SECURITIES
PURCHASE AGREEMENT




Dated
as of October 29, 2010




among




CHINA
DREDGING GROUP CO., LTD.




and




THE
PURCHASERS LISTED ON EXHIBIT A







TABLE OF
CONTENTS





ARTICLE
      I PURCHASE AND SALE OF THE PREFERRED SHARES
                  
                  1Section
      1.1
                  Purchase
      and Sale of Preferred Shares
                  
                  1Section
      1.2
                  Conversion
      Shares
                  
                  2Section
      1.3
                  Purchase
      Price and Closing
                  
                  2Section
      1.4
                  Securities
      Escrow; Additional Issuance of Shares
                  
                  2ARTICLE
      II REPRESENTATIONS AND WARRANTIES
                  
                  5Section
      2.1
                  Representations
      and Warranties of the Company and its Subsidiaries
                  
                  5Section
      2.2
                  Representations
      and Warranties of the Purchasers
                  
                  15ARTICLE
      III COVENANTS
                  
                  18Section
      3.1
                  Securities
      Compliance
                  
                  18Section
      3.2
                  Rule
      144
                  
                  18Section
      3.3
                  Compliance
      with Laws
                  
                  18Section
      3.4
                  Keeping
      of Records and Books of Account
                  
                  18Section
      3.5
                  Reporting
      Requirements
                  
                  19Section
      3.6
                  Other
      Agreements
                  
                  19Section
      3.7
                  Approval
      of Purchaser Representative
                  
                  19Section
      3.8
                  Disclosure
      of Transaction
                  
                  19Section
      3.9
                  Pledge
      of Securities
                  
                  19Section
      3.10
                  Right
      to Participate in Future Financing
                  
                  19Section
      3.11
                  Board
      Committees
                  
                  19Section
      3.12
                  Preferred
      Shares Protective Rights
                  
                  20Section
      3.13
                  Deposit
      of Net Proceeds
                  
                  20Section
      3.14
                  Transfer
      Agent
                  
                  21


i





ARTICLE
      IV CONDITIONS
                  
                  21Section
      4.1
                  Conditions
      Precedent to the Obligation of the Company to Sell the Preferred
      Shares
                  
                  21Section
      4.2
                  Conditions
      Precedent to the Obligation of the Purchasers to Purchase the Preferred
      Shares
                  
                  21ARTICLE
      V SHARE CERTIFICATE LEGEND
                  
                  23Section
      5.1
                  Legend
                  
                  23ARTICLE
      VI INDEMNIFICATION
                  
                  25Section
      6.1
                  General
      Indemnity
                  
                  25Section
      6.2
                  Indemnification
      Procedure
                  
                  26Section
      6.3
                  Survival
                  
                  26ARTICLE
      VII MISCELLANEOUS
                  
                  27Section
      7.1
                  Fees
      and Expenses
                  
                  27Section
      7.2
                  Specific
      Enforcement, Consent to Jurisdiction
                  
                  27Section
      7.3
                  Entire
      Agreement; Amendment
                  
                  27Section
      7.4
                  Appointment
      of Purchaser Representative
                  
                  28Section
      7.5
                  Notices
                  
                  28Section
      7.6
                  Waivers
                  
                  29Section
      7.7
                  Headings
                  
                  29Section
      7.8
                  Successors
      and Assigns
                  
                  29Section
      7.9
                  No
      Third Party Beneficiaries
                  
                  30Section
      7.10
                  Governing
      Law
                  
                  30Section
      7.11
                  Counterparts
                  
                  30Section
      7.12
                  Publicity
                  
                  30


ii





Section
      7.13
                Severability
                
                30Section
      7.14
                Further
      Assurances
                
                30Section
      7.15
                Currency
                
                31Section
      7.16
                Termination
                
                31Section
      7.17
                Certificates
                
                31


iii




EXHIBIT
LIST





Exhibit
      A
                                    List
      of PurchasersExhibit
      B
                                    Definition
      of Accredited InvestorExhibit
      B-1
                                    Accredited
      Investor RepresentationsExhibit
      B-2
                                    Non-US
      Persons RepresentationsExhibit
      C
                                    Amended
      and Restated Memorandum and Articles of AssociationExhibit
      D
                                    Form
      of Registration Rights AgreementExhibit
      E
                                    Form
      of Securities Escrow AgreementExhibit
      F
                                    Form
      of Opinion of Maples & Calder, BVI CounselExhibit
      G
                                    Form
      of Opinion of Da Cheng, PRC CounselExhibit
      7.4
                                    Form
      of Letter of Acceptance by the Purchaser Representative


iv




SECURITIES
PURCHASE AGREEMENT




This
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated
as of October 29, 2010 by and among China Dredging Group Co., Ltd., a British
Virgin Islands (“BVI”) business company (the “Company”), and each
of the Purchasers whose names are set forth on Exhibit A hereto
(individually, a “Purchaser” and
collectively, the “Purchasers”).




RECITALS




WHEREAS,
the Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act and/or Rule 506 of Regulation D
(“Regulation
D”) as promulgated by the United States Securities and Exchange
Commission (the “Commission”) under
the Securities Act of 1933, as amended (the “Securities Act”), or
Regulation S (“Regulation S”) as
promulgated under the Securities Act and in connection therewith are making the
appropriate representations set forth on Exhibit B hereto as
hereinafter described;




WHEREAS,
the Company is offering Class A Convertible Preferred Shares (the “Preferred Shares”),
each initially convertible into one (1) ordinary share (the “Ordinary Shares”),
subject to adjustment (the “Financing
Transaction”);




WHEREAS,
in connection with the Financing Transaction, the Company and the Purchasers are
entering into certain other agreements, documents, instruments and certificates
necessary to carry out the purposes hereof dated as of the date hereof,
including but not limited to a registration rights agreement and a securities
escrow agreement; and




WHEREAS,
immediately prior to the consummation of the Financing Transaction, the Company
will merge with Chardan Acquisition Corp. (“Chardan Corp.”)
pursuant to an Agreement and Plan of Merger, dated the date hereof, by and among
Chardan Corp., the Company, the shareholders of Chardan Corp. and the
shareholders of the Company (the “Merger Agreement”),
with the Company being the surviving entity of the Merger (the “Merger”).




NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchasers hereby agree as
follows:




ARTICLE
I




Purchase
and Sale of the Preferred Shares




Section
1.1            
Purchase and Sale of
Preferred Shares.  Upon the following terms and conditions, the
Company is offering to each Purchaser the number of Preferred Shares set forth
opposite such Purchaser’s name as set forth on Exhibit A attached
hereto each initially convertible into one (1) Ordinary Share (subject to
adjustment). The designation, rights, preferences and other terms and provisions
of the Preferred Shares are set forth in the Company’s Amended Memorandum and
Articles of Association, substantially in the form attached hereto as Exhibit C (the “Memorandum and Articles of
Association”).







Section
1.2             Conversion
Shares.  The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of shareholders, a number of authorized but unissued Ordinary
Shares equal to one hundred percent (100%) of the number of Ordinary Shares as
shall from time to time be sufficient to effect conversion of all of the
Preferred Shares then issued. Any Ordinary Shares issuable upon conversion of
the Preferred Shares (and such shares when issued) are herein referred to as the
“Conversion
Shares.” The Preferred Shares and the Conversion Shares are sometimes
collectively referred to as the “Shares.”




