has any direct or indirect ownership interest or
with which the Business competes or has a business relationship, and (d) no
Seller, nor any Affiliate or Related Party provides any products or services to
the Business.
 
3.23 Customer Relations.
 
There exists no condition or state of facts or circumstances involving any
Seller’s customers, suppliers, distributors, employees, or sales representatives
that would reasonably be expected to adversely affect the Acquired Assets or the
Business after the Closing Date.
 
3.24 Solvency; Post-Closing Financial Condition of Sellers. 
 
No Seller is now insolvent nor will any Seller be rendered insolvent by any of
the transactions contemplated by this Agreement. As used in this section,
“insolvent” means that the sum of the debts and other probable liabilities of
each Seller exceeds the present fair saleable value of that Seller’s assets.
Immediately following the Closing Date, (i) each Seller will be able to pay its
liabilities as they become due in the usual course of its business; (ii) no
Seller will have unreasonably small capital with which to conduct its present or
proposed business; (iii) each Seller will have assets (calculated at fair market
value) that exceed its liabilities; and (iv) each Seller will have and maintain
adequate financial resources to pay, perform, and fully discharge all of such
Seller’s Retained Liabilities and all of such Seller’s obligations set forth in
this Agreement, including, without limitation, those obligations set forth in
Article 7 hereof.

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3.25 Suppliers; Raw Materials. 
 
No Seller has received any notice or has any reason to believe that there has
been any material adverse change in the price of such raw materials, supplies,
merchandise or other goods or services, or that any such supplier will not sell
raw materials, supplies, merchandise and other goods to the Buyer at any time
after the Closing Date on terms and conditions similar to those used in its
current sales to the Sellers, subject to general and customary price increases.
No supplier of any Seller has otherwise threatened to take any action described
in the preceding sentence as a result of the consummation of the transactions
contemplated by this Agreement.
 
3.26 Access to Buyer Information. 
 
Seller Principal and each of the Sellers has had the opportunity to conduct his
and its own independent investigation of Buyer and collect and review all
materials made available by Buyer to evaluate the transaction contemplated by
this Agreement. Seller Principal and his representatives have been provided the
opportunity to ask questions of, and receive answers from, the directors and
officers of Buyer concerning the business of Buyer. The Seller Principal
acknowledges that he has had access to sufficient information to understand the
merits and risks associated with the transactions contemplated by this
Agreement. To the extent that Seller Principal has deemed it appropriate to do
so, he has retained, and relied upon, appropriate professional advice concerning
the tax, legal, business and financial merits and consequences of consummating
the transactions contemplated by this Agreement and the Transaction Documents.
 
3.27 Foreign Corrupt Practices Act. 
 
None of the Sellers, the Seller Principal, any director, officer, agent or
employee of any of them, and any other Person associated with or acting for or
on behalf of any of them has directly or indirectly (1) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
any Seller (or any Affiliate thereof), in violation of any law or otherwise
constituting an offence under the Foreign Corrupt Practices Act of 1977 of the
United States, as amended (assuming for these purposes that the Seller Principal
and any Seller were subject to that Act), or (iv) in violation of any law
(including without limitation any relevant and applicable Tax laws or in
relation to the payment or non-payment of any Taxes by any Seller or the Seller
Principal), or (2) established or maintained any fund or asset that has not been
recorded in the books and records of any Seller, or (3) has violated any
anti-corruption or anti-bribery laws or regulations of the PRC or equivalent
laws and regulations promulgated in any other jurisdictions. None of the assets
and properties of any Seller were obtained or procured through any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services that would have violated the foregoing representations and
warranties.

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3.28 Additional PRC Representations. 
 
Schedule 3.28 contains a complete list and accurate corporate particulars of
each Seller, including details of the holders of any equity interest or joint
venture parties therein and the extent of their respective interests. Without
limiting the other provisions of this Article 3, the following representations
and warranties shall apply to each Seller:
 
(a) The articles, other constitutional documents and certificates of approval
and any related joint venture contracts of the Seller are valid and have been
duly approved and registered (as applicable) by competent PRC Governmental
Entity;
 
(b) All business and other licenses, certificates, consents, approvals,
qualifications, permits and other authorizations required from any Governmental
Entity under any applicable Legal Requirements and Governmental Requirements in
the PRC for the due and proper establishment and operation of the Seller and its
business have been duly obtained and made and are in full force and effect.
 
(c) All filings, declarations, exemptions and registrations from or with all
applicable and competent PRC Governmental Entities required in respect of the
Seller and its operations including, without limitation, registrations with
Foreign Economic Relations and Trade Commission, State or the relevant local
Administration of Industry and Commerce, State Administration for Foreign
Exchange, tax bureau and customs authorities have been duly completed in
accordance with all applicable Legal Requirements and Governmental Requirements
in the PRC.
 
(d) The Seller has complied with all applicable Legal Requirements and
Governmental Requirements in the PRC regarding the contribution and payment of
the registered or share capital of such Seller, the payment schedule of which
has been approved by competent PRC Governmental Entities, and all such
contributions and payments due on or prior to the date of Closing have been
fully paid. Particulars of any such contributions and payments that remain
outstanding after the date of Closing are fully set forth in Schedule 3.28.
 
(e) The Seller is not in receipt of any letter or notice from any PRC
Governmental Entity notifying revocation of any permits or licenses issued to it
by any PRC Governmental Entity for non-compliance or the need for compliance or
remedial actions in respect of the activities carried out by it.
 
(f) The Seller has been conducting and will conduct its business activities
within the permitted scope of its business license or is otherwise operating its
business in full compliance with all applicable Legal Requirements and
Governmental Requirements and with all requisite permits and licenses granted by
competent PRC Governmental Entities or any other Person.
 
(g) All licenses and permits required for the conduct of any part of the
Business which are subject to periodic renewal have been obtained and there are
no grounds on which such renewals will not be granted by the relevant PRC
Governmental Entities or other Persons.

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(h) The Seller has complied with all Legal Requirement and Governmental
Requirement in the PRC with regard to employment, labor or labor contracts,
staff or labor management or protection, including without limitation those
pertaining to welfare funds, social benefits, social insurance contributions,
medical benefits, insurance, retirement benefits, pensions and the like.
 
