EXCLUSIVE
      DISTRIBUTION AGREEMENT

    


    PARTY
      A: ZHEJIANG
      XINCHAI HOLDING GROUP CO., LTD.

     

    CHINESE
      NAME: ZHEJIANG XINCHAI KONGGU JITUAN YOUXIAN GONGSI

     

    ADDRESS: XINXIN
      INDUSTRIAL PARK, XINCHANG, ZHEJIANG, CHINA

    POSTCODE: 312500

     

    TELEPHONE:
      0575-623-6603

     

    REPRESENTATIVE:
      ZHU XIANWEI CONTACT TELEPHONE: 0575-623-6603

     

    MOBILE
      PHONE: 135-6751-1288

    


    PARTY
      B: ZHEJIANG
      ZHONGCHAI MACHINERY CO., LTD

     

    CHINESE
      NAME: ZHEJIANG ZHONGCHAI JIQI YOUXIAN GONGSI

     

    ADDRESS: JINXING
      CHUN, HIGH-TECH PARK, XINCHANG, ZHEJIANG, CHINA

     

    POSTCODE: 312500

     

    TELEPHONE:
      0575-629-5699

     

    REPRESENTATIVE:
      SHI RONG CONTACT
      TELEPHONE: 0575-629-5699

     

    MOBILE
      PHONE: 139-6758-1220

    


    RECITALS

    


    WHEREAS,
      the parties have thoroughly discussed and negotiated the terms and conditions
      of
      the exclusive distribution agreement herein contained; and

    


    WHEREAS,
      Party A is a corporation with limited liability organized under the laws of
      the
      People’s Republic of China and is engaged in the business of manufacturing
      diesel engines and related parts and accessories; and

    


    WHEREAS,
      for the purposes of this distribution agreement Party A shall be deemed to
      include all of its upstream parent corporations or entities, all of its direct
      and indirect, wholly and partially owned subsidiaries or entities, interlocking
      companies or entities, joint ventures and partnerships of which Party A is
      a
      direct or indirect and partial or whole owner in whatever capacity, and other
      affiliates of any nature, each as may exist from time to time, and Zhu Xianwei
      (an individual); and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    WHEREAS,
      Party B is a foreign joint-venture company organized by Party A and Usunco
      Automotive Limited (“Usunco”) under the laws of the Peoples Republic of China;
      and

    


    WHEREAS,
      Party A desires that Party B become the exclusive worldwide distributor of
      Party
      A’s existing and future products and services; and

    


    WHEREAS,
      Party A and Party B desire to enter into this distribution agreement, which
      will
      govern the aforementioned distribution arrangement and will operate for the
      mutual business interests and benefits of the parties hereto and protect the
      business interests and benefits of both parties in connection with the
      distribution arrangement contemplated hereby.

    


    AGREEMENT

    


    NOW,
      THEREFORE, in consideration of the mutual promises and agreements contained
      herein, the parties agree and under take the following agreements:

    


    1. Party
      B is
      hereby appointed by Party A to be exclusively in charge of the worldwide
      distribution of all the current and future diesel engine and diesel engine
      related products of Party A (the “Products”). In furtherance, and not in
      limitation, of the foregoing appointment, Party A hereby grants to Party B
      the
      exclusive right and authority to sell and distribute the Products anywhere
      in
      the world. Party B hereby accepts such appointment. Party A will not appoint
      any
      third party as a distributor, sales or other agent or representative for the
      distribution, marketing, sale, commercialization or other disposition of any
      of
      the Products, regardless of whether any such other appointment is on a limited
      product basis or limited territory basis, and Party A and shall not, directly
      or
      indirectly, sell, transfer or license, commercialize or otherwise make available
      the Products anywhere in the world to any person other than Party B.


     

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    2. Party
      A
      shall not take any action designed to develop an internal sales team with
      respect to the Products, other than for the sole benefit of, and at the
      direction of, Party B and it sales efforts for the Products. Party A shall
      immediately refer all sales inquires and requests about the Products to Party
      B.

     

    3. Party
      B
      shall use commercially reasonable efforts to sell, distribute and export the
      Products. Notwithstanding the foregoing, Usunco, the controlling stockholder
      of
      Party B, and its affiliates, including, without limitation, any direct or
      indirect subsidiaries that Usunco forms to operate within the People’s Republic
      of China, is not restricted in any way from selling, distributing or otherwise
      commercializing products manufactured, assembled or otherwise produced by
      parties other than Party A, whether or not such products compete in any way
      with
      the Products. 