Section
1.3             Purchase Price and
Closing.  Subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Purchasers and, in consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase the Preferred Shares at a purchase price of USD $5.00 per Preferred
Share (the “Purchase
Price”) for an aggregate purchase price of no less than $5,000,000
(“Minimum Offering”) and no more than $50,000,000 (the “Maximum Offering”),
provided, however that if the Company and Chardan Capital Markets LLC (the
“Placement
Agent”) mutually agree, the Company shall have the right to increase the
Maximum Offering Amount to $75,000,000.  Provided that at least the
Minimum Offering shall have been subscribed for, funds representing the sale
thereof shall have been deposited in the Funds Escrow Account (as hereinafter
defined) and shall have cleared, and all conditions to closing (the “Closing”) have been
satisfied or waived, the closing of the purchase and sale of the Minimum
Offering shall take place at the offices of Loeb & Loeb, LLP, 345 Park
Avenue, New York, NY 10154 no later than October 29, 2010, which date may be
extended for an additional 60 days by mutual agreement of the Company and the
Placement Agent if funds representing the Minimum Offering have not been
received by such date (the “Closing
Date”).  Subject to the terms and conditions of this Agreement,
at the Closing the Company shall deliver or cause to be delivered to each
Purchaser a (i) if the Preferred Shares will be issued in certificated form, a
certificate for the number of Preferred Shares set forth opposite the name of
such Purchaser on Exhibit A hereto, and
(ii) any other documents required to be delivered pursuant to Article IV
hereof.  At the time of the Closing, each Purchaser shall have
delivered its Purchase Price by wire transfer to the escrow account (“Funds Escrow
Account”) pursuant to the escrow agreement between the Company and
Collateral Agents LLC (“Funds Escrow Agent”)
acting as the escrow agent (“Funds Escrow
Agreement”) for the Closing.  Any funds deposited into the
Funds Escrow Account within sixty (60) days after the Closing Date (“Post Closing Period”)
shall be distributed to the Company after the deduction of the fee of seven
(7.0) percent payable to Placement Agent in accordance with the terms of the
Funds Escrow Agreement. No funds may be deposited into the Funds Escrow Account
after the Post Closing Period.  The Company may, in its sole
discretion, terminate the Offering if funds representing the Minimum Offering
have not been received by December 29, 2010 and in such event the Company will
instruct the Funds Escrow Agent to  return the funds deposited in the
Funds Escrow Account to the respective Purchasers.




Section
1.4             Securities Escrow;
Additional Issuance of Shares.




(a)         
On the Closing Date, the Company shall enter into a Securities Escrow Agreement
by and among the Company and Mars Harvest Co., Ltd. (the “Principal
Shareholder”), the Purchaser Representative for the Purchasers (as
defined in Section 3.7 hereof) and the escrow agent named therein (the “Securities Escrow
Agent”), dated as of the Closing Date, substantially in the form of Exhibit E attached
hereto (the “Securities Escrow
Agreement”) and the Escrow Shares (as defined in the Securities Escrow
Agreement) shall be deposited into the escrow account (the “Securities Escrow”)
by the Principal Shareholder pursuant to the terms of the Securities Escrow
Agreement.


2




(b)         
The distribution of the Escrow Shares to the Purchasers shall be triggered by
the Company’s failure to meet either or both of the performance thresholds (the
“Performance
Thresholds”) set forth below for the fiscal years ended December 31, 2010
(“Fiscal Year
2010”) and December 31, 2011 (“Fiscal Year
2011”).  If the Company does not meet the Performance Threshold
for the applicable year, the escrow agent shall release and deliver an aggregate
number of Escrow Shares to the Purchasers as set forth below, distributed to
such Purchasers on a pro rata basis and rounded down to the nearest whole number
of shares (no fractional shares will be issued):




(c)         
If the (i) 2010 Adjusted Net Income (as defined below) is less than
US$48,142,735 for Fiscal Year 2010,or (ii) the 2011 Adjusted Net Income (as
defined below) is less than $US87,043,678 (“2011 Performance Threshold”) for
Fiscal Year 2011, then the escrow agent shall release to each Purchaser such
number of Escrow Shares calculated as follows:




Additional
Shares= (Original Invested Shares X [Target EPS/Actual EPS]) - Original Invested
Shares




(d)         
Definitions: For the purposes of this Section,





“Actual 2010 EPS”
shall mean the 2010 Adjusted Net Income for fiscal year 2010 divided by the
number of fully diluted outstanding shares of the Company.





“Actual 2011 EPS”
shall mean the 2011 Adjusted Net Income for fiscal year 2011 divided by the
number of fully diluted outstanding shares of the Company.




“2010 Adjusted Net Income”
shall mean the  Net Income (as hereinafter defined) for 2010 adjusted to
exclude, for thepurposes of determining
whether aPerformance Threshold
has been met(even
though GAAP may require contrary treatment): (i) any non-cash
charges incurred as a result of the Financing Transaction, including without
limitation, as a result of the issuance and/or conversion of the Preferred
Shares, or as a result of the issuance of warrants to any placement agent and
its designees in connection with another financing transaction,  (ii)
expense recorded related to the release of the Escrow Shares to the Purchasers
and/or the Principal Shareholder, as applicable, pursuant to the terms of the
Securities Escrow Agreement, (iii)  (iv) expenses related to the
transactions contemplated by this Agreement, the Merger Agreement, the
Registration Rights Agreement and any of the other documents executed in
connection therewith, including but not limited to the  Merger, the
sale of the Preferred Shares, the registration and listing of the Shares and the
establishment of the escrow accounts.”


3




“2011 Adjusted Net Income”
shall mean the  Net Income reported by the Company in its 2011 Audited
Financial Statements (as hereinafter defined) adjusted to exclude, for
thepurposes
of determining whether aPerformance Threshold
has been met(even
though GAAP may require contrary treatment): (i) any non-cash
charges incurred as a result of the Financing Transaction, including without
limitation, as a result of the issuance and/or conversion of the Preferred
Shares, or as a result of the issuance of warrants to any placement agent and
its designees in connection with another financing transaction,  (ii)
expense recorded related to the release of the Escrow Shares to the Purchasers
and/or the Principal Shareholder, as applicable, pursuant to the terms of the
Securities Escrow Agreement, (iii)  (iv) expenses related to the
transactions contemplated by this Agreement, the Merger Agreement, the
Registration Rights Agreement and any of the other documents executed in
connection therewith, including but not limited to the  Merger, the
sale of the Preferred Shares, the registration and listing of the Shares and the
establishment of the escrow accounts.”





“Audited Financial
Statements” shall mean the consolidated financial statements of the
Company prepared in accordance with US GAAP consistently applied, as certified
by the Company’s independent registered public accounting firm.





“Certified Financial
Statements” shall mean the unaudited financial statements of the PRC
Operating Company (as hereinafter defined) for the period from January 1, 2010
through June 30, 2010, attached hereto as Schedule 1.4(d).





“Net Income” shall
mean (i) for 2010, the sum of (x) the after-tax Net Income reported by the PRC
Operating Company in the Certified Financial Statements, plus (y) the after-tax
Net Income reported by the Company for the six month period from July 1, 2010
through December 31, 2010 (the “Consolidation Period”), which is derived for the
Consolidation Period from the Company’s 2010 Audited Financial Statements, and
(ii) for 2011, the after-tax Net Income reported by the Company in its 2011
Audited Financial Statements for 2011.





“Original Invested
Shares” shall mean the number of Ordinary Shares into which all Preferred
Shares purchased by the Purchaser set forth on Exhibit A hereto are convertible
(before giving effect to the accrual of dividends, if any).





“Target EPS” shall
mean the Performance Threshold for the applicable year divided by the number of
fully diluted outstanding shares of the Company.




(e)         
(i) Evidence of 2010
Adjusted Net Income. The Company shall arrange for its auditor to deliver
(x) (i) a certified copy of the 2010 Audited Financial Statements, and (ii) the
Certified Financial Statements to the Securities Escrow Agent and the Purchaser
Representative as soon as practicable after completion.  In connection
therewith, the Company shall prepare and deliver a calculation of the 2010
Adjusted Net Income for the fiscal year 2010, which shall also separately
include a calculation of the 2010 Adjusted Net Income of the Company for the
Consolidation Period that has been reviewed by the auditor, and if applicable, a
calculation of the pro rata Escrow Shares to be distributed to the Purchasers,
as promptly as practicable after its receipt of the 2010 Audited Financial
Statements. .




(ii) Evidence of 2011 Adjusted
Net Income. The Company shall arrange for its auditor to
deliver the 2011 Audited Financial Statements to the to the Securities Escrow
Agent and the Purchaser Representative as soon as practicable after
completion.  The Company shall prepare and deliver a calculation of
the 2011 Adjusted Net Income, and if applicable, a calculation of the pro rata
Escrow Shares to be distributed to the Purchasers, as promptly as practicable
after its receipt of the 2011 Audited Financial Statements, as the case may
be.


4




(iii) The Securities Escrow Agreement
shall provide that in the event a Performance Threshold is not met for an
applicable year, the Company shall instruct the Securities Escrow Agent to send
to the Company’s transfer agent a share certificate(s) representing the number
of Escrow Shares required hereunder to be distributed to the Purchasers from the
Securities Escrow following receipt of the certified Audited Financial
Statements for the applicable year. If the Company does not achieve the 2010
Performance Threshold or the 2011 Performance Threshold, the Company agrees to
use its best efforts to cause the transfer agent to promptly transfer the
required number of Escrow Shares to the Purchasers pursuant to the formula set
forth above, including sending to the transfer agent an instruction letter to
transfer the Escrow Shares to the Purchasers listed on Exhibit A attached
hereto setting forth the number of Escrow Shares each Purchaser is to receive,
together with together with an opinion of Company counsel if required by the
transfer agent.




ARTICLE
II




Representations
and Warranties




Section
2.1             Representations and
Warranties of the Company and its Subsidiaries.  The Company
hereby represents and warrants to the Purchasers on behalf of itself and its
Subsidiaries (as hereinafter defined)  as of the date hereof (except
as may be set forth on the Schedules attached hereto), as follows:




(a)           
Organization, Good
Standing and Power. Each of the Company and its Subsidiaries is a
corporation or other entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization (as applicable) and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted.  Except as set forth on Schedule 2.1(a), each
of the Company and its Subsidiaries is duly qualified to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect .




(b)           Corporate Power; Authority
and Enforcement. The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement in the form attached hereto as Exhibit D (the “Registration Rights
Agreement”), the Securities Escrow Agreement, the Memorandum and Articles
of Association, (collectively, the “Transaction
Documents”) and to issue and sell the Preferred Shares in accordance with
the terms hereof. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or shareholders is required.  Each
of the Transaction Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and remedies or by
other equitable principles of general application.


5




(c)           Shares. The
authorized shares of the Company and the shares thereof currently issued as of
the date hereof prior to the effectiveness of this Agreement and following the
Merger is set forth on Schedule 2.1(c)
hereto.  All of the issued and outstanding Ordinary Shares of the
Company have been duly and validly authorized. Except as contemplated by the
Transaction Documents or as set forth on Schedule 2.1(c)
hereto:




(i)           no
Ordinary Shares are entitled to preemptive, conversion or other rights and there
are no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of the Company;




(ii)          there
are no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the Company or
options, securities or rights convertible into shares of the
Company;




(iii)         the
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities;
and




(iv)         the
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the Company.




To the
knowledge of the Company, the offer and sale of all authorized shares,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing complied with all applicable BVI, U.S. Federal and state
securities laws.  The Company has furnished or made available to the
Purchasers true and correct copies of the Company’s Memorandum and Articles of
Association, as amended and in effect on the date hereof.  Except as
restricted under applicable federal, state, local or foreign laws and
regulations, the Memorandum and Articles of Association or the Transaction
Documents, or as set forth on Schedule 2.1(c), no
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company shall limit the payment of dividends on the Company’s
Preferred Shares or its Ordinary Shares.




(d)           Issuance of Shares.
The Preferred Shares, when paid for or issued in accordance with the terms
hereof, will be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Memorandum and Articles
of Association and, immediately after the Closing, the Purchasers will be the
record owners of all of such securities and have good and valid title to all of
such securities, free and clear of all encumbrances. When the Conversion Shares
and any Ordinary Shares which may be issued to the Purchasers as set forth in
the Memorandum and Articles of Association are issued in accordance with the
terms of the Memorandum and Articles of Association, such Conversion Shares and
additional Ordinary Shares, if applicable, will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders will be entitled to all rights accorded to a
holder of Ordinary Shares and will be the record owners of all of such
securities and have good and valid title to all of such securities, free and
clear of all encumbrances.


6




(e)           
Subsidiaries.
All Subsidiaries of the Company are listed on Schedule 2.1(e)
hereto, which also sets forth for each Subsidiary (i) the jurisdiction of its
incorporation or organization, (ii) the actual and contingent percentage of
ownership of each Subsidiary and (iii)the organization of the structure and
capitalization of each Subsidiary. Except as set forth on Schedule 2.1(e) and
as contemplated in the MCP Agreements (as defined below), there are no issued
and outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of any Subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to subscribe for any
shares. Except as contemplated by the Transaction Documents, neither the Company
nor any Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of any Subsidiary or any
convertible securities, rights, warrants or options of the type described in the
preceding sentence for any Subsidiary. Other than as contemplated in the MCP
Agreements, neither the Company nor any Subsidiary is a party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares of
any Subsidiary.  For the purposes of this Agreement, “Subsidiary” shall
mean any corporation or other entity of which at least 50% of the securities or
other ownership interests are at the time owned directly or indirectly by the
Company and/or any of its other Subsidiaries or for which the Company or its
Subsidiaries have a majority of the voting power (absolutely or contingently)
and directly or indirectly, as a result of the operation of any contracts or
agreements) for the election of directors or other persons performing similar
functions. Except as set forth on Schedule 2.1(e), all
of the issued and outstanding shares of each Subsidiary has been duly authorized
and validly issued, and are fully paid and nonassessable.  As used
herein, the “MCP Agreements” refer to the six agreements, each dated as of June
30, 2010, pursuant to which Fujian WangGang Dredging Construction Co., Ltd., a
wholly foreign owned enterprise, manages the operations of Fujian Xing Gang Port
Service Co., Ltd. (the “PRC Operating Company”) and is entitled to receive 100%
of the net profits of the PRC Operating Company in consideration
thereof.




(f)           
Commission Documents,
Financial Statements. Except as set forth on Schedule 2.1(f),
prior to the Merger, Chardan Corp. filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”),
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the “Commission
Documents”).  The Company has not provided to the Purchasers
any material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed publicly
by the Company but which has not been so disclosed, other than (i) with respect
to the transactions contemplated by this Agreement, or (ii) pursuant to a
non-disclosure or confidentiality agreement signed by the
Purchasers.  The audited financial statements for the years ended
December 31, 2008 and December 31, 2009 and the Certified Financial Statements
(collectively, the “PRC Operating Company Financial
Statements”) of the PRC Operating Company delivered to the Purchasers
have been prepared in accordance with United States generally accepted
accounting principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) or (ii) as set forth on Schedule 2.1(f)), and
fairly present in all material respects the consolidated financial position of
the PRC Operating Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).


7




(g)           
No Material Adverse
Effect. Since June 30, 2010 neither the Company, nor the Subsidiaries,
has experienced or suffered any Material Adverse Effect. For the purposes of
this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, operations,
properties, or financial condition of the Company or its Subsidiaries,
individually, or in the aggregate and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the ability
of the Company to perform any of its obligations under this Agreement in any
material respect.




(h)           
No Undisclosed
Liabilities.  Other than as disclosed on Schedule 2.1(h) or
set forth in the Commission Documents to the knowledge of the Company, neither
the Company, nor the Subsidiaries has any liabilities, obligations, claims or
losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) other than those incurred in the ordinary
course of their respective businesses or in connection with the Merger or this
Agreement since June 30, 2010 and which, individually or in the aggregate, do
not or would not have a Material Adverse Effect on Chardan Corp., the Company,
or any of the Subsidiaries. As used throughout this Agreement, “ordinary course”
shall include the leasing and/or purchase of dredging vessels.




(i)            
No Undisclosed Events
or Circumstances. To the Company’s knowledge, no event or circumstance
has occurred or exists with respect to the Company  or the
Subsidiaries or their respective businesses, properties, operations or financial
condition, which would require public disclosure under the U.S. federal
securities laws, rules or regulations.




(j)            
Indebtedness.
The PRC Operating Company Financial Statements set forth all outstanding secured
and unsecured Indebtedness of  the PRC Operating Company or for which
the PRC Operating Company has commitments as of the date of the PRC Operating
Company Financial Statements or any subsequent period that would have required
disclosure in the PRC Operating Company Financial Statements. For the purposes
of this Agreement, “Indebtedness” shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$4,000,000 (other than trade accounts payable incurred in the ordinary course of
business and obligations incurred in connection with the Merger or this
Agreement), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same should be reflected
in the Company’s consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of  $4,000,000 due under leases
required to be capitalized in accordance with GAAP.  Neither the
Company nor any Subsidiary is in default in any material respect in connection
with any Indebtedness, except as would not have a Material Adverse Effect. As of
the date hereof, neither the Company, nor any Subsidiary other than the PRC
Operating Company nor Chardan Corp. (prior to the Merger) has incurred any
Indebtedness (as defined above) other than as set forth on Schedule
2.1(j).


8




(k)           
Title to
Assets. The PRC Operating Company has good and marketable title to (i)
all properties and assets purportedly owned or used by it and (ii) all
properties and assets necessary for the conduct of its business as currently
conducted, free and clear of any Lien (defined in Section 2.1(o) below), except
as disclosed in the PRC Operating Company Financial Statements and except for
Permitted Liens (defined below). All leases are valid and subsisting and in full
force and effect.   As used herein, Permitted Liens shall mean
(a) Liens for taxes not yet payable or in respect of which the validity thereof
is being contested in good faith by appropriate proceedings and for the payment
of which the relevant party has made adequate reserves; (b) Liens in respect of
pledges or deposits under workmen’s compensation laws or similar legislation,
carriers, warehousemen, mechanics, laborers and materialmen and similar Liens,
if the obligations secured by such Liens are not then delinquent or are being
contested in good faith by appropriate proceedings conducted and for the payment
of which the relevant party has made adequate reserves; (c) statutory Liens
incidental to the conduct of the business of the relevant party which were not
incurred in connection with the borrowing of money or theobtaining of advances or
credits and that do not in the aggregatematerially detract from
the value of its property or materially impair the use thereof in the operation
of its business; (d) Liens on any property leased by the Company or any of its
subsidiaries; and (d) Liens that would not have a Material Adverse
Effect.




(l)            
Actions
Pending. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding pending or, to
the knowledge of the Company, threatened against or involving the Company or any
Subsidiary (i) which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto or (ii) involving
any of their respective properties or assets which individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.  There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory body
against the Company or the Subsidiaries or to the knowledge of the Company, any
of their respective executive officers or directors in their capacities as
such.




(m)           Compliance with
Law.  Except as set forth on Schedule 2.1(m), and
in accordance with generally accepted current interpretations of PRC law and
regulations, the Company and the Subsidiaries have all material franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of their respective business as now
being conducted by them unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.




(n)           
No
Violation.  The business of the Company and the Subsidiaries,
to the knowledge of the Company, is not being conducted in violation of the
generally accepted current interpretations of any applicable national level,
state or local governmental laws, or rules, regulations and ordinances of any
governmental entity. Neither the Company nor any Subsidiary is required under
national level, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents, or issue and sell the Preferred
Shares and the Conversion Shares in accordance with the terms hereof or thereof
(other than (x) any consent, authorization or order that has been obtained as of
the date hereof, (y) any filing or registration that has been made as of the
date hereof or (z) any filings which may be required to be made by the Company
with the Commission or United States state securities administrators or other
governments or government agencies subsequent to the Closing).


9




(o)           
No Conflicts.
The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company’s Memorandum and Articles of Association, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, pledge,
charge or encumbrance (collectively, “Lien”) of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
national level, state or local statute, rule, regulation, order, judgment or
decree (including United States Federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected, provided, however, that,
excluded from the foregoing in all cases are such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse
Effect.




(p)           
Taxes. Each of
the Company and the Subsidiaries, to the extent its applicable, has accurately
prepared and filed all national level, state and other tax returns required by
law to be filed by it, has paid or made provisions for the payment of all taxes
shown to be due and all additional assessments, and adequate provisions have
been and are reflected in the consolidated financial statements of the Company
for all current taxes and other charges to which the Company and the
Subsidiaries, if any, are subject and which are not currently due and payable,
except for any such filings or provisions which would not have a Material
Adverse Effect. None of the United States federal income tax returns of the
Company have been audited by the Internal Revenue Service. Except as set forth
on Schedule
2.1(p), the Company has no knowledge of any additional assessments,
adjustments or contingent tax liability (whether federal, state or foreign) of
any nature whatsoever, whether pending or threatened against the Company or any
Subsidiary for any period prior to the date hereof, nor of any basis for any
such assessment, adjustment or contingency.




(q)           
Certain Fees.
Except  for the fees to be paid to the Placement Agent in connection
with the transactions contemplated by the Agreement, no brokers fees, finders
fees or financial advisory fees or commissions will be payable by the Company
with respect to the transactions contemplated by this Agreement and the other
Transaction Documents.




(r)           
Disclosure.
Neither this Agreement nor the Schedules hereto furnished to the Purchasers by
the Company or its the Subsidiaries in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, taken as a whole and in the light of the circumstances under
which they were made herein or therein, not false or
misleading.


10




(s)           
Intellectual
Property. Each of the Company and the Subsidiaries, owns or has the
lawful right to use all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, if any, and all
rights with respect to the foregoing, if any, which are necessary for the
conduct of their respective business as now conducted without any conflict with
the rights of others, except where the failure to so own or possess would not
have a Material Adverse Effect.




(t)           
Books and Records;
Internal Accounting Controls. The books and records of the Company and
the Subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the Subsidiaries, the ownership of
their assets, and the nature of all transactions giving rise to the obligations
or accounts receivable of the Company and the Subsidiaries.  Except as
disclosed on Schedule
2.1(t), the Company and the Subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company, to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP to be able to have such statements audited and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any
differences.




(u)           
Transactions with
Affiliates. Except for the MCP Agreements, or as set forth in the
Financial Statements, the Commission Documents, the PRC Operating Company
Financial Statements or any employment arrangements, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company or any Subsidiary on
the one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any Subsidiaries, or any person owning any shares of
the Company or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or shareholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
shareholder, or a member of the immediate family of such officer, employee,
consultant, director or shareholder.




(v)           
Securities Act of
1933. Assuming the accuracy of the representations of the Purchasers set
forth in Section 2.2 (d)-(j) hereof, the Company has complied and will comply
with all applicable United States federal and state or foreign securities laws
in connection with the offer, issuance and sale of the Preferred Shares
hereunder. Neither the Company nor, to the knowledge of the Company, anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Preferred Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the
Preferred Shares in violation of the registration provisions of the Securities
Act and applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Preferred Shares.


11




(w)           Governmental
Approvals. Except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable United States state and/or
Federal securities laws (which if required, shall be filed on a timely basis),
including the filing of a Form D and a registration statement or statements
pursuant to the Registration Rights Agreement, no authorization, consent,
approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Preferred Shares or for the performance by the
Company of its obligations under the Transaction Documents.




(x)           
Employees.
Neither the Company nor any Subsidiary has any collective bargaining
arrangements covering any of its employees.  Schedule 2.1(x) sets
forth a list of the employment contracts, agreements regarding proprietary
information, non-competition agreements, non-solicitation agreements,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or any Subsidiary.




(y)           Absence of Certain
Developments. Except as contemplated by this Agreement, the Transaction
Documents, the MCP Agreements or disclosed on Schedule 2.1(y),
since June 30, 2010 through the date hereof neither the Company nor any of the
Subsidiaries have:




(i)           issued
any shares, bonds or other debt or equity securities or any rights, options or
warrants with respect thereto;




(ii)          borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business;




(iii)         discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), in excess of $1,000,000, other than current
liabilities paid in the ordinary course of business;




(iv)         declared
or made any payment or distribution of cash or other property to shareholders
with respect to its shares, or purchased or redeemed, or made any agreements so
to purchase or redeem, any of its shares;




(v)          sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;




(vi)         sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;


12




(vii)        suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;




(viii)       made
any changes in employee compensation except in the ordinary course of business
and consistent with past practices;




(ix)          made
any single capital expenditures or commitments therefor in excess of $1,000,000
dollars;




(x)           entered
into any other material transaction other than in the ordinary course of
business,;




(xi)          made
charitable contributions or pledges in excess of $1,000,000;




(xii)         suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance; or




(xiii)        experienced
any material problems with labor or management in connection with the terms and
conditions of their employment or labor services contracts.




(z)           Public Utility Holding
Company Act; Investment Company Act and U.S. Real Property Holding Corporation
Status. The Company is not a “holding company” or a “public utility
company” as such terms are defined in the Public Utility Holding Company Act of
1935, as amended. The Company is not, and as a result of and immediately upon
the Closing will not be, an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended.  The Company is not and has never been a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended.




(aa)         ERISA. No liability
to the Pension Benefit Guaranty Corporation has been incurred with respect to
any Plan (as defined below) by the Company or any of its Subsidiaries which is
or would be materially adverse to the Company and its Subsidiaries. The
execution and delivery of this Agreement and the other Transaction Documents and
the issuance and sale of the Preferred Shares will not involve any transaction
which is subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended, provided, that, if any of the Purchasers, or
any person or entity that owns a beneficial interest in any of the Purchasers,
is an “employee pension benefit plan” (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a “party in interest” (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met. As used in this Section 2.1(bb), the
term “Plan”
shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are or
have been made, by the Company or any Subsidiary or by any trade or business,
whether or not incorporated, which, together with the Company or any Subsidiary,
is under common control, as described in Section 414(b) or (c) of the
Code.


13




(bb)         No Integrated
Offering. Neither the Company nor to the knowledge of the Company any of
its affiliates, or any person acting on its behalf, has directly or indirectly
made any offers or sales of any security or solicited any offers to buy any
security under circumstances that would cause the offering of the Preferred
Shares pursuant to this Agreement to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from
selling the Preferred Shares pursuant to Rule 506 under the Securities Act, nor
will the Company or any of its affiliates take any action or steps that would
cause the offering of the Preferred Shares to be integrated with other offerings
by the Company within the last six months for purposes of the Securities Act
which would require the registration of any such securities under the Securities
Act. The Company does not have any registration statement pending before the
Commission or currently under the Commission’s review.




(cc)          Sarbanes-Oxley Act.
The Company is in compliance with the applicable provisions of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),
and the rules and regulations promulgated thereunder, that are effective and for
which compliance by the Company is required as of the date hereof.




(dd)         No Additional
Agreements.  Neither the Company nor any
Subsidiary  has any agreement or understanding with any Purchaser with
respect to the transactions contemplated by the Transaction Documents other than
as specified in the Transaction Documents.




(ee)          Foreign Corrupt Practices
Act.  Neither the Company nor the Subsidiaries, nor to the
knowledge of the Company or the Subsidiaries, any agent or other person acting
on behalf of the Company or the Subsidiaries, has, directly or indirectly, (i)
used any funds, or will use any proceeds from the sale of the Preferred Shares,
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company, or any Subsidiary
of the Company (or made by any Person acting on their behalf of which the
Company is aware) or any members of their respective management which is in
violation of any applicable law, or (iv) has violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations thereunder which was applicable to the Company or any of
its Subsidiaries.




(ff)           PFIC.  None
of the Company or any of its Subsidiaries is or intends to become a “passive
foreign investment company” within the meaning of Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.




(gg)         OFAC. None of the
Company or any of its Subsidiaries nor, to the knowledge of the Company, any
director, officer, agent, employee, affiliate or person acting on behalf of any
of the Company or any of its Subsidiaries, is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”); and the
Company will not directly or indirectly use the proceeds of the sale of the
Preferred Shares, or lend, contribute or otherwise make available such proceeds
to any Subsidiary of the Company, joint venture partner or other Person or
entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or
any other country sanctioned by OFAC or for the purpose of financing the
activities of any Person currently subject to any U.S. sanctions administered by
OFAC.


14




(hh)         Money Laundering
Laws. The operations of each of the Company and the Subsidiaries have
been conducted at all times in compliance with the money laundering requirements
of all applicable governmental authorities and any related or similar rules,
regulations or guidelines, issued, administered or enforced by any governmental
authority (collectively, the “Money Laundering
Laws”) and no action, suit or proceeding by or before any court or
governmental authority or any arbitrator involving any of the Company or the
Subsidiaries with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company or any Subsidiary, threatened.




(ii)           
Representations and
Warranties Made in Merger Agreement.  The Purchasers shall
receive the benefit of the representations and warranties made by (i) the
Company and the Company Shareholders, and made by (ii) Chardan Corp. and
its shareholders in the Merger Agreement as if the representations and
warranties were made directly to the Purchasers as of the date hereof in this
Agreement.




Section
2.2             Representations and
Warranties of the Purchasers.  Each Purchaser hereby makes the
following representations and warranties to the Company as of the date hereof,
with respect solely to itself and not with respect to any other
Purchaser:




(a)           
Organization and Good
Standing of the Purchasers.  If the Purchaser is an entity,
such Purchaser is a corporation, partnership or limited liability company duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.




(b)           
Authorization and
Power.  Each Purchaser has the requisite power and authority to
enter into and perform this Agreement and each of the other Transaction
Documents to which such Purchaser is a party and to purchase the Preferred
Shares being sold to it hereunder. The execution, delivery and performance of
this Agreement and each of the other Transaction Documents to which such
Purchaser is a party by such Purchaser and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate, partnership or limited liability company action, and no
further consent or authorization of such Purchaser or its Board of Directors,
shareholders, partners, members, or managers, as the case may be, is required.
This Agreement and each of the other Transaction Documents to which such
Purchaser is a party has been duly authorized, executed and delivered by such
Purchaser and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of such Purchaser enforceable against such
Purchaser in accordance with the terms hereof.


15




(c)           
No
Conflicts.  The execution, delivery and performance of this
Agreement and each of the other Transaction Documents to which such Purchaser is
a party and the consummation by such Purchaser of the transactions contemplated
hereby and thereby or relating hereto do not and will not (i) result in a
violation of such Purchaser’s charter documents, bylaws, operating agreement,
partnership agreement or other organizational documents or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or any other
Transaction Document to which such Purchaser is a party or to purchase the
Preferred Shares in accordance with the terms hereof, provided, that for
purposes of the representation made in this sentence, such Purchaser is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Company herein.




(d)           
Status of
Purchasers.  Each Purchaser is an “accredited investor” as
defined in Regulation D, or a “non-US person” as defined in Regulation S. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer, nor an affiliate
of a broker-dealer.




(e)           
Acquisition for
Investment.  Each Purchaser is acquiring the underlying
Preferred Shares solely for its own account for the purpose of investment and
not with a view to or for sale in connection with a distribution. The Purchaser
does not have a present intention to sell the Preferred Shares, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Preferred Shares to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(j) below, such
Purchaser does not agree to hold the Preferred Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares at any
time in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and that it has been
given full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries and received such information as it
has deemed necessary or appropriate to conduct its due diligence investigation
and has sufficient knowledge and experience in investing in companies similar to
the Company in terms of the Company’s stage of development so as to be able to
evaluate the risks and merits of its investment in the Company. Each Purchaser
further acknowledges that such Purchaser understands the risks of investing in
companies domiciled and/or which operate primarily in the PRC and in the BVI and
Hong Kong, the domiciles of the Company and certain Subsidiaries and that the
purchase of the Preferred Shares involves substantial risks. Each Purchaser
acknowledges that it has requested and received the Private Placement Memorandum
relating to the purchase of Preferred Shares and has (i) read and understands
the risks that are disclosed therein, and (ii) acknowledges that such risks are
not all of the risks entailed in the purchase of  the Preferred
Shares.




(f)           
Additional
Representations and Warranties of Accredited Investors.  Each
Purchaser indicating that such Purchaser is an Accredited Investor on its
signature page to this Agreement, severally and not jointly, further makes the
representations and warranties to the Company set forth on Exhibit
B-1.


16




(g)           
Additional
Representations and Warranties of Non-U.S. Persons.  Each
Purchaser indicating that it is not a U.S. person on its signature page to this
Agreement, severally and not jointly, further makes the representations and
warranties to the Company set forth on Exhibit
B-2.




(h)           
Opportunities for
Additional Information. Each Purchaser acknowledges that such Purchaser
has had the opportunity to ask questions of and receive answers from, or obtain
additional information from, the executive officers of the Company concerning
the financial and other affairs of the Company.




(i)            
No General
Solicitation.  Each Purchaser acknowledges that the Preferred
Shares were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.




(j)            
Rule
144.  Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144, of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that
such person has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Shares without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.




(k)           
General.  Such
Purchaser understands that the Preferred Shares are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of such Purchaser to
acquire the Preferred Shares.




(l)            
Independent
Investment.  Except as may be disclosed in any filings with the
Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange
Act, no Purchaser has agreed to act with any other Purchaser for the purpose of
acquiring, holding, voting or disposing of the Shares purchased hereunder for
purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting
independently with respect to its investment in the Shares.




(m)           Brokers.  Other
than the payments to the Placement Agent, no Purchaser has any knowledge of any
brokerage or finder’s fees or commissions that are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other person or entity with respect to the
transactions contemplated by this Agreement.


17




(n)           
Confidential
Information.  Each Purchaser agrees that such Purchaser and its
employees, agents and representatives will keep confidential and will not
disclose, divulge or use (other than for purposes of monitoring its investment
in the Company) any confidential information which such Purchaser has or may
obtain from the Company pursuant to the purchase of Preferred Shares, including
without limitation financial statements, reports and other materials submitted
by the Company to such Purchaser pursuant to this Agreement, unless such
information is known to the public through no fault of such Purchaser or his or
its employees or representatives; provided, however, that a Purchaser may
disclose such information (i) to its attorneys, accountants and other
professionals in connection with their representation of such Purchaser in
connection with such Purchaser’s investment in the Company, (ii) to any
prospective permitted transferee of the Shares, so long as the prospective
transferee agrees to be bound by the provisions of this Section or (iii) to any
general partner or affiliate of such Purchaser.




ARTICLE
III




Covenants




The
Company covenants with each of the Purchasers as follows, which covenants are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).




Section
3.1             Securities
Compliance.  The Company shall notify the Commission in
accordance with its rules and regulations, of the transactions contemplated by
any of the Transaction Documents, including filing a Form D with respect to the
Preferred Shares and the Conversion Shares as required under Regulation D and
applicable “blue sky” laws, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares and
Conversion Shares to the Purchasers or subsequent holders.




Section
3.2             Rule
144.   Subject to the terms of the Transaction Documents,
the Company further covenants that it will take such further action as the
Purchasers may reasonably request, all to the extent required from time to time
to enable the Purchasers to sell the Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, as amended.




Section
3.3             Compliance with
Laws.  The Company shall comply, and cause each Subsidiary to
comply with all applicable laws, rules, regulations and orders, except where the
failure to do so would not have a Material Adverse Effect.




Section
3.4             Keeping of Records and Books
of Account.  The Company shall keep and cause each Subsidiary
to keep adequate records and books of account, in which complete entries will be
made and can be conformed with U.S. GAAP consistently applied, reflecting all
financial transactions of the Company and the Subsidiaries and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other financial accruals in connection with
its business shall be recorded.


18




Section
3.5             Reporting
Requirements.   The Company shall timely file all reports
required to be filed with the Commission pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. In addition, the Company covenants to
release financial and capitalization information on a quarterly basis on Form
6-K similar to the information reported on Form 10-Q for a U.S
filer.




Section
3.6             Other
Agreements.  The Company shall not enter into any agreement the
terms of which would restrict or impair the ability of the Company to perform
its obligations under any Transaction Document.




Section
3.7             Approval of Purchaser
Representative.  The parties hereto agree that the initial
purchaser representative shall be Guibao Liu, on behalf of CNH Partners, LLC
(the “Purchaser Representative”). In the event that Guibao Liu resigns from
serving as the Purchaser Representative or is no longer able to serve, the
Purchaser who initially purchased the largest percentage of the Preferred Shares
may appoint a new Purchaser Representative.




Section
3.8             Disclosure of
Transaction.  The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press
Release”) as soon as practicable after the Closing. The Company shall
also file with the Commission in accordance with the rules of the Exchange Act,
a Form 20-F describing the material terms of the transactions contemplated
hereby (and attaching as exhibits thereto this Agreement, the Registration
Rights Agreement, the Memorandum and Articles of Association, the Escrow
Agreements, and the Press Release) in accordance with the filing requirements of
the Exchange Act.




Section
3.9             Pledge of
Securities.  The Company acknowledges and agrees that the
Shares may be mortgaged, charged or pledged by a Purchaser in connection with a
bona fide margin agreement
or other loan or financing arrangement that is secured by Ordinary Shares. The
pledge of Ordinary Shares shall not be deemed to be a transfer, sale or
assignment of the Ordinary Shares hereunder, and no Purchaser effecting a charge
or pledge of Ordinary Shares shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document; provided, that a
Purchaser and its charge or pledgee shall be required to comply with the
provisions of Article V hereof in order to effect a sale, transfer or assignment
of Ordinary Shares to such charge or pledgee. At a Purchaser’s expense, the
Company hereby agrees to execute and deliver such documentation as a charge or
pledgee of the Ordinary Shares may reasonably request in connection with a
pledge or charge of the Ordinary Shares to such charge or pledgee by a
Purchaser, in accordance with applicable laws relating to the transfer of the
securities.




Section
3.10           Right to Participate in
Future Financing.  The Purchasers shall have the right to
participate and purchase in any equity financing of the Company as set forth in
the Company’s Memorandum and Articles of Association.




Section
3.11           Board
Committees.  The Company shall form audit, compensation and
nominating and corporate governance committees in accordance with the applicable
requirements to list on a national securities exchange as soon as practicable
after the Closing.


19




Section
3.12         Preferred Shares Protective
Rights.  So long as 2,500,000 Preferred Shares remain issued,
the Company shall not take any of the following actions other than as may be
contemplated by the transactions described herein without the approval of the
Purchaser Representative:




(i)           Replace
the independent auditor and make material changes in the accounting policies and
statutory accounts of the Company or the Subsidiaries;




(ii)          Enter
into any loan or investment or credit support (other than normal trade credit)
agreement or arrangement or give any guarantee or indemnity, in excess of
$8,000,000 in a single transaction;




(iii)         Enter
into any acquisition, disposal of less than or the equivalent of 50% of the
value of the assets of the Company, merger, joint venture, association,
partnership agreement or arrangement or other business combination with any
party (other than in the normal course of business) where those activities or
relationships would represent 10% or more of the consolidated turnover of the
Company;




(iv)         Change
the maximum number of authorized shares or change the rights attached to any
class of ordinary or preferred shares, or capitalize any debenture;




(v)          Issue
any new shares or options (including warrants, options or other rights to
acquire shares) which issuance would exceed 5% of the issued shares of the
Company on a fully diluted basis as of the Closing;




(vi)         Enter
into any transactions not made on a bona fide arm’s length basis in the ordinary
course of business;




(vii)        Enter
into any business arrangement with any of the directors or other substantial
shareholders of the Company and any related party transactions other than
ordinary course, commercial transactions;




(viii)       Make
any capital expenditures or asset purchases or enter into leases that are thirty
per cent greater than that contemplated in the Company’s business plan or annual
budget;




(ix)          Declare
any dividends; and




(x)           Propose
any resolution to dissolve, wind up or liquidate the Company.




Section
3.13         Deposit of Net
Proceeds.  The Company agrees to maintain no less than three
percent of the net proceeds received from this Financing Transaction in a bank
account in Hong Kong or other suitable jurisdiction for the payment of expenses
related to the transactions contemplated hereby and any penalty obligations
payable to the Purchasers.


20




Section
3.14           Transfer
Agent.  The Company has selected a transfer agent for its
securities who will be appointed as transfer agent promptly after the
consummation of the transactions contemplated by this Agreement.





ARTICLE
IV




CONDITIONS




Section
4.1             Conditions Precedent to the
Obligation of the Company to Sell the Preferred Shares.  The
obligation hereunder of the Company to issue and sell the Preferred Shares to
the Purchasers is subject to the satisfaction or waiver, at or before the
Closing, of each of the conditions set forth below. These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion.




(a)           
Accuracy of Each
Purchaser’s Representations and Warranties.  The
representations and warranties of each Purchaser in this Agreement and each of
the other Transaction Documents to which such Purchaser is a party shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.




(b)           
Performance by the
Purchasers. Each Purchaser shall have performed, satisfied and complied
in all respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or
prior to the Closing.




(c)           
No Injunction.
No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this
Agreement.




(d)           
Delivery of Purchase
Price. Funds representing at least the Minimum Offering for the Preferred
Shares shall have been deposited in the Funds Escrow Account and have been
cleared for immediate withdrawal.




(e)           
Delivery of
Transaction Documents. The Transaction Documents to which the Purchasers
are parties shall have been duly completed, executed and delivered by the
Purchasers to the Company.




Section
4.2             Conditions Precedent to the
Obligation of the Purchasers to Purchase the Preferred
Shares.  The obligation hereunder of each Purchaser to acquire
and pay for the Preferred Shares is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for each Purchaser’s sole benefit and may be waived by such Purchaser at any
time in its sole discretion.


21




(a)           
Accuracy of the
Company’s Representations and Warranties. Each of the representations and
warranties of the Company in this Agreement and the other Transaction Documents
shall be true and correct in all respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all respects as of such date.




(b)           
Performance by the
Company. The Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing.




(c)           
No Injunction.
No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this
Agreement.