3.29 Disclosure.
 
No representation, warranty, or statement of any Seller or any Seller Principal
contained in this Article 3, in any of the Schedules referred to in this Article
3, or in any certificate, instrument, or document delivered by any Seller or any
Seller Principal to the Buyer pursuant to Section 2.2, including the Seller
Transaction Documents, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading. There is no fact or circumstance known to or anticipated
by any Seller that has application to any Seller (other than general economic or
industry conditions) and that may adversely affect or threaten the Acquired
Assets or the Business that has not been set forth in this Agreement or the
Schedules.
 
3.30 Complete and Accurate Schedules.
 
Each Schedule provided by Sellers under this Article 3 constitutes a complete
and accurate list of the items specified to be contained in that Schedule. Each
Seller has furnished to the Buyer complete and accurate copies of all documents
listed or referred to in any Schedule.
 
ARTICLE 4
Representations and Warranties of Buyer
 
4.1 Corporate Status; Authority.
 
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of its place of incorporation. Buyer is duly qualified and in
good standing to do business in each jurisdiction in which the conduct or nature
of its business or the ownership, leasing or holding of its properties makes
such qualification necessary, except such jurisdictions where the failure to be
so qualified or in good standing, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect (a) on the condition
(financial or otherwise), business, liabilities, properties, assets or results
of operations, taken as a whole, or (b) on the ability to perform its
obligations under or to consummate the transactions contemplated by this
Agreement (a “Buyer Material Adverse Effect”). Buyer has all requisite power to
carry on its business as it is now being conducted, to own and operate such
business and Buyer has all requisite power to enter into this Agreement, to
perform its obligations hereunder and to complete the transactions contemplated
hereby.

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4.2 Corporate Action.
 
All organizational proceedings necessary to be taken by or on the part of Buyer
in connection with the transactions contemplated by the Buyer Transaction
Documents have been duly and validly taken, and this Agreement has been duly and
validly authorized, executed and delivered and constitutes, and each of the
other Buyer Transaction Documents will be duly and validly authorized, executed
and delivered and will constitute, the legal, valid and binding obligations of
Buyer, enforceable against Buyer, in accordance with and subject to its terms,
except as may be limited by bankruptcy, insolvency, reorganization, or other
laws affecting creditors’ rights generally and by general equitable principles.
 
4.3 No Conflicts.
 
Neither the execution, delivery and performance by each of Buyer of the Buyer
Transaction Documents, nor the consummation by Buyer of the transactions
contemplated thereby is an event that, by itself or with the giving of notice or
the passage of time or both, will (a) conflict with the organizational documents
of Buyer, (b) constitute a violation of, or result in any breach of or any
default under, or constitute grounds for termination or acceleration of, any
material mortgage, indenture, lease, contract, agreement or instrument to which
Buyer is a party or by which it is bound, except for such violations, breaches,
terminations, and accelerations as individually or in the aggregate would not
reasonably be expected to have a Buyer Material Adverse Effect or result in the
creation of any material Lien upon any of Buyer’s assets such that it is
reasonably likely that Buyer will be unable to proceed with the transactions
contemplated in this Agreement, or (c) violate (i) any judgment, decree or
order, or (ii) any statute, rule or regulation, in each such case, applicable to
Buyer. The execution, delivery and performance by Buyer of this Agreement, and
the consummation by Buyer of the transactions contemplated hereby, require no
action by or in respect of, or filing with, any Governmental Entity, other than
filings with the SEC and NASDAQ, and other than actions or filings which, if not
taken or made, would not, individually or in the aggregate, reasonably be
expected to have a Buyer Material Adverse Effect or filings and notices not
required to be made or given to consummate the transactions contemplated by this
Agreement.
 
ARTICLE 5
Non-competition
 
5.1 Defined Terms.
 
For purposes of this Agreement:
 
(a) “Restricted Seller” means the Seller Principal and each Seller identified in
this Agreement (collectively the “Restricted Sellers” and each a “Restricted
Seller”).
 
(b) “Restricted Employee” means any current or former employee, sales
representative, consultant, advisor, agent, or contractor of any Restricted
Seller who was employed by, worked for, or provided services to a Restricted
Seller on or before the Closing Date, and who accepts an offer of employment
with Buyer or who works for, becomes employed by or performs services for Buyer
after the Closing Date in connection with the Acquired Assets of this Agreement.
 
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(c) “Competitive Business” means any business engaged or preparing to engage in
(i) any business competitive with any of the types of business activities that
Restricted Sellers conducted or materially prepared to conduct prior to the
Closing Date; (ii) manufacturing, licensing, producing, selling or distributing
jewelry products, and (iii) owning and operating standalone stores, store
counters, or any other means for distribution of jewelry products.
 
(d) “Specified Geographic Area” means the provinces of Zhejiang, Jiangsu and
Hebei, the cities of Beijing and Shanghai and each and every province, city,
county, parish or other political subdivision within a two hundred (200) mile
radius of any store, counter, distribution location, or other locations in the
provinces of Zhejiang, Jiangsu and Heibei, the cities of Beijing and Shanghai,
as well as anywhere in the countries of China, in which the Restricted Sellers
conducted its Business or otherwise distributed, licensed, marketed or sold its
products or services as of the Closing Date or at any time during the twelve
(12) month period immediately preceding the Closing Date, so long as Buyer, or
any person or entity deriving title to the goodwill or ownership interest from
Buyer, carries on and conducts a like Business therein.
 
(e) “Confidential Information” means any and all information in whatever form,
tangible or intangible, that is not generally known to the public and that
relates in any way to the Business conducted by Sellers, including concepts,
techniques, processes, methods, systems, designs, programs, code, formulas,
research, technologies, strategies, plans, and trade secrets, as well as
customer lists, customer preferences, costs, profits, sources of supply,
financial data, budgets, marketing data, business plans and production methods
relating to any aspect of the present or actual anticipated business of the
Sellers; information regarding the skills and compensation of other employees,
consultants, contractors and/or agents of the Sellers; and customer, client or
investor names and contact information and other confidential information
relating to all such customers, clients and investors of Sellers. “Confidential
Information” also includes information in whatever form, tangible or intangible,
that is not generally known to the public and that was provided to Buyer by
Sellers or the Seller Principal in connection with negotiations and other
discussions leading up to this Agreement and/or that Buyer designates as being
confidential. “Confidential Information” does not include any information that
the receiving party can prove becomes publicly known through no wrongful act of
the receiving party.
 