     

    4. This
      agreement and the exclusive distribution rights set forth herein will apply
      to
      all current and future products (including parts) created, developed, modified,
      enhanced and licensed for manufacture, fabrication, assembly and production
      by
      Party A during the term of this distribution agreement as it may be amended
      or
      modified from time to time and all such products fall within the definition
      of
“Product” as used herein. In addition, Party B will have the right of first
      refusal to act as the exclusive, worldwide distributor of any other product
      that
      may be conceived, developed, licensed to, manufactured, assembled or produced
      by
      Party A (“collectively “Future Products”), which other products will be governed
      by this distribution agreement. In the event that Party A has a Future Product,
      it shall notify Party B of such Future Product, and provide to Party B any
      and
      all information about the Future Product as shall be reasonably requested by
      Party B to evaluate the Future Product and its marketability by Party B. Party
      B
      shall have not less than 90 days to elect to undertake the distribution of
      the
      Future Product hereunder by the giving of written notice to Party A of its
      acceptance of the distribution of such Future Product. If Party B does not
      give
      notice of its undertaking to distribute such Future Product, then Party A will
      be free to market or commercialize such Future Product in any way it determines.
      For the purposes of clarity, the right of first refusal apply to each and every
      Future Product individually and the procedure of notification, evaluation and
      acceptance must be done for each such product.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    5. Party
      A
      will sell the Products to Party B at a competitive price designed to allow
      Party
      A to make a reasonable profit consistent with industry margins for similar
      distribution companies in similar industries. Party A has delivered to Party
      B
      the initial price list for the Products on the date hereof. Without limiting
      the
      generality of the foregoing, Party A may change the prices for its Products,
      from time to time in its discretion on 120 days’ prior written notice to Party
      B; provided, however, that Party A shall not increase the price of any Product
      by more than 5% in any one year as compared to the prior year. Notwithstanding
      the foregoing, Party A and Party B may mutually agree to adjust the pricing
      from
      time to time.

     

    6. Party
      B
      shall have the right to use sub-distributors, sales agents or other companies,
      persons or organizations for the sale and/or distribution of the Products and
      Party A hereby approves the use of such sub-distributors, sales agents and
      other
      companies, persons or organizations. 

     

    7. If
      Party
      A desires to discontinue the manufacture, assembly or production of any of
      the
      Products, Party A shall provide to Party B at least six months’ prior notice of
      such discontinuance. In the event of such discontinuance, Party A shall
      reimburse Party B for any extraordinary costs associated with the termination
      of
      such item hereunder and repurchase any inventory held by Party B at the time
      of
      termination. Party B may give at least six months’ prior notice of its intention
      not to sell and distribute any of the Products, which will include the
      discontinuance of any marketing and sales support of such Products commencing
      the date of notice. In the event that Party B terminates this agreement in
      respect to an item included in the Products, Party A agrees that it will not
      sell such item itself after the termination at a price that is less than the
      last list price of Party B for the item.

     

    8. Party
      A
      shall, during the term hereof, render such technical assistance to Party B
      as
      shall reasonably be required to assist Party B in distributing the Products
      and
      shall provide product support, including but not limited to: (i) complete
      maintenance and service instructions, and an operator’s manual for each of the
      Products; (ii) installation kits with installation instructions; and (iii)
      any
      other information as may reasonably be requested by Party B for the Products.
      Party A shall provide the foregoing free of cost to Party B.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    9. Party
      A
      shall provide Party B with technical personnel with the training necessary
      to:
      (a) inform customers properly concerning the features and capabilities of the
      Products; (b) support the Products; and (c) otherwise carry out the obligations
      and responsibilities of Party B under this distribution agreement. Party A
      shall
      provide any and all such training free of cost to Party B.

     

    10. Party
      A
      and Party B shall each comply with all applicable local and international laws
      and regulations in performing their respective duties hereunder and in any
      of
      their respective dealings with respect to the Products.

     

    11. Party
      A
      hereby represents and warrants to Party B as follows:

     

    (a) Party
      A
      is the exclusive owner of the Intellectual Property (as defined below) and
      the
      Products and that its entry into this distribution agreement does not violate
      any agreement between Party A and any third party. 

     

    (b) All
      Products are and shall remain free from defects in workmanship or material
      for a
      period of least one year from the date of purchase of such Product by an
      end-user.

     

    12. Party
      B
      represents and warrants to Party A that Party B’s entry into this distribution
      agreement does not violate any agreement between Party B and any third
      party.