(d)           
No Proceedings or
Litigation. No action, suit or proceeding before any arbitrator or any
governmental authority shall have been commenced, and no investigation by any
governmental authority shall have been threatened, against the Company or any,
or any of the officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions, except for
any such action which would not have a Material Adverse Effect.




(e)           
Memorandum and
Articles of Association. Prior to the Closing, the Memorandum and
Articles of Association, shall conform with those set forth in Exhibit
C.




(f)           
Opinion of Counsel,
Etc. On the Closing Date, the Purchasers shall have received an opinion
of (i) BVI legal counsel to the Company, dated the date of the Closing, in
substantially the form of Exhibit F hereto, and
(ii)  DaCheng, PRC counsel to the Company, dated the date of the
Closing with respect to the restructuring of the Subsidiaries in substantially
the form of Exhibit
G.




(g)           
Registration Rights
Agreement. On the Closing Date, the Company shall have executed and
delivered the Registration Rights Agreement to each Purchaser substantially the
form of Exhibit
D hereto.




(h)           
Issuance of Preferred
Shares. The Company, at its option, shall cause its registered agent to
either (i) deliver to the Purchasers the share certificates for the Preferred
Shares being acquired by such Purchaser at the Closing to such address set forth
next to each Purchasers name on Exhibit A with
respect to the Closing or (ii) to record the number of Preferred Shares acquired
by the Purchaser in the register of members of the Company.




(i)             Resolutions. The
Board of Directors of the Company shall have adopted resolutions consistent with
Section 2.1(b) hereof in a form reasonably acceptable to such
Purchaser.


22




(j)            
Reservation of
Shares. As of the Closing Date, the Company shall, in accordance with BVI
law, have reserved out of its authorized and unissued Ordinary Shares, solely
for the purpose of effecting the conversion of the Preferred Shares, a number of
Ordinary Shares equal to one hundred percent (100%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred
Shares..




(k)           
Secretary’s
Certificate. The Company shall have delivered to such Purchaser a
secretary’s (or other officer’s) certificate, dated as of the Closing Date, as
to (i) the resolutions adopted by the Board of Directors of the Company
consistent with Section 2.1(b), (ii) the Articles, each as in effect at the
Closing, and (iii) the authority and incumbency of the officers of the Company
executing the Transaction Documents.




(l)            
Officer’s
Certificate. The Company shall have delivered to the Purchasers a
certificate of an executive officer of the Company, dated as of the Closing
Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of the Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.2 as of the Closing
Date.




(m)           Funds Escrow
Agreement. On the Closing Date, funds representing the Minimum Offering
shall have been deposited in the Funds Escrow Account and shall have cleared for
immediate withdrawal.




(n)           
Securities Escrow
Agreement. On the Closing Date, the Securities Escrow Agreement shall
have been executed by the parties thereto and the Escrow Shares  shall
have been deposited into the escrow account pursuant to the terms of the
Securities Escrow Agreement.




(o)           
Material Adverse
Effect. No Material Adverse Effect shall have occurred at or before the
Closing Date.




ARTICLE
V




Share
Certificate Legend




Section
5.1            Legend.  In
the event that the Preferred Shares are issued in certificated form, each share
certificate representing the Preferred Shares and if appropriate, securities
issued upon conversion  thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or “blue sky” laws):




“THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.”


23




Each
share certificate representing the Preferred Shares, if issued,  and
if appropriate, securities issued upon conversion thereof, if such securities
are being offered to Purchasers in reliance upon Regulation S, shall be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):




“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES
ACT, AND BASED ON AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE
BEEN SATISFIED, (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS.  HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT.”




The
Company agrees to reissue certificates representing any of the Conversion
Shares, if certificated, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof shall
give written notice to the Company describing the manner and terms of such sale
and removal as the Company may reasonably request.  Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares under the Securities Act
is not required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
Securities Act and state securities laws are not required, or (iv) the holder
provides the Company with reasonable assurances that such security can be sold
pursuant to Rule 144(i)  under the Securities Act; and (b) either (i)
the Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that registration or qualification under the securities
or “blue sky” laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or “blue sky”
laws has been effected or a valid exemption exists with respect thereto. The
Company will respond to any such notice from a holder within five (5) business
days. In the case of any proposed transfer under this Section 5.1, the Company
will use reasonable efforts to comply with any such applicable state securities
or “blue sky” laws, but shall in no event be required, (x) to qualify to do
business in any state where it is not then qualified, (y) to take any action
that would subject it to tax or to the general service of process in any state
where it is not then subject, or (z) to comply with state securities or “blue
sky” laws of any state for which registration by coordination is unavailable to
the Company. The restrictions on transfer contained in this Section 5.1 shall be
in addition to, and not by way of limitation of, any other restrictions on
transfer contained in any other section of this Agreement. Whenever a
certificate representing the Conversion Shares is required to be issued to a
Purchaser without a legend, in lieu of delivering physical certificates
representing the Conversion Shares (provided that a registration statement under
the Securities Act providing for the resale of the Conversion Shares is then in
effect), the Company may cause its transfer agent to electronically transmit the
Conversion Shares to a Purchaser by crediting the account of such Purchaser or
such Purchaser’s prime broker with the DTC through its DWAC system (to the
extent not inconsistent with any provisions of this Agreement).


24




ARTICLE
VI




Indemnification




Section
6.1             General
Indemnity.  The Company agrees to indemnify and hold harmless
the Purchasers (and their respective directors, officers, managers, partners,
members, shareholders, affiliates, agents, successors and assigns) from the
Closing Date until the expiration of the Survival Period (as defined below),
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys’ fees, charges
and disbursements) incurred by the Purchasers as a result of any inaccuracy in
or breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company (and its directors, officers, affiliates, agents,
successors and assigns), during the Survival Period,  from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Company as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder. In no event shall any
“Indemnified Party” (as defined below) be entitled to recover consequential or
punitive damages resulting from a breach or violation of this
Agreement.


25




Section
6.2             Indemnification
Procedure.  Any party entitled to indemnification under this
Article VI (an “Indemnified Party”)
will give written notice to the indemnifying party of any matters giving rise to
a claim for indemnification; provided, that the
failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an Indemnified Party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the Indemnified Party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. In the event that the
indemnifying party advises an Indemnified Party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the Indemnified Party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the Indemnified Party’s
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The Indemnified Party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent, provided, however, that the
indemnifying party shall be liable for any settlement if the indemnifying party
is advised of the settlement but fails to respond to the settlement within
thirty (30) days of receipt of such notification. Notwithstanding anything in
this Article VI to the contrary, the indemnifying party shall not, without the
Indemnified Party’s prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article VI shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, so long as
the Indemnified Party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the Indemnified
Party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.




Section
6.3             Survival.  All
representations, warranties, covenants, and obligations in this Agreement shall
expire upon the earlier of (i) the listing of the Company’s Ordinary Shares on a
national securities exchange, or (ii) twenty-four (24) months following the date
this Agreement is executed (the “Survival Period”).


26




ARTICLE
VII




Miscellaneous




Section
7.1             Fees and
Expenses.  Except as otherwise set forth in this Agreement and
the other Transaction Documents, each party shall pay the fees and expenses of
its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement.




Section
7.2             Specific Enforcement,
Consent to Jurisdiction.




(a)           
The Company and the Purchasers acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.




(b)           
Each of the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
7.2 shall affect or limit any right to serve process in any other manner
permitted by law.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  The
Company hereby appoints Loeb & Loeb LLP, with offices at 345 Park Avenue,
New York, NY 10154 as its agent for service of process in New
York.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.




Section
7.3             Entire Agreement;
Amendment.  This Agreement and the other Transaction Documents
contains the entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth herein or in
the Transaction Documents, neither the Company nor any of the Purchasers makes
any representations, warranty, covenant or undertaking with respect to such
matters and they supersede all prior understandings and agreements with respect
to said subject matter, all of which are merged herein. No provision of this
Agreement nor any of the Transaction Documents may be waived or amended other
than by a written instrument signed by the Company and the Purchaser
Representative, on behalf of the holders of the Preferred Shares, and after, if
required, approval of the holders of a majority of the Preferred Shares then
outstanding. No such amendment shall be effective to the extent that it applies
to less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents or holders of Preferred Shares, as the case may
be.


27




Section
7.4             Appointment of Purchaser
Representative.  Each Purchaser hereby irrevocably appoints
Guibao Liu, on behalf of CNH
Partners, LLC, to serve as the initial Purchaser Representative to
receive notices from the Company or any other person in connection with any of
the Transaction Documents and to act on his/her behalf in any manner whatsoever
as contemplated by the Transaction Documents.  Attached hereto as
Exhibit 7.4 is a letter of acceptance of Guibao Liu, on behalf of CNH
Partners, LLC, evidencing his/her acceptance of the appointment as
Purchaser Representative and agrees to act as the Purchaser Representative in
connection and in accordance with the Transaction Documents.




Section
7.5             Notices.  All
notices, demands, consents, requests, instructions and other communications to
be given or delivered or permitted under or by reason of the provisions of this
Agreement or in connection with the transactions contemplated hereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, upon date of
delivery as evidenced by the receipt, (iii) if delivered by overnight courier
(with all charges having been prepaid), on the business day of such delivery (as
evidenced by the receipt of the overnight courier service of recognized
standing), or (iv) if delivered by facsimile transmission, on the business day
of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if
sent after that time, on the next succeeding business day (as evidenced by the
printed confirmation of delivery generated by the sending party’s telecopier
machine). If any notice, demand, consent, request, instruction or other
communication cannot be delivered because of a changed address of which no
notice was given (in accordance with this Section 4), or the refusal to accept
same, the notice, demand, consent, request, instruction or other communication
shall be deemed received on the second business day the notice is sent (as
evidenced by a sworn affidavit of the sender). All such notices, demands,
consents, requests, instructions and other communications will be sent to the
following addresses or facsimile numbers as applicable:





If to the
Company:





China
Dredging Group Ltd.


Floor 18,
Tower A


Zhongshan
Building, No. 154


Hudong
Road, Gulou District, Fuzhou City, Fujian Province, PRC


Attention:
Mr. Zhuo Xinrong


Tel.
No.:


Fax
No.:


28


with
copies (which shall not constitute notice) to:





Loeb
& Loeb LLP


345 Park
Avenue


New York,
NY 10154


Attention:
Mitchell S. Nussbaum, Esq.


Tel. No.:
(212) 407-4000


Fax No.:
(212) 407-4990





If to any
Purchaser:  At the address of the Purchaser Representative set forth
on Exhibit A to
this Agreement, as the case may be,





with
copies (which shall not constitute notice) to:





GNH
Partners, LLC, Two Greenwich Plaza, Greenwich, CT 06830


Attention:  Guibao
Liu,


Tel:  (203)
742-3600


Fax:





Any party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.




Section
7.6             Waivers.  No
waiver by any party of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provisions, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it
thereafter.




Section
7.7             Headings.  The
section headings contained in this Agreement (including, without limitation,
section headings and headings in the exhibits and schedules) are inserted for
reference purposes only and shall not affect in any way the meaning,
construction or interpretation of this Agreement. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate. References to the singular shall include the plural and vice
versa.




Section
7.8             Successors and
Assigns.  This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Purchasers, as
applicable, provided, however, that,
subject to federal and state securities laws and as otherwise provided in the
Transaction Documents, a Purchaser may assign its rights and delegate its duties
hereunder in whole or in part (i) to a third party acquiring all or
substantially all of its Shares in a private transaction or (ii) to an
affiliate, in each case, without the prior written consent of the Company or the
other Purchasers, after notice duly given by such Purchaser to the
Company.  Notwithstanding the foregoing, (i) no assignment shall
affect the obligations of a Purchaser hereunder, (ii) an assignee shall not be
entitled to receive any Escrow Shares and (iii) an assignee must agree in
writing to be bound, with respect to the transferred securities, by the
provisions hereof that apply to the Purchasers.  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. If any Purchaser transfers
Preferred Shares purchased hereunder, any such penalty shares or liquidated
damages, as the case may be, pursuant to this Agreement shall similarly transfer
to such transferee with no further action required by the purchaser or the
Company.


29




Section
7.9             No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.




Section
7.10           Governing
Law.  This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.




Section
7.11           Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.




Section
7.12           Publicity.  The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.




Section
7.13           Severability.  The
provisions of this Agreement and the Transaction Documents are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents 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 provision or part of a provision of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.




Section
7.14           Further
Assurances.  From and after the date of this Agreement, upon
the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Preferred
Shares, the Conversion Shares, the Memorandum and Articles of Association, the
Registration Rights Agreement and the other Transaction
Documents.


30




Section
7.15           Currency.  Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars.  All amounts owing under this Agreement or any
Transaction Document shall be paid in US dollars.  All amounts
denominated in other currencies shall be converted in the US dollar equivalent
amount in accordance with the Exchange Rate on the date of
calculation.  “Exchange Rate” means, in relation to any amount of
currency to be converted into US dollars pursuant to this Agreement, the US
dollar exchange rate as published in The Wall Street Journal on the relevant
date of calculation




Section
7.16           Termination.  This
Agreement may be terminated prior to Closing:




(a)           
by mutual written agreement of the Purchasers and the Company, a copy of which
shall be provided to Collateral Agents LLC pursuant to the terms of the Funds
Escrow Agreement; and




(b)           
by the Company or a Purchaser (as to itself but no other Purchaser) upon written
notice to the other, with a copy to Collateral Agents LLC, if the Closing shall
not have taken place by 5:00 p.m. Eastern time on October  29, 2010,
unless extended for a period of no more than sixty (60) calendar days by the
Company, in which case the Closing shall not have taken place by 5:00 p.m.
Eastern time on December 29, 2010; provided, that the right to terminate this
Agreement under this Section 7.17(b) shall not be available to any person whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such
time.




(c)           
In the event of a termination pursuant to Section 7.16(a) or 7.16(b), each
Purchaser shall have the right to a return of up to its entire Purchase Price
deposited with the Escrow Agent pursuant to this Agreement, without interest or
deduction.  The Company covenants and agrees to cooperate with such
Purchaser in obtaining the return of its Purchase Price, and shall not
communicate any instructions to the contrary to the Collateral Agents
LLC.




(d)           
In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Purchasers. Upon a termination in accordance
with this Section 7.16, the Company and the terminating Purchaser(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Purchaser will have any liability to any other
Purchaser under the Transaction Documents as a result therefrom.




Section
7.17           Certificates.  The
Purchaser acknowledges and agrees that the Preferred Shares and any Shares
issuable to the Purchaser will be transferred to the Purchaser in uncertificated
form unless Purchaser specifically requests a certificate, at the option of the
Company.




[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]


31




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





CHINA
      DREDGING GROUP LTD.By:Name:
                      Zhuo
      XinrongTitle:
                      Chief
      Executive
Officer


32




COUNTERPART
SIGNATURE PAGE




(FOR
ISSUANCES TO AN ENTITY PURSUANT TO SECTION 4(2))




By its
execution and delivery of this signature page, the undersigned Purchaser hereby
joins in and agrees to be bound by the terms and conditions of the Securities
Purchase Agreement between China Dredging Group Co., Ltd. and the Purchasers (as
defined therein), as to the number of Preferred Shares set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof and for its name, address and number of Preferred Shares
purchased to be added to Exhibit A of the
Securities Purchase Agreement.





(Entity
      Name)By:Name:Title:




Circle
the category under which you are an “accredited investor” pursuant to Exhibit
B:




1           2           3           4           5           6           7           8





Investment
      Amount:PRINT
      EXACT NAME IN WHICH YOU WANT
                                                THE
      SECURITIES TO BE REGISTEREDAttn:Address:Phone
      No.Email
      Address:Tax
      ID Number:


33




COUNTERPART
SIGNATURE PAGE




(FOR
ISSUANCES TO AN ENTITY PURSUANT TO REGULATION S)




By its
execution and delivery of this signature page, the undersigned Purchaser hereby
joins in and agrees to be bound by the terms and conditions of the Securities
Purchase Agreement, between China Dredging Group Ltd. and the Purchasers (as
defined therein), as to the number of Preferred Shares set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or
counterparts thereof and for its name, address and number of Preferred Shares
purchased to be added to Exhibit A of the
Securities Purchase Agreement.





(Entity
      Name)By:Name:Title:





Investment
      Amount:OFFSHORE
      DELIVERY
                                          INSTRUCTIONS:PRINT
      EXACT NAME IN WHICH YOU WANT
                                          THE
      SECURITIES TO BE
                                          REGISTEREDAttn:Address:Phone
      No.Email
      Address:


34