5.2 Non-competition.
 
In light of the Seller Principal’s ownership interest in the Sellers’ Business,
his key position with the Sellers, his contributions in the past to the growth
and development of the Sellers’ Business, his confidential and proprietary
information relating to the business and operations of the Sellers, and the
significant financial benefit that each will derive from the sale of the
Business, including the sale of substantially all of the Sellers’ assets and the
goodwill value of the Sellers’ Business to Buyer, and in order to preserve for
Buyer the goodwill, proprietary rights and value of the Sellers’ Business, and
to protect Buyer’s investment in the Acquired Assets, including the Confidential
Information of the Sellers, each Restricted Seller hereby covenants and agrees
that during and for the period commencing on the Closing Date and ending on the
later of (i) the date that is five (5) years after the Closing Date, or (ii) the
date that is two (2) years after the termination date of Restricted Seller’s
employment with Buyer or its successors (and provided that Buyer or any person
or entity deriving title from Buyer to the Business conducts a like Business in
the Specified Geographic Area) (hereinafter, the “Restricted Period”), the
Restricted Seller (including any Affiliate) shall not, directly or indirectly,
except for on behalf of Buyer or with the prior written approval of Buyer:

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(a) engage in, operate, control, carry on, manage, direct or otherwise conduct a
Competitive Business within the Specified Geographic Area during the Restricted
Period; or
 
(b) work for, be employed by, accept employment with, serve as an agent for,
agree to provide advisory services to, consult with or otherwise assist any
Person, entity or organization that engages in a Competitive Business within the
Specified Geographic Area during the Restricted Period; or
 
(c) own, finance, lend to, have an economic interest in, or become associated as
a partner, owner, stockholder, member, or joint venturer, or otherwise have a
business relationship with, any Person, entity or organization (other than
Buyer) engaged in, or about to become engaged in, a Competitive Business within
the Specified Geographic Area during the Restricted Period, provided, however,
that nothing in this Section 5.2(c) shall prohibit Restricted Seller from
holding, directly or indirectly, up to two percent (2%) of any securities of an
entity that is quoted on a national securities exchange or inter-dealer
quotation system; or
 
(d) plan, develop, market, or make any preparations to provide assistance to any
Competitive Business or to form a Competitive Business, including but not
limited to any research or development efforts aimed at ultimately benefiting a
Competitive Business, within the Specified Geographic Area during the Restricted
Period. 
 
5.3 Confidentiality.
 
Restricted Sellers acknowledge that due to the nature of their association with
Sellers’ Business, each has Confidential Information that is of importance to
the Business of Sellers, affects the value of Sellers’ Business being acquired
by Buyer, and will continue to be confidential subsequent to the Closing Date,
such that disclosure of such Confidential Information to others or the
unauthorized use of such Confidential Information would cause substantial loss
and harm to Buyer as purchaser of the Acquired Assets. Accordingly, Restricted
Sellers agree that at all times hereafter, Restricted Sellers shall not,
directly or indirectly, except for on behalf of Buyer or with the prior written
approval of Buyer: (a) reveal, disclose, publish, communicate or divulge to any
person or entity, in any manner whatsoever, any Confidential Information that
has come into Restricted Seller’s knowledge or has been designed by, developed,
or otherwise learned or received by Restricted Seller; (b) authorize, permit or
allow the publication, communication, or disclosure of any Confidential
Information; and (c) either on Restricted Seller’s own behalf or on behalf of
any other Person, use any Confidential Information for any purpose other than
for the benefit of Buyer.
 
The terms of this confidentiality covenant supplement and do not replace any
other agreements to which Restricted Seller may be a party or any other
obligations that Restricted Seller may have under laws regarding
confidentiality, non-disclosure, assignment of inventions, or the protection of
intellectual property, including any employment agreement or other agreement
between Restricted Seller and Buyer or between Restricted Seller and Sellers.

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5.4 Non-solicitation.
 
During the Restricted Period, the Restricted Sellers (including Affiliates)
shall not, directly or indirectly, solicit, encourage, assist, facilitate or
induce any customer, client, supplier, licensee or franchisee of Sellers as of
the Closing Date (or who were such at any time during the six (6) month period
immediately preceding the Closing Date), to breach any agreement or contract
with, or to discontinue or reduce his, her, or its business relationships with,
the Business of Sellers being acquired by Buyer within the Specified Geographic
Area. Each Restricted Seller further covenants and agrees that during the
Restricted Period, it shall not, and shall cause its Affiliates not to, directly
or indirectly, except for on behalf of Buyer or with the prior written approval
of Buyer, solicit, recruit, hire, employ or engage any Restricted Employee, or
assist or facilitate any Person or entity other than Buyer in the hiring or
recruitment (including assessment) of any Restricted Employee, or otherwise
encourage, assist, or invite any Restricted Employee to enter into an employment
relationship or a service arrangement of any kind with any Person or entity
other than Buyer.
 
5.5 Reasonableness of Restrictions.
 
Restricted Sellers acknowledge that Buyer considers the restrictive covenants of
this article 5 to be essential and integral to this Agreement, and Buyer would
not purchase the Acquired Assets without the Restricted Sellers’ execution of
this Agreement containing these restrictive covenants. Restricted Sellers will
derive significant financial benefit from the Closing of this transaction, and
the execution of this Agreement by Restricted Sellers is a condition to the
Closing. Restricted Sellers further acknowledge and agree that the scope of
Sellers’ Business is as defined in this Agreement and that the duration of the
Restricted Period as well as the geographic scope of the Specified Geographic
Area, and the related prohibitions in this article 5, are reasonable and
necessary in order to protect the value and legitimate interests of Buyer and
Buyer’s investment in the Acquired Assets, including preserving the goodwill of
the Business as obtained pursuant to this Agreement and the Confidential
Information of the Business. Restricted Sellers represent that each will
otherwise be able to obtain gainful employment during the Restricted Period
notwithstanding the provisions of this article 5.
 
5.6 Remedy for Breach and Right to Injunction.
 
Notwithstanding other provisions of this Agreement, Restricted Sellers agree
that damages in the event of a breach by a Restricted Seller of article 5 of
this Agreement would be difficult to ascertain and may be an inadequate remedy.
The parties agree that Buyer will have the right to an immediate injunction or
other equitable relief in a state or federal court with appropriate jurisdiction
to enjoin any such threatened or actual breach, without any requirement to post
bond or provide similar security. The existence of this right will not preclude
Buyer from pursuing any other rights and remedies at law or in equity that Buyer
may have, including recovery of damages for any breach by Restricted Sellers of
this article 5.

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5.7 Severability and Enforceability.
 
The provisions contained in the above Sections 5.1, 5.2, and 5.4 as to the time
periods, geographic area, and scope of restricted activities shall be deemed
severable, so that if any provision contained in any such Section of this
Agreement is held to be invalid or unenforceable due to the asserted
unreasonableness of time, scope or geographical restrictions, such covenants and
restrictions will be deemed modified so as to be valid and effective for such
period of time, scope and/or for such area as may be determined to be reasonable
by a court of competent jurisdiction and will be enforced accordingly to the
fullest extent lawfully permitted. If any portion of this article 5 is held to
be invalid or unenforceable for any reason such that it cannot be modified with
respect to the reasonableness of time, scope or geographical restrictions, such
provisions will be severed from this Agreement and the remaining covenants and
restrictions or portions thereof will remain in full force and effect.
 
ARTICLE 6
Additional Covenants
 
6.1 Access to Records.
 
Each Seller agrees to furnish to Buyer upon request as promptly as practicable,
such information and assistance relating to the Acquired Assets and the Business
as is reasonably necessary for the filing of any tax return, declaration or
report, the making of any election related to Taxes, the preparation for any
audit by any taxing authority, or the prosecution or defense of any claim, suit,
or proceeding; provided, however, that such information and assistance shall be
provided in a manner that will not unreasonably disrupt the business of the
party providing information or assistance. Each Seller shall cooperate fully as
to and to the extent reasonably requested by Buyer, in the conduct of any audit,
litigation or other proceeding to the extent relevant to the Acquired Assets of
the Business.
 
6.2 Litigation Cooperation.
 
In the event that any Seller or Buyer shall participate in any suit, action,
proceeding or investigation concerning the Business conducted on or prior to the
Closing Date (excluding any such suit, action, proceeding or investigation
between any Seller and Buyer), the parties shall, upon the request of the party
involved in such litigation, cooperate fully with such party at such party’s
expense in connection therewith, except to the extent that such litigation
arises from or constitutes a breach by any such party of any representation,
warranty, covenant or agreement contained in this Agreement and the other
agreements provided for herein.
 
6.3 Employees.
 
(a) Each Seller shall terminate all of the employees of the Business as of the
Closing Date and use all reasonable efforts to cause such employees to make
available their employment services to Buyer. Buyer may offer at-will employment
on or after the Closing Date to any employee of the Business on the terms and
conditions of employment as mutually agreed to between Buyer and such employees.
Those employees who accept such offers of employment shall be referred to herein
as the “Transferred Employees.” 

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(b) At or prior to Closing, each Seller shall insure that all compensation and
accrued commissions and bonuses shall have been paid to all terminated employees
of the Business. Each Seller shall provide or make available to Buyer copies of
said termination notices and evidence of their final payments of such
compensation, commissions and bonuses for all such employees

6.4 Final Sales Tax Return.
 
Sellers shall file its final sales tax Return and pay any and all sales Taxes
due, if any, within the earlier of (i) when due or (ii) One Hundered and Eighty
(180) days of the Closing Date.
 
ARTICLE 7
Survival of Representations and Warranties; Indemnification
 
7.1 General Provisions; Survival.
 
The representations and warranties and the covenants and any indemnities with
respect thereto of the parties set forth in this Agreement shall survive the
Closing for a period of three (3) years following the Closing Date to the extent
that claim for breach thereof has not theretofore been made in writing by a
party to the other party, except that (a) the representations and warranties of
Sellers contained in Sections 3.1, 3.2, and 3.3 shall survive indefinitely
following the Closing Date, and (b) the representations and warranties of
Sellers contained in Sections 3.19 and 3.20 shall survive for a period of sixty
(60) days following the expiration of the applicable statute of limitation
relating thereto.
 
Any limitation or qualification set forth in any one representation and warranty
in Article 3 or Article 4 or set forth in any one schedule to this Agreement
shall not limit or qualify, or be deemed to limit or qualify, in any respect,
any other representation and warranty contained in Article 3 or Article 4. The
waiver by either party of any condition at Closing of the breach or inaccuracy
of any representation or warranty, or breach of, or non-compliance with, any
covenant or obligation, will not affect the right of such party to
indemnification, payment of Buyer Damages or Seller Damages, as applicable, or
other remedy at law or in equity based on such breach, inaccuracy, or
noncompliance.
 
7.2 Indemnification by Sellers.
 
Each Seller shall jointly and severally indemnify, defend, save and hold Buyer
and its officers, directors, employees, agents, Representatives and Affiliates
(collectively, “Buyer Indemnitees”) harmless from and against all demands,
claims, allegations, assertions, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, costs, expenses and taxes (including
reasonable legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing, whether or not any
such demands, claims, allegations, etc., of third parties are meritorious;
collectively, “Buyer Damages”) asserted against, imposed upon, resulting to,
required to be paid by or incurred by any Buyer Indemnitee, directly or
indirectly, in connection with or arising out of:
 
(a) any Retained Liability;

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(b) any breach or inaccuracy of any representation or warranty made by any
Seller in this Agreement;
 
(c) any breach, non-fulfillment, or non-performance of any covenant or agreement
made by Sellers in or pursuant to this Agreement to which Sellers is or is to
become a party; or
 
(d) any and all liabilities for any violation of, noncompliance with or failure
by any Seller existing on the Closing Date or arising out of any transaction
entered into, or any state of facts existing, prior to the Closing Date.
 
During the term of the Escrow Agreement, Sellers shall pay to Buyer all Buyer
Damages in accordance with the Escrow Agreement, and thereafter from immediately
available funds.
 
7.3 Indemnification by Buyer. 
 
Buyer shall indemnify, defend, save and hold each Seller and its officers,
directors, employees, Affiliates and agents (collectively, “Seller Indemnitees”)
harmless from and against any and all demands, claims, actions or causes of
action, assessments, losses, damages, deficiencies, liabilities, costs and
expenses (including reasonable legal fees, interest, penalties, and all
reasonable amounts paid in investigation, defense or settlement of any of the
foregoing, whether or not any such demands, claims, allegations, etc., of third
parties are meritorious; collectively, “Seller Damages”) asserted against,
imposed upon, resulting to, required to be paid by or incurred by any Sellers
Indemnitee, directly or indirectly, in connection with or arising out of:
 
(a) any Assumed Liability (except to the extent that Buyer is entitled to
indemnification pursuant to this Article 7 from any Seller with respect to such
Assumed Liability);
 
(b) any breach or inaccuracy of any representation or warranty made by Buyer in
this Agreement; or
 
(c) any breach, nonperformance, or nonfulfillment of any covenant or agreement
made by Buyer in or pursuant to this Agreement to which Buyer is or is to become
a party.

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7.4 Procedures Relating to Third Party Claims.
 
In order for Buyer Indemnitees or Seller Indemnitees, as the case may be, (the
“indemnified party”) to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of, or involving a claim or demand
made by any Person against the indemnified party (a “Third Party Claim”), such
indemnified party must notify the indemnifying party in writing, and in
reasonable detail, of the Third Party Claim within thirty (30) business days
after receipt by such indemnified party of written notice of the Third Party
Claim (the “Claim Notice”); provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying party demonstrates that it has been actually
prejudiced as a result of such failure (except that the indemnifying party shall
not be liable for any expenses incurred during the period in which the
indemnified party failed to give such Claim Notice to the extent such expenses
resulted from such failure to give notice). Thereafter, the indemnified party
shall deliver to the indemnifying party, within ten (10) business days after the
indemnified party’s receipt thereof, copies of all notices and documents
(including court documents) received by the indemnified party relating to the
Third Party Claim. If a Third Party Claim is made against an indemnified party,
the indemnified party shall be entitled to conduct and control, through counsel
of its choosing, the defense of any Third Party Claim.
 
The indemnified party may compromise or settle any Third Party Claim so long as
the indemnified party gives the indemnifying party advance notice of any
proposed compromise or settlement. The indemnified party shall permit the
indemnifying party to participate in the defense of any Third Party Claim
through counsel chosen by the indemnifying party, so long as all fees and
expenses of such counsel are borne by the indemnifying party. If the indemnified
party permits the indemnifying party to undertake, conduct, and control the
defense and settlement of a Third Party Claim: (a) the indemnifying party shall
not permit any lien to exist upon any asset of the indemnified party, including,
without limitation, the Acquired Assets, (b) the indemnifying party shall not
consent to any compromise or settlement that does not include as an
unconditional term of such compromise or settlement the giving of a complete
release from liability with respect to such Third Party Claim to the indemnified
party, (c) the indemnifying party shall permit the indemnified party to
participate in such defense or settlement through counsel chosen by the
indemnified party, and (d) the indemnifying party shall agree promptly to
reimburse the indemnified party for the full amount of any damages, including
fees and expenses of counsel for the indemnified party.
 
If the indemnified party permits the indemnifying party to assume the defense of
any Third Party Claim, the indemnified party shall cooperate with the
indemnifying party in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the indemnifying party’s reasonable request) the
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees available on
a reasonable basis to provide additional information and explanation of any
material provided hereunder.

Within ten (10) business days or the receipt of a Claim Notice, the Sellers,
Seller Principal, or Buyer, as the case may be, shall deliver to the Escrow
Agent and the Sellers, Seller Principal, or Buyer, as the case may be, a notice
(“Objection Notice”) stating they intend to contest the claim (a “Contest”) or
to accept liability thereunder.
 
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(a) If the Sellers, Seller Principal, or Buyer, as the case may be, do not give
an Objection Notice within that ten (10) business day period, the Sellers,
Seller Principal, or Buyer, as the case may be, will be deemed to accept
liability as it relates to such claim.
 
(b) If Buyer gives a timely Objection Notice, then within thirty (30) business
days of the receipt thereof, the Sellers, Seller Principal, or Buyer, as the
case may be, shall select an independent arbitrator (the “Independent
Arbitrator”). The Independent Arbitrator shall be selected by the mutual
agreement of the Sellers, Seller Principal, or Buyer, as the case may be. If the
parties cannot agree on the identity of an Independent Arbitrator within ten
(10) business days of the date of an Objection Notice, then the Independent
Arbitrator will be determined by an arbitrator selected by the Seller Principal
and an arbitrator selected by Buyer. The decision of the Independent Arbitrator
shall be borne as directed by him. The Sellers, Seller Principal, or Buyer, as
the case may be, shall be entitled to make such representation and provide such
information and reports to the Independent Arbitrator within twenty (20)
business days of the date of agreement or, if later, determination of the
identity of the Independent Arbitrator. The Sellers, Seller Principal, or Buyer,
as the case may be, shall use their respective commercially reasonable efforts
to procure that the Independent Arbitrator issues his/her ruling within thirty
(30) business days after the matter is submitted to him/her for consideration.
 
(c) If the Sellers or Seller Principal give a timely Objection Notice, the
Escrow Agent shall not take any further action with respect to the claim being
Contested except as further provided in the Escrow Agreement.
 
7.5 Other Claims.
 
In the event any indemnified party should have a claim against any indemnifying
party under Section 7.2 or 7.3 that does not involve a Third Party Claim being
asserted against or sought to be collected from such indemnified party, the
indemnified party shall deliver notice (“Claims Notice”) of such claim with
reasonable promptness to the indemnifying party. The failure by any indemnified
party so to notify the indemnifying party shall not relieve the indemnifying
party from any liability which it may have to such indemnified party under
Section 7.2 or 7.3, except to the extent that the indemnifying party
demonstrates that it has been actually prejudiced by such failure or to the
extent such failure extends beyond the applicable survival period set forth in
Section 7.1. If the indemnifying party does not notify the indemnified party
within thirty (30) days following its receipt of such Claims Notice that the
indemnifying party disputes its liability to the indemnified party under Section
7.2 or 7.3, such claim specified by the indemnified party in such notice shall
be conclusively deemed a liability of the indemnifying party under Section 7.2
or 7.3 and the indemnifying party shall pay the amount of such liability to the
indemnified party on demand or, in the case of any notice in which the amount of
the claim (or any portion thereof) is estimated, on such later date when the
amount of such claim (or such portion thereof) becomes finally determined. If
the indemnifying party has timely disputed its liability with respect to such
claim, as provided above, the indemnifying party and the indemnified party shall
proceed in good faith to negotiate a resolution of such dispute, and, if not
resolved through negotiations, such dispute shall be resolved by litigation in
an appropriate court of competent jurisdiction.

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ARTICLE 8
Miscellaneous
 
8.1 Costs and Expenses.
 
Buyer will pay all legal fees and appraisal fees prior to Closing and all of
such amounts paid by Buyer shall be deducted in full from the Cash Purchase
Price that is to be paid to Sellers. Other than the foregoing, each party hereto
shall bear all its expenses incurred in connection with the transactions
contemplated by this Agreement, including, without limitation, accounting, legal
and financial advisory fees and expenses incurred in connection herewith.
 
8.2 Assignments.
 
No party hereto may assign any of its rights or delegate any of its duties under
this Agreement without the prior written consent of the other parties, and any
such attempted assignment or delegation without such consent shall be void and
of no force and effect. Notwithstanding the foregoing, Buyer shall have the
right to assign its rights and delegate its duties under this Agreement to any
of its Affiliates or any successor companies (whether by merger, operation of
law, or otherwise) or acquirer of all or substantially all of Buyer’s assets.
 
8.3 Further Assurances.
 
The parties shall from time to time do and perform such additional acts and
execute and deliver such additional documents and instruments as may be required
or reasonably requested by any party to establish, maintain or protect its
rights and remedies or to effect the purpose of this Agreement.
 
8.4 Public Announcement.
 
No party shall, without the prior approval of the others, make any press
release, public announcement, or other disclosure concerning the transactions
contemplated by this Agreement, except in the case of Sellers and Buyer, to such
of their respective employees, agents, and representatives who have a need to
know.
 
8.5 Notices.
 
Notices and other communications required or provided for herein shall be in
writing (which shall include notice by facsimile transmission) and shall be
deemed to have been duly given and received (a) upon receipt, when delivered by
hand or personal delivery, (b) upon transmission, when sent by facsimile
transmission (with written confirmation of successful transmission), (c) on the
second business day after the date of mailing, if delivered by a nationally
recognized overnight delivery service (receipt requested), or (d) upon receipt,
if delivered by certified or registered mail (receipt requested), in each case
addressed as follows:

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If to Sellers or Seller Principal:
 
Chujian Huang__________
______________________
______________________

with a copy to:

______________________
______________________
______________________

If to Buyer:

Fuqi International Holdings Co., LTD.
Unit 1217, Level 12, Landmark North
39 Lung Sum Avenue
Sheung Shui, New Territories
HKSAR
Attention: Yu Kwai Chong

with a copy to:

Kirkpatrick & Lockhart Preston Gates Ellis LLP
10100 Santa Monica Blvd., 7th Floor
Los Angeles, CA 90067
Attention: Thomas J. Poletti, Esq.
Facsimile No.: (310) 552-5001

or to such other address as a party may from time to time designate in writing
to each of the other parties in accordance with this Section 8.5.
 
8.6 Amendment and Modification.
 
This Agreement may be amended, modified, or supplemented at any time only by the
written agreement of the parties hereto.
 
8.7 Captions.
 
The captions of Articles and Sections of this Agreement are for convenience only
and shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
 
8.8 Governing Law.
 
This Agreement shall be governed by, construed, and enforced in accordance with
the laws of the State of Delaware, without regard to the conflict of laws
principles thereof. 
 
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8.9 Waiver of Provisions.
 
The terms, covenants, representations, warranties and conditions of this
Agreement may be amended, modified or waived only by a written instrument
executed by the party sought to be bound thereby. The failure of any party at
any time or times to require performance of any provision of this Agreement
shall in no manner affect the right of such party at a later date to enforce the
same. No waiver by any party of any condition or the breach of any provision,
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation or warranty of
this Agreement.
 
8.10 Counterparts.
 
This Agreement may be executed in one or more facsimile counterparts, each of
which shall be deemed to be an original copy of this Agreement, but all of which
together shall constitute one and the same Agreement.
 
8.11 Entire Agreement.
 
This Agreement, including the Schedules and Exhibits hereto (which are
incorporated herein by reference), constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof and supersedes, cancels, and replaces any and all prior or
contemporaneous agreements (including any letter of intent or term sheet),
understandings, and negotiations between the parties and constitutes a complete
and exclusive statement of the terms of the agreement between and among the
parties with respect to the subject matter hereof. This Agreement is in the
English language and shall govern the terms of this Agreement over any
translated versions of this Agreement.
 
8.12 Definitions; Construction.
 
(a) As used herein, the following terms shall have the following meanings:
 
“1933 Act” means the Securities Act of 1933, as amended.
 
“Affiliate” means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under the direct or
indirect common control with such specified Person.
 
“GAAP” means U.S. generally accepted accounting principles.

 
“Governmental Entity” means any domestic or foreign government or political
subdivision thereof, whether on a federal, state or local level and whether
executive, legislative or judicial in nature, including any agency, authority,
board, bureau, commission, court, department or other instrumentality thereof.
 
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“Governmental Requirement” means at any time (i) any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict,
award, authorization or other requirement of any Governmental Entity in effect
at that time or (ii) any obligation included in any certificate, certification,
franchise, permit or license issued by any Governmental Entity or resulting from
binding arbitration, including any requirement under common law, at that time.
 
“Hazardous Materials” means all substances defined as any (A) hazardous
substance as defined by any Environmental Law, (B) any petroleum or petroleum
product, oil or waste oil; (C) any asbestos or polychlorinated byphenyls; (D)
any hazardous material, toxic substance, toxic pollutant, solid waste, municipal
waste, industrial waste, hazardous waste, flammable material, radioactive
material, pollutant or contaminant or words of similar meaning and regulatory
effect under any applicable Environmental Law; and (E) any other chemical,
material, or substance exposure to which or whose discharge, emission, disposal
or Release is prohibited, limited, or regulated under any applicable
Environmental Law.
 
“Knowledge,” “to the knowledge,” “known” or similar variations thereof shall
mean:, as it relates to the Seller Principal or any company, the actual
knowledge of the Seller Principal, plus such knowledge as the Seller Principal
or each company would have acquired after due investigation of the relevant fact
or matter (including making all necessary enquiries with the respective
officers, directors and employees of each company), regardless of whether such
investigation has actually occurred, and as to any other Person, the actual
knowledge of a specified Person of any particular fact or other matter after due
investigation, and the words “aware,” “known” or similar words, expressions or
phrases shall be construed accordingly.
 
“Legal Requirement” means any law, regulation, rule, ordinance, decree, order or
other standard imposed by a Governmental Entity applicable to a party or the
conduct or operation of its business or the ownership or use of any of its
assets, including, in the case of any Company, all those imposed under the laws
of the PRC, or any equivalent or similar laws, rules, regulations or
requirements of any other applicable jurisdiction.
 
“Person” means an individual, a corporation, a limited liability company, a
partnership, a joint venture, a business association, a trust or any other
entity or organization, including a Governmental Entity.
 
“PRC” means the People’s Republic of China, excluding, for the purposes of this
Agreement, the Macau Special Administrative Region, Hong Kong and Taiwan.
 
“Release” means any release, spill, emission, discharge, leaking, pumping,
pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration
of Hazardous Materials into the environment (including, without limitation,
ambient air, surface water, groundwater and surface or subsurface strata).

“Representative” when used with respect to any Person means any directors,
officers, employees, stockholders, agents or representatives (including
attorneys, accountants, consultants, banks and financial advisors) of such
Person.
 
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(b) The definitions in this Agreement shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words “include,” “includes” and “including” shall be deemed to be followed
by the phrase “without limitation.” All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require.

8.13 No Third Party Beneficiaries.
 
This Agreement is not intended to confer upon any Person other than the parties
hereto and their respective permitted successors and assigns any rights or
remedies hereunder.
 
8.14 Jurisdiction; Service of Process.
 
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against either party in the
courts of the State of Delaware. Each party irrevocably consents to the
jurisdiction of these courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid in such courts.
Original process in any action or proceeding referred to in the preceding
sentence may be served on any party (anywhere in the world) by nationally
recognized overnight courier service (receipt requested) in accordance with the
notice provisions set forth in this Agreement, and service so made will be
conclusively deemed to be accepted and completed for all purposes
(notwithstanding any more restrictive service requirements set forth in any
applicable federal or state rules of civil procedure governing service of
original process) on the second business day after deposit with such courier.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, Buyer, Sellers, and Seller Principal have each caused this
Agreement to be duly executed by their duly authorized officers as of the day
and year first above written.
 
BUYER:
 
FUQI INTERNATIONAL HOLDINGS CO., LTD.
   
By:
/s/ Yu Kwai Chong
Name:
Yu Kwai Chong
Title:
Chairman & Chief Executive Officer
   
SELLERS:
 
BEIJING YINZHONG TIANMEI JEWELRY CO., LTD.
   
By:
/s/ Chujian Huang
Name:
Chujian Huang
Title:
Legal Representative
   
SHANGHAI TIANMEI JEWELRY CO., LTD.
 
By:
/s/ Chujian Huang
Name:
Chujian Huang
Title:
Legal Representative
   
SELLER PRINCIPAL:
   
/s/ Chujian Huang
Chujian Huang

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[Exhibit A to Asset Purchase Agreement - Form of Assignment and Assumption
Agreement]

ASSIGNMENT AND ASSUMPTION AGREEMENT
 
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made the __ day of _____, 2008, by
and between Fuqi International Holdings Co., LTD., a British Virgin Islands
company (the “Buyer”), Beijing YinZhong TianMei Jewelry Co., Ltd., a company
established under the laws of the PRC (“TianMei Beijing”), Shanghai TianMei
Jewelry Co., Ltd., a company established under the laws of the PRC (the “TianMei
Shanghai” and together with TianMei Beijing, collectively the “Sellers” and each
a “Seller”), and Chujian Huang, an individual residing in the PRC with holder of
PRC identity card no. 440105196302250950 (the “Seller Principal”).

WITNESSETH:
 
WHEREAS, Sellers, Buyer and Seller Principal entered into an Asset Purchase
Agreement dated as of April 18, 2008 (the “Asset Purchase Agreement”), pursuant
to which the Sellers agreed to sell and the Buyer agreed to purchase the
Acquired Assets;

WHEREAS, the Asset Purchase Agreement provides that the Buyer shall, as of the
date hereof, assume certain of the Sellers’ obligations and liabilities, subject
to and in accordance with the terms of the Asset Purchase Agreement; and

WHEREAS, the Asset Purchase Agreement contemplates that this Assignment and
Assumption Agreement be entered into and delivered as of the date hereof.

NOW, THEREFORE, in consideration of the promises, and the covenants and
agreements contained herein and in the Asset Purchase Agreement, and intending
to be legally bound hereby, the Sellers, Seller Principal and the Buyer hereby
agree as follows:

1. The Sellers hereby assign, transfer and deliver to the Buyer all of the
Sellers’ right, title and interest in and to the Acquired Assets. The Buyer
hereby assumes and agrees to perform, pay or discharge all of the Assumed
Contracts. Notwithstanding the foregoing, the Buyer shall not assume, perform,
pay or discharge any of the Retained Liabilities.

2. The Sellers, Seller Principal and the Buyer shall execute and deliver, or
cause to be executed and delivered, from time to time hereafter, upon request,
all such further documents and instruments and shall do and perform all such
acts as may be reasonably necessary to give full effect to the intent of this
Assignment and Assumption Agreement.

3. All capitalized terms used herein but not otherwise defined herein shall have
the respective meanings given them in the Asset Purchase Agreement.
 
 
 

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4. The terms of this Assignment and Assumption Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective successors and
permitted assigns of the parties hereto.

5. This Assignment and Assumption Agreement shall be governed by the laws of the
State of Delaware without regard to any conflicts of law provisions. Each of the
Buyer, Sellers and Seller Principal hereby irrevocably and unconditionally: (a)
agrees that any suit, action or legal proceeding arising out of or relating to
this Assignment and Assumption Agreement or any agreement contemplated hereby
brought by any such party shall be brought in the courts of the State of
Delaware; (b) consents to the exclusive jurisdiction of each such court in any
suit, action or proceeding; and (c) waives any objection which it may have to
the laying of venue of any such suit, action or proceeding in any of such courts
and, in connection therewith, all defenses of lack of personal jurisdiction and
forum inconveniencies.

6. This Assignment and Assumption Agreement is made subject to and in accordance
with the terms of the Asset Purchase Agreement and the Disclosure Schedules,
which are incorporated herein by reference.

7. The provisions of this Assignment and Assumption Agreement shall not confer
any rights on any person not a party to (a) the Asset Purchase Agreement or a
permitted assignee thereof or (b) this Assignment and Assumption Agreement.

8. This Assignment and Assumption Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.

[Remainder of Page Intentionally Left Blank]
 
 
 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first set forth above.

BUYER:
 
FUQI INTERNATIONAL HOLDINGS CO., LTD.
 
By:  
 
Name:   Yu Kwai Chong
Title:     Chairman & Chief Executive Officer
 
SELLERS:
 
BEIJING YINZHONG TIANMEI JEWELRY CO.,
LTD.
 
By:
 
Name: Chujian Huang
Title: Legal Representative
 
SHANGHAI TIANMEI JEWELRY CO., LTD.
 
By:
 
Name: Chujian Huang
Title: Legal Representative
 
SELLER PRINCIPAL:
       
Chujian Huang

 
 
 

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[Exhibit C to Asset Purchase Agreement - Form of Bill of Sale]

BILL OF SALE
 
THIS BILL OF SALE, dated as of the __ day of _____, 2008, by and between Fuqi
International Holdings Co., LTD., a British Virgin Islands company (the
“Buyer”), Beijing YinZhong TianMei Jewelry Co., Ltd., a company established
under the laws of the PRC (“TianMei Beijing”), Shanghai TianMei Jewelry Co.,
Ltd., a company established under the laws of the PRC (the “TianMei Shanghai”
and together with TianMei Beijing, collectively the “Sellers” and each a
“Seller”), and Chujian Huang, an individual residing in the PRC with holder of
PRC identity card no. 440105196302250950 (the “Seller Principal”).

WITNESSETH:

WHEREAS, Buyer, Sellers and Seller Principal have entered into that certain
Asset Purchase Agreement dated as of April 18, 2008 (the“Asset
Purchase Agreement”), which provides, inter alia, for the sale by the Sellers to
the Buyer of all of the right, title and interest in and to the Acquired Assets
(as defined below).

NOW THEREFORE, in consideration of the foregoing and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, and
intending to be legally bound, the parties hereto agree as follows:

Section 1. Definitions. Capitalized terms used herein but not otherwise defined
herein shall have the respective meanings given them in the Asset Purchase
Agreement.

Section 2. Bill of Sale. The Sellers hereby sell, convey, transfer and assign to
the Buyer and the Buyer hereby purchases, acquires and accepts from the Sellers,
all right, title and interest in and to all of the Acquired Assets, other than
the Excluded Assets free and clear of any and all Liens and subject to and in
accordance with the provisions of the Asset Purchase Agreement.

Section 3. Effective Date. The sale, conveyance, transfer and assignment by the
Sellers, and the acceptance by the Buyer, of the Acquired Assets, shall be
effective as of the date hereof.

Section 4. Further Assurances. The Sellers and Seller Principal shall from time
to time, at the Buyer’s request and without further consideration, execute and
deliver to the Buyer such instruments of transfer, conveyance and assignment as
the Buyer may reasonably request to evidence further any transfer, conveyance
and assignment of the Acquired Assets to the Buyer pursuant to this Bill of
Sale.

Section 5. Miscellaneous. This Bill of Sale may be executed in two or more
facsimile counterparts, each of which shall be deemed to be an original, but all
of which when taken together shall constitute one and the same instrument. The
terms and conditions of this Bill of Sale shall be binding upon, inure to the
benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto.
 
 
 

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Section 6.  Governing Law. This Bill of Sale shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to any
conflicts of law provisions. Each of the Buyer, Sellers and Seller Principal
irrevocably and unconditionally: (a) agrees that any suit, action or legal
proceeding arising out of or relating to this Bill of Sale brought by either
party shall be brought in the courts of the State of Delaware; (b) consents to
the exclusive jurisdiction of each such court in any suit, action or proceeding;
and (c) waives any objection which it may have to the laying of venue of any
such suit, action or proceeding in any of such courts and, in connection
therewith, all defenses of lack of personal jurisdiction and forum
inconveniencies.

[Remainder of Page Intentionally Left Blank]
 
 
 

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IN WITNESS WHEREOF, the Sellers have executed this Bill of Sale as of the date
and year first above written.

BUYER:
 
FUQI INTERNATIONAL HOLDINGS CO., LTD.
   
By: 
 
Name:  Yu Kwai Chong
Title:    Chairman & C.E.O.
   
SELLERS:
   
BEIJING YINZHONG TIANMEI JEWELRY CO.,
LTD.
   
By:
 
Name: Chujian Huang
Title: Legal Representative
 
SHANGHAI TIANMEI JEWELRY CO., LTD.
   
By:
 
Name: Chujian Huang
Title: Legal Representative
   
SELLER PRINCIPAL:
       
Chujian Huang

 
 
 

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