     

    13. To
      protect the exclusivity of the distribution arrangement, Party A shall cause
      all
      of its high-level managers and employees, members of its board of directors
      or
      similar governing body, shareholders and such other parties as Party B may
      reasonably request (“Party A Executives”), to enter into non-competition
      agreements and intellectual property protection agreements in form and substance
      satisfactory to Party B. Part A shall use its best efforts to ensure that (a)
      no
      Party A Executive competes with Party A or Party B and that no Party A Executive
      invests in, is employed by, acts as a consultant, advisor or board member to,
      or
      otherwise provides services or advice to, any entity that competes with Party
      A
      or Party B anywhere in the world, and (b) no Party A Executive solicits
      employees or customers from Party A anywhere in the world. In the event of
      breach this distribution agreement, Party B or Usunco shall have the right
      to
      take legal action to protect their legal rights against Party A and the Party
      A
      Executives.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    14. Party
      A
      hereby grants to Party B the the right to use its copyrights, trademarks and
      similar and related intellectual property in the marketing and distribution
      of
      the Products as contemplated by this distribution agreement and in connection
      with its obligations and rights under this distribution agreement in any manner
      as long as such use complies with all applicable laws.

     

    15. Party
      A
      shall not, without prior written consent of Party B, take any action whether
      from an operational, contractual, investment or other perspective, that would
      negatively affect the exclusive distribution agreement contemplated hereunder.
      

     

    16. Once
      each
      calendar year during the term of this distribution agreement, within 60 days
      after the close of the fiscal year of Party A, there will be provided to Party
      B, at no cost to Party B, the financial statements of Party A, prepared in
      accordance with generally accepted accounting principals of the PRC,
      consistently applied.

     

    17. As
      soon
      as practicable after Party B commences its marketing and distribution, upon
      notice to Party A, Party A will notify its current and past customers of the
      Products of this distribution agreement and the grant of the distribution rights
      to Party B, such notice to be as mutually determined by Party A and Party B.
      In
      addition, Party A will secure from each of its past and current customers an
      acknowledgement that all future inquiries and purchases of the Products are
      to
      be made to and through Party B.

     

    18. If
      in the
      event of a breach of the exclusive distribution arrangement by any party, then
      the breaching party will be responsible to the non-breaching party for all
      the
      monetary losses and damages and other legal remedies to which it may be entitled
      under the law or any provision of this distribution agreement.

     

    19. In
      addition to the foregoing provision, Party A acknowledges and agrees that Party
      B will be incurring significant expense in order to fulfill its obligations
      hereunder. Party a further acknowledges that its breach of this distribution
      agreement would cause Part B and its stockholders significant damage and perhaps
      the complete cessation of its business. Since the exact amount of such damages
      would be extremely difficult, if not impossible to calculate, Party A agrees
      that in the event of the termination of this distribution agreement as a result
      of Party A materially breaching it, which breach has not been cured within
      a
      reasonable time not to exceed 30 calendar days, then Party B shall have the
      right to liquidated damages from Party A in an amount equal to the higher of
      (a)
      five times the annualized net income derived from the sale of the Products
      (as
      determined in accordance with United States GAAP, consistently applied) of
      Party
      B for the last four completed fiscal quarters, or (b) $50,000,000.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    20. This
      distribution agreement shall remain in effect for a period of twenty-five (25)
      years commencing on the date that both parties have signed this distribution
      agreement. This distribution agreement shall be effective immediately after
      the
      execution thereof for fifteen years. 

     

    21. Upon
      the
      occurrence of any one of the following events, the party not responsible for
      the
      event of termination specified below shall, upon giving the other party written
      notice and without further obligation other than as expressly specified herein,
      have the right to terminate this distribution agreement: (a) material breach
      by
      either party in fulfilling any one or more of the obligations undertaken by
      it
      pursuant to this distribution agreement, which breach is not cured within 120
      days after notice advising of such breach; (b) either party is declared
      insolvent or bankrupt, or makes an assignment of a substantial portion of its
      assets for the benefit of creditors; or a trustee, receiver or other officer
      of
      court is appointed to control a substantial portion of the assets of the other
      party, or if bankruptcy, liquidation or reorganization proceedings are
      instituted by or against the other party; or (c) either party is prevented
      from
      fulfilling its obligations hereunder for a period in excess of 180 consecutive
      days as a result of the occurrence of an event of Force Majeure (as defined
      below).

     

    22. Upon
      termination of this distribution agreement for any reason whatsoever: Party
      A
      shall: (a) be responsible for the support or maintenance of the Products owned
      by end-users and shall bear all expenses related thereto; and (b) purchase
      from
      Party B all Products in Party B's possession, which have not been sold to an
      end-user, including all charges for return of the same to Party A. Party B
      shall
      ship such Products to Party A in accordance with the instructions supplied
      by
      Party A at no cost to Party B.

     

    23. Each
      party to this distribution agreement (the “Indemnitor”) agrees to indemnify and
      hold the other party (the “Indemnitee”), its partners, shareholders, directors,
      officers, employees, agents, and assignees harmless against any liability for
      any claims arising out of any breach by the Indemnitor of its duties under
      this
      distribution agreement or any other agreement between the parties. For purposes
      of this clause, “claims” includes any and all claimed liabilities or
      obligations, incurred or claimed to have been incurred in connection with
      business conducted by the Indemnitee. This indemnity shall continue in effect
      after the termination of this distribution agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    24. Any
      notice or consent required by this distribution agreement shall be in writing,
      and the notice will be either personally delivered or mailed by prepaid
      registered or certified mail, return receipt requested, or conveyed by other
      then legally acceptable means, to such party at its address as specified on
      the
      signature page hereto. Such notices shall be deemed delivered on the date of
      receipt, or upon attempted delivery if acceptance of delivery is
      refused.

     

    25. No
      waiver
      of any breach of any of the provisions of this distribution agreement shall
      be
      deemed a waiver of any preceding or succeeding breach of the same or any other
      provisions hereof. No such waiver shall be effective unless in writing and
      then
      only to the extent expressly set forth in writing. This distribution agreement
      may not be modified, altered or amended except by written instrument duly
      executed by both parties.

     

    26. This
      distribution agreement and performance hereunder shall be construed and governed
      by the laws of People’s Republic of China without giving effect to conflict of
      law principles thereof. All disputes arising out of or in connection with this
      distribution agreement or the performance of its provisions by either party
      hereto shall be referred to binding arbitration before three arbitrators and
      the
      arbitration will be conduced in accordance with the UNCITRAL Arbitration Rules
      at a venue before the Hong Kong International Arbitration Center. Each party
      will select one arbitrator in accordance with the UNCITRAL Arbitration Rules
      and
      then the two arbitrators so selected will select the remaining arbitrator in
      accordance with the UNCITRAL Arbitration Rules. The decision of the arbitrators
      will be final and binding upon the parties and will be enforceable in any court
      of competent jurisdiction. Each party will be responsible for its won costs
      of
      the arbitration, including the costs of legal counsel. The parties will share
      equally in the cost of the arbitration, including the fees and expenses of
      the
      arbitrator, venue and enforcement, unless the arbitration award provides to
      the
      contrary.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    27. This
      distribution agreement is being executed in both English and Chinese versions.
      If there is any ambiguity or inconsistency between the two versions, the Chinese
      version of this distribution agreement shall prevail and be instructive of
      the
      parties obligations hereunder.

     

    28. In
      case
      any one or more of the provisions contained herein shall, for any reason, be
      held to be invalid, illegal, or unenforceable in any respect, such invalidity,
      illegality or unenforceability shall not affect any other provisions of this
      distribution agreement, and this distribution agreement shall be construed
      as if
      such provision(s) had never been contained herein, provided that such
      provision(s) shall be curtailed, limited or eliminated only to the extent
      necessary to remove the invalidity, illegality or unenforceability.

     

    29. Any
      delay
      or failure in the performance of any part or the whole of this distribution
      agreement by either party hereto shall be excused, subject to the other
      provisions hereof, if and to the extent caused by earthquake, typhoon, or other
      natural disaster, war, warlike condition, revolution, terrorist attack,
      blockade, embargo or governmental order, rule or restriction (“Force Majeure”),
      and the affected part of this distribution agreement shall be suspended until
      such Force Majeure has ended. 

     

    30. The
      parties agree that this distribution agreement is the complete and exclusive
      statement of the agreement between the parties, which supersedes and merges
      all
      prior proposals, understandings and other agreements, oral or written, between
      the parties relating to this distribution agreement, including any letter of
      intent, memorandum of understanding or similar agreement or instrument
      previously existing between the parties.

     

    31. This
      distribution agreement shall be effective after signed by representatives of
      both parties and there shall be two original copies, each party shall have
      one
      copy.

     

    [Signature
      Page Follows]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    


    The
      parties to this distribution agreement are evidencing their intention to be
      legally bound by this distribution agreement by signing in the space provided
      below as of January ___, 2007. Each such signing party hereby represents and
      warrants to the other parties that it is authorized to execute and deliver
      this
      distribution agreement.

     

    
      	Party A: 	
              Zhejiang
                Xinchai Holding Group Co., Ltd.

            
	 	 
	
              Representative
                Signature:

            	
              /S/
                Zhu, Xianwei 

                

              

            
	
              Print
                Name:

            	
              Zhu
                Xianwei

            
	
              Print
                Title:

            	
              Chairman 
                

            
	
              Print
                Address for Notices: 

            	
               

              
                

              

            
	 	 
	
              Party
                B:

            	
              Zhejiang
                Zhongchai Machinery Co., Ltd.

            
	 	 
	
              Representative
                Signature:

            	
              /S/
                Shi Rong

              
                

              

            
	
              Print
                Name:

            	
              Shi
                Rong

            
	
              Print
                Title:

            	
              General
                Manager

            
	
              Print
                Address for Notices: