ex10-1.htm


    


    Exhibit
10.1

    


    SECURITIES
PURCHASE AGREEMENT

     

    SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated
as of November30, 2009, by and among China Power Equipment, Inc., a Maryland
corporation, with headquarters located at 6th Floor, Fei Jing
International, No. 15 Gaoxin 6 Road, Hi-tech Industrial Development Zone Xi’an,
Shaanxi, China 710075 (the “Company”), and the Buyers
listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the
“Buyers”).  The
Company and the Buyers shall collectively be referred to as the “Parties” and individually, a
“Party”.

     

    BACKGROUND

     

    WHEREAS, the Company and each
Buyer is executing and delivering this Agreement in reliance upon the exemption
from securities registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the “1933
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated
by the United States Securities and Exchange Commission (the “SEC”) under the 1933
Act.

    


    WHEREAS, the Buyers
collectively wish to purchase, and the Company wishes to sell, upon the terms
and conditions stated in this Agreement and in the amounts as set forth in
Schedule A annexed hereto, (i) up to an aggregate number of 4,166,667 shares of
Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”),
with each share of Series B Preferred Stock being initially convertible into one
(1) share of the common stock, par value $0.001 per share, of the Company
(the “Common Stock”),
subject to adjustment and (ii) attached warrants to purchase up to an aggregate
of 1,000,000 shares of Common Stock at $2.40 per share, substantially in the
form attached hereto as Exhibit B, subject to
adjustment (the Series B Preferred Stock and the Warrants shall collectively be
referred to as the “Securities”).

     

    WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto, together
with Escrow, LLC (“Escrow
Agent”), are executing and delivering a Closing Escrow Agreement,
substantially in the form attached hereto as Exhibit C (the “Closing Escrow Agreement”)
pursuant to which the Buyers shall deposit their Purchase Price (as defined
below) with the Escrow Agent to be applied to the transactions contemplated
hereunder.

    


    WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the Company, the Buyers and
Escrow, LLC  (“Make
Good Escrow
Agent”), are executing and delivering a Make Good Escrow Agreement,
substantially in the form attached hereto as Exhibit D (the “Make Good Escrow
Agreement”).

    


    WHEREAS, the parties intend to
memorialize the terms on which the Company will sell to the Buyers and the
Buyers will purchase the Securities;

    


    NOW, THEREFORE, in
consideration of the mutual covenants and premises contained herein, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties hereto, intending to be legally
bound, agree as follows:

     

    Article
1

     

    INCORPORATION BY REFERENCE
AND DEFINITIONS

     

    1.1    
Incorporation
by Reference. The
foregoing recitals and the Exhibits and Schedules attached hereto and referred
to herein, are hereby acknowledged to be true and accurate, and are incorporated
herein by this reference.

     

    1.2    
Supersedes
Other Agreements. This
Agreement, to the extent that it is inconsistent with any other instrument or
understanding among the parties, shall supersede such instrument or
understanding to the fullest extent permitted by law.  A copy of this
Agreement shall be filed at the Company’s principal office.

     

    1.3    
Certain
Definitions. For purposes
of this Agreement, the following capitalized terms shall have the following
meanings (all capitalized terms used in this Agreement that are not defined in
this Article 1 shall have the meanings set forth elsewhere in this
Agreement):

     

    1.3.1“4.9%
Limitation” has the
meaning set forth in Section 2.1.2 of this Agreement.

     

    1.3.2“1933
Act” means the Securities
Act of 1933, as amended.

     

    1.3.3“1934
Act” means the Securities
Exchange Act of 1934, as amended.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.3.4“Affiliate” means a Person or Persons, which is
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the Person(s) in
question.  The term “control,” as used in the immediately preceding
sentence, means, with respect to a Person that is a corporation, the right to
the exercise, directly or indirectly, of more than 50% of the voting rights
attributable to the shares of such controlled corporation and, with respect to a
Person that is not a corporation, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
controlled Person.

     

    1.3.5“Articles” means the certificate of
incorporation of the Company, as the same may be amended from time to
time.

     

    1.3.6 “Bylaws” means the bylaws of the Company, as
the same may be amended from time to time.

     

    1.3.7 “Certificate
of Designation” means the means the Certificate of
Designation to be filed prior to the Closing by the Company with the Secretary
of State of Maryland, in the form of Exhibit
A attached
hereto.

     

    1.3.8“Closing” means the consummation of the
transactions contemplated by this Agreement, all of which transactions shall be
consummated contemporaneously with the Closing.

     

    1.3.9“Closing
Date” means the date on
which the Closing occurs.

     

    1.3.10 “Company’s
Governing Documents” means
the Articles and Bylaws.

     

    1.3.11 “Exempt
Issuance” means the
issuance of (a) shares of Common Stock or options to employees, officers,
directors of and consultants (other than consultants whose services relate to
the raising of funds) to the Company pursuant to any stock or option plan that
was or may be adopted by a majority of the members of the Board of Directors of
the Company or a majority of the members of a committee of independent directors
established for such purpose, (b) securities upon the exercise of or conversion
of any securities issued hereunder, the Series B Preferred Stock, the Warrants
and any other options, warrants or convertible securities which are outstanding
on after completion of the Closing, and (c) securities issued pursuant to
acquisitions, licensing agreements, or other strategic transactions, provided
any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business which the Company’s board of
directors believes is beneficial to the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.

     

    1.3.1.12 “FINRA” means the Financial
Industry Regulatory Authority.

     

    1.3.13“GAAP” means United States generally
accepted accounting principles consistently applied.

     

    1.3.14 Reserved.

     

    1.3.15“Material
Adverse Effect” means any
adverse effect on the business, operations, properties or financial condition of
the Company or any of its Subsidiaries that is material and adverse to the
Company and its Subsidiaries taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company or any Subsidiary to perform any of its material
obligations under the Transaction Documents or to perform its obligations under
any other material agreement.

     

                   
1.3.16 “OTCBB” means the Over-the-Counter
Bulletin Board administered by the FINRA.

    


    1.3.16 “Person” means an individual, partnership,
firm, limited liability company, trust, joint venture, association, corporation,
or any other legal entity.

     

    1.3.17  “Income
from Operations” means income from operations determined in accordance
with GAAP. For the purpose of calculating Income from Operations, the following
items will be added back, to the extent that they are charges against income
under US GAAP:

    
      	
              a.  

            	
              Expenses
      for legal, accounting and other services rendered in connection with the
      offer and sale of Securities
hereunder;

            


    

    
      	
              b.  

            	
              Expenses
      related to listing of the Company’s securities on an
    exchange;

            


    

    
      	
              c.  

            	
              Research
      and development expenses; and

            


    

    
      	
              d.  

            	
              Any
      non-cash charges required to be taken under US
  GAAP.

            


    

    


    1.3.18 “Purchase
Price” means the
$5,000,000 to be paid by the Buyers to the Company for the
Securities.

     

    1.3.19 “Restriction
Termination Date” shall
mean the date on which the Buyers shall have  converted 80% of the
shares of Series B Preferred Stock.

     

    1.3.20 “Securities” means the shares of Series B
Preferred Stock, the Warrants and the Shares.

     

    1.3.21 “SEC” means the Securities and Exchange
Commission.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.3.22 “SEC
Documents” means, all
reports, schedules, forms, statements and other documents required to be filed
with the SEC pursuant to the reporting requirements under the 1934
Act.

     

    1.3.23 “Series
B Preferred Stock” means
the shares of Series B Preferred Stock having the rights, preferences and
privileges and subject to the limitations set forth in the Certificate of
Designation.

     

    1.3.24 “Shares” means, collectively, the shares of
Common Stock issued or issuable (i) upon conversion of the Series B Preferred
Stock and (ii) upon exercise of the Warrants.

     

    1.3.25 “Subsidiary” means an entity in which the Company
and/or one or more other Subsidiaries directly or indirectly own(s) either 50%
of the voting rights or 50% of the equity interests.

     

    1.3.26 “Subsequent
Financing” means any offer
and sale of shares of Preferred Stock or debt that is initially convertible into
shares of Common Stock or otherwise senior or superior to the Series B Preferred
Stock.

     

    1.3.27 “Target
Income” has the meaning
set forth in Section 6.10 of this Agreement.

     

    1.3.28 “Total
Shares” means the number
of shares of Common Stock as have been or would be issued upon conversion of the
Series B Preferred Stock and Warrants.  The number of Total Shares
shall be adjusted to reflect any change in the conversion price of the Series B
Preferred Stock and the expiration of any Warrants.

     

    1.3.29 “Transaction
Documents” means this
Agreement, all Schedules and Exhibits attached hereto, the Certificate of
Designation, the Warrants, the Closing Escrow Agreement, the Make Good Escrow
Agreement and all other documents and instruments to be executed and delivered
by the parties in order to consummate the transactions contemplated
hereby.

     

    1.3.30 “Underlying
Shares” means shares of Common Stock issuable upon conversion of the
Series B Preferred Stock and the shares of Common Stock issuable upon exercise
of the Warrants.

    


    1.1.31 “US
GAAP” means United States generally Accepted Accounting Principles,
consistently applied.

     

    1.3.32 “Warrants” means the common stock purchase
warrants in substantially the form of Exhibit
B to this
Agreement.

     

    1.4    
References.   All references in
this Agreement to “herein” or words of like effect, when referring to preamble,
recitals, article and section numbers, schedules and exhibits shall refer to
this Agreement unless otherwise stated.

     

    1.5    
Value
of Series B Preferred Stock.  Wherever this Agreement
provides for the delivery of shares of Series B Preferred Stock in satisfaction
of an obligation under this Agreement, a share of Series B Preferred Stock shall
have a value equal to its liquidation preference as set forth in the Certificate
of Designation.

    


    Article
2

    


    SALE
AND PURCHASE OF SECURITIES; PURCHASE PRICE

     

    2.1    
Sale
of Securities. Subject to the satisfaction (or
waiver) of the conditions set forth in Article 8 and 9, the Company shall issue
and sell to each Buyer, and each Buyer severally, but not jointly, agrees to
purchase from the Company on the Closing Date, such number of shares of Series B
Preferred Stock and such number of Warrants as is set forth opposite such
Buyer's name on the Schedule A annexed hereto.  On the Closing Date,
(i) each Buyer shall pay its respective portion of the Purchase Price to the
Company for the Series B Preferred Stock and the Warrants to be issued and sold
to such Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company's written wire instructions, and (ii) the
Company shall deliver to each Buyer one or more stock certificates, evidencing
the number of shares of Series B Preferred Stock and such number of Warrants
such Buyer is purchasing as is set forth on Schedule A annexed hereto, duly
executed on behalf of the Company and registered in the name of such
Buyer.

     

    2.1.1 Purchase
Price.  The
purchase price for the Securities to be purchased by each Buyer at the Closing
shall be the amount set forth opposite such Buyer’s on Schedule A annexed hereto
(the “Purchase
Price”) which shall be
equal to the amount of $1.20 per share of Series B Preferred Stock times the
number of shares of Series B Preferred Stock purchased

     

    2.1.2 Except as expressly provided in the
Certificate of Designation and the Warrants, a Buyer shall not be entitled to
convert the Series B Preferred Stock into shares of Common Stock or to exercise
the Warrants to the extent that such conversion or exercise would result in
beneficial ownership by the Buyers and their Affiliates, as a group, owning more
than 4.9% of the then outstanding number of shares of Common Stock on such date
after giving effect to such conversion or exercise.  For the purposes
of this Agreement beneficial ownership shall be determined in accordance with
Section 13(d) of the 1934 Act, and Regulation 13d-3 thereunder.  The
limitation set forth in this Section 2.1.2 is referred to as the “4.9%
Limitation.”  As
a result of the 4.9% Limitation, the Buyers will not have more than 4.9% of the
voting power of the Company; provided, however, that this sentence shall not
affect any of a Buyer’s rights under the Certificate of
Designation.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Article
3

     

    CLOSING
DATE AND DELIVERIES AT CLOSING

     

    3.1    
Closing
Date.  The Closing of the
transactions contemplated by this Agreement, unless expressly determined herein,
shall be held at the offices of Guzov Ofsink, LLC, 600 Madison Avenue, New York,
New York 10022, at 2:00 P.M. local time, on the Closing Date or on such other
date and at such other place as may be mutually agreed by the parties, including
closing by facsimile with originals to follow.

     

    3.2    
Deliveries
by the Company.  In addition to and without
limiting any other provision of this Agreement, the Company agrees to deliver,
or cause to be delivered, to the escrow agent under the Escrow Agreement, the
following:

     

    (a)At or prior to Closing, an executed
Agreement with all exhibits and schedules attached hereto;

     

    (b)At the Closing, certificates
representing such number of shares of Series B Preferred Stock in the names of
the Buyers and in the amounts set forth in Schedule A to this
Agreement;

     

    (c)At the Closing, certificates
representing such Warrants to purchase such number of shares of Common Stock in
the names of the Buyers and in the amounts set forth in Schedule A to this
Agreement;

     

    (d)The executed Closing Escrow
Agreement;

     

    (e)The executed Make Good Escrow
Agreement;

     

    (f)Evidence of approval of the Board of
Directors of the Company of the Transaction Documents and the transactions
contemplated hereby and thereby;

     

    (g)Good standing certificate from the
Secretary of State of the State of Maryland;

     

    (h)The executed disbursement instructions
pursuant to the Closing Escrow Agreement, which shall provide that the Escrow
Agent continue to hold $300,000 to pay the Company’s anticipated obligations to
for its future professional fees as set forth in Section 6.9;
and

     

    (i)Such other documents or certificates as
shall be reasonably requested by Buyers or their counsel.

    


    3.3    
Deliveries
by Buyers.  In addition to and without
limiting any other provision of this Agreement, the Buyers agree to deliver, or
cause to be delivered, to the Escrow Agent under the Escrow Agreement, the
following:

     

    (a)A deposit from each Buyer as to the
Buyer’s portion of the Purchase Price;

     

    (b)The executed Agreement with all
Exhibits and Schedules attached hereto;

     

    (c)The executed Closing Escrow
Agreement;

     

    (d)The executed Make Good Escrow
Agreement;

     

    (e)The executed disbursement instructions
pursuant to the Escrow Agreement; and

     

    (f)Such other documents or certificates as
shall be reasonably requested by the Company or its counsel.

     

    3.4    
Delivery
of Original Documents. In
the event any document provided to the other party in Paragraphs 3.2 and 3.3
herein are provided by facsimile or email, the party shall forward an original
document to the other party within seven (7) business days.

     

    3.5    
Further
Assurances.  The
Company and each Buyer shall, upon request, on or after the Closing Date,
cooperate with each other (specifically, the Company shall cooperate with the
Buyers, and each Buyer shall cooperate with the Company) by furnishing any
additional information, executing and delivering any additional documents and/or
other instruments and doing any and all such things as may be reasonably
required by the parties or their counsel to consummate or otherwise implement
the transactions contemplated by this Agreement.

     

    3.6    
Waiver.  A Buyer may waive any of
the requirements of Section 3.2 of this Agreement, and the Company may waive any
of the provisions of Section 3.3 of this Agreement.  The Buyers
representing a majority of the Series B Preferred Stock purchased hereunder may
also waive any of the requirements of the Company under the Closing Escrow
Agreement and the Make Good Escrow Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Article
4

     

    REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

     

    The
Company represents and warrants to the Buyers as of the date hereof and as of
Closing Date (which warranties and representations shall survive the Closing
regardless of any examinations, inspections, audits and other investigations the
Buyers have heretofore made or may hereinafter make with respect to such
warranties and representations) as follows:

     

    4.1    
Organization
and Qualification.  Each of the Company and its
Subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted.  Each of the
Company and its Subsidiaries is duly qualified to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect.  The Company has no Subsidiaries
except as set forth on Schedule
4.1

     

    4.2    
Authorization;
Enforcement; Validity.  The Company has the
requisite corporate power and authority to enter into and perform its
obligations under the Transaction Documents and to issue the Securities in
accordance with the terms hereof and thereof.  The execution and
delivery of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Securities have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders except for any
filings which may be required to be made by the Company with the SEC or state
securities administrators subsequent to the Closing.  This Agreement
and the other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.

     

    4.3    
Issuance
of Securities.  The Securities are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
validly issued and free from all taxes, liens and charges with respect to the
issue thereof and the Securities shall be fully paid and nonassessable with the
holders being entitled to all rights accorded to a holder of Series B Preferred
Stock and/or Warrants, as the case may be.  The offer and issuance by
the Company of the Securities are exempt from registration under the 1933
Act.

     

    4.4    
No
Conflicts.  The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Securities) will not
(i) result in a violation of the Articles or Bylaws of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event that
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 (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any U.S. law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations and the rules and
regulations of the OTCBB), or by which any property or asset of the Company or a
Subsidiary is bound or affected, except in the case of clause (ii) such as could
not, individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect.

     

    4.5    
Consents.  The Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case 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 SEC or state securities administrators subsequent to the Closing;
provided, that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Buyers
herein).  All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the Closing
Date.  The Company and its Subsidiaries are unaware of any facts or
circumstances that might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding
sentence.  The Company is not in violation of any requirements of the
OTCBB and has no knowledge of any facts that would reasonably lead to the
cessation of quotations for the Common Stock on the OTCBB in the foreseeable
future.

     

    4.6    
No
General Solicitation; Placement Agent's Fees.  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) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' SECs (other than
for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby.  The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney's fees and out-of-pocket expenses)
arising in connection with any such claim.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.7    
No
Integrated Offering.  None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on their 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 require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.  None of the Company, its Subsidiaries, their
Affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.

     

    4.8    
SEC
Documents; Financial Statements.  During the two (2) years
prior to the date hereof, the Company has filed its SEC
Documents.  The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system, if any.  As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.  As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).  No other information provided by or on behalf of the
Company to the Buyers which is not included in the SEC Documents, including,
without limitation, information referred to in this Section 4.8 of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not
misleading.

     

    4.9    
Absence
of Certain Changes.  Except as disclosed in
Schedule
4.9 or in the SEC Documents, since December 31, 2008, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries.  Except as
disclosed in Schedule
4.9 or in the SEC Documents, since December 31, 2008, the Company
has not (i) declared or paid any dividends, (ii) sold any assets, individually
or in the aggregate, in excess of $25,000 outside of the ordinary course of
business or (iii) had capital expenditures, individually or in the aggregate, in
excess of $25,000.  The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so.  The Company is not as of the
date hereof, and after giving effect to the transactions contemplated hereby to
occur at the Closing, will not be Insolvent (as defined below).  For
purposes of this Section 4.9, “Insolvent” means, with respect to any
Person  (i) the present fair saleable value of such Person's assets is
less than the amount required to pay such Person's total Indebtedness (as
defined in Section 4.16), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

     

    4.10  
No
Undisclosed Events, Liabilities, Developments or Circumstances.  No event, liability,
development or circumstance has occurred or exists, or is contemplated to occur,
with respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
announced.

     

    4.11  
Conduct
of Business; Regulatory Permits.  Neither the Company nor
its Subsidiaries is in material violation of any term of or in default under the
Articles of Incorporation or Bylaws or their organizational charter or articles
of incorporation or bylaws, respectively.  Neither the Company nor any
of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect.  Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of
the OTCBB and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the OTCBB in
the foreseeable future except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect and would not,
individually or in the aggregate, reasonably lead to delisting or suspension
from trading of the Common Stock by the OTCBB, FINRA or the
SEC.  During the one (1) years prior to the date hereof, (i) the
Common Stock has been quoted on the OTCBB, (ii) trading in the Common Stock has
not been suspended by the SEC or FINRA and (iii) the Company has received no
communication, written or oral, from the SEC or the OTCBB regarding the
suspension or cessation of quotation of the Common Stock on the
OTCBB.  The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.12  
Foreign
Corrupt Practices.  Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any of its Subsidiaries has, while
subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, in the
course of its actions for, or on behalf of, the Company (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

     

    4.13  
Sarbanes-Oxley
Act.  The
Company is in, and will be in continued compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect.

     

    4.14  
Transactions
With Affiliates. Except as
otherwise provided in the SEC Documents, none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

     

    4.15  
Equity
Capitalization.  As of the date hereof, the
authorized capital stock of the Company consists of 100,000,000 shares of Common
Stock, of which as of the date hereof, 14,908,313 shares are issued and
outstanding, 10,000,000 shares of preferred stock is authorized, 5,000,000 of
which have been designated as Series A Preferred Stock and none of which are
issued and outstanding,  4,456,700 shares are reserved for issuance
pursuant to warrants outstanding, 100,000 shares are reserved for issuance
pursuant to options outstanding and no shares are reserved for issuance pursuant
to securities exercisable or exchangeable for, or convertible into, shares of
Common Stock except for shares to be issued under the Company’s 2009/2010
Incentive Stock Plan.  All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and
nonassessable.  Except as set forth on Schedule
4.15 or in the SEC
Documents: (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries; (iii) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness (as defined in Section 4.16) of the Company
or any of its Subsidiaries or by which the Company or any of its Subsidiaries is
or may become bound; (iv) there are no financing statements securing obligations
in any material amounts, either singly or in the aggregate, filed in connection
with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act; (vi) there are
no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) the Company does not have any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents but not so disclosed
in the SEC Documents, other than those incurred in the ordinary course of the
Company's or any Subsidiary's respective businesses and which, individually or
in the aggregate, do not or would not have a Material Adverse
Effect.  The Company has furnished or made available to the Buyer upon
such Buyer's request, true, correct and complete copies of the Company's
Articles and the Company's Bylaws, as and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect
thereto.

     

    4.16  
Indebtedness
and Other Contracts.  Except as disclosed in
Schedule
4.16 or in the SEC
Documents, neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the material violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument, in the
judgment of the Company’s officers, would result in a Material Adverse Effect,
(iii) is in material violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result,  in the judgment of the
Company’s officers,  individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company's officers, has or is expected to have a Material Adverse
Effect.  For purposes of this Agreement:  (x) “Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than trade payables entered into
in the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (D) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to any property
or assets acquired with the proceeds of such indebtedness (even though the
rights and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property), (F) all monetary
obligations under any leasing or similar arrangement which, in connection with
generally accepted accounting principles, consistently applied for the periods
covered thereby, is classified as a capital lease, (G) all indebtedness referred
to in clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of other kinds
referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.17  
Absence
of Litigation.  Except as set forth in the
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before the SEC, FINRA, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, the Common Stock or any of
its Subsidiaries or any of the Company's or the Company's Subsidiaries' officers
or directors, whether of a civil or criminal nature or
otherwise.

     

    4.18  
Employee
Relations.  Neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreement or
employs any member of a union.  The Company and its Subsidiaries
believe that their relations with their employees are good.  No
executive officer of the Company or any of its Subsidiaries (as defined in Rule
501(f) of the 1933 Act) has notified the Company or any such Subsidiary that
such officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer's employment with the Company or any such
Subsidiary.  No executive officer of the Company, to the knowledge of
the Company or any of its Subsidiaries, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

     

    4.19  
Title.  The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries.  Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

     

    4.20  
Intellectual
Property Rights.  The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
(“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted where the failure to so comply could not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect.  None of the Company's Intellectual Property Rights
have expired or terminated, or are expected to expire or terminate within three
years from the date of this Agreement.  The Company does not have any
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property Rights of others.  There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company, being threatened,
against the Company or any of its Subsidiaries regarding its Intellectual
Property Rights.  The Company is unaware of any facts or circumstances
which might give rise to any of the foregoing infringements or claims, actions
or proceedings.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights where the failure to so comply
could not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.

     

    4.21  
Environmental
Laws.  The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses (iii) are in compliance with all terms
and conditions of any such permit, license or approval and (iv) do not have any
unresolved environmental complaints or issues in any of the jurisdictions in
which they operate where, in each of the foregoing clauses (i), (ii), (iii) and
(iv), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.  Further,
to the knowledge of the Company, it and its Subsidiaries are not in violation of
any applicable anti-dumping laws in the jurisdiction(s) in which it carries out
business, where the failure to so comply would reasonably have in the aggregate
a Material Adverse Effect. The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.  The
Company further undertakes that it shall notify the Buyers promptly if it or any
of its Subsidiaries were to receive an environmental
complaint.

     

    4.22  
Subsidiary
Rights.  The
Company, or one of its Subsidiaries, has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

     

    4.23  
Tax
Status.  The
Company and each of its Subsidiaries (i) has made or filed all federal, foreign
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

     

    4.24  
Internal
Accounting and Disclosure Controls.  The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient,
in its reasonable belief, 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 generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference.  The Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-15 under the 1934 Act) that are effective
in ensuring that information required to be disclosed by the Company in the
reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed in to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is accumulated and
communicated to the Company’s management, including its principal executive
officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required
disclosure.  During the twelve months prior to the date hereof neither
the Company nor any of its Subsidiaries have received any notice or
correspondence from any accountant relating to any potential material weakness
in any part of the system of internal accounting controls of the Company or any
of its Subsidiaries.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.25  
Off
Balance Sheet Arrangements.  Except as otherwise
provided  in the SEC Documents,  there is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

     

    4.26  
Transfer
Taxes.  On the
Closing Date, all stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the sale and transfer of
the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will
be or will have been complied with.

     

    4.27  
Investment
Company Status.  The Company is not, and
upon consummation of the sale of the Securities will not be, an “investment
company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act
of  1940, as amended.

     

    4.28  
No
Additional Agreements. The Company does not have any
agreement or understanding with any Buyer with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

     

    Article
5

     

    REPRESENTATIONS
AND WARRANTIES OF THE BUYERS

     

    Each
Buyer severally and not jointly represents and warrants to the Company
that:

     

    5.1     Concerning
the Buyers. The
state in which any offer to purchase shares hereunder was made or accepted by
such Buyer is the state shown as such Buyer’s address. The Buyer was not formed
for the purpose of investing solely in the Securities.

    


    5.2      Acquisition
for Investment.
The Buyer is acquiring the Securities solely for its own account for the purpose
of investment and not with a view to or for sale in connection with
distribution.  The Buyer does not have a present intention to sell the
Securities, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Securities to or through any person
or entity; provided, however, that by
making the representations herein and subject to Section 7.2 below, the Buyer
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
Federal and state securities laws applicable to such disposition.

     

    5.2     Authorization
and Power. The Buyer has
the requisite power and authority to enter into and perform this Agreement and
to purchase the securities being sold to it hereunder. The execution, delivery
and performance of this Agreement by the Buyer and the consummation by the Buyer
of the transactions contemplated hereby have been duly authorized by all
necessary partnership action where appropriate. The Transaction Documents have
been duly executed and delivered by such Buyer and at the Closing shall
constitute valid and binding obligations of such Buyer enforceable against the
Buyer in accordance with their 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, creditors’ rights and remedies or by
other equitable principles of general application.

     

    5.3     No
Conflicts. The execution,
delivery and performance of Transaction Documents and the consummation by such
Buyer of the transactions contemplated hereby or relating hereto do not and will
not (i) result in a violation of such Buyer’s charter documents or bylaws where
appropriate 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 to which such Buyer is a party, 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 Buyer 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 Buyer). The Buyer 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 such Buyer’s obligations under this Agreement
or to purchase the Securities from the Company in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
the Buyer is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.

     

    5.4     Financial
Risks. Such Buyer
acknowledges that such Buyer is able to bear the financial risks associated with
an investment in the Securities being purchased by such Buyer from the Company
and that it has been given full access to such records of the Company and its
Subsidiaries and to the officers of the Company and its Subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation. Such
Buyer is capable of evaluating the risks and merits of an investment in the
Securities being purchased by the Buyer from the Company by virtue of its
experience as a Buyer and its knowledge, experience, and sophistication in
financial and business matters and the Buyer is capable of bearing the entire
loss of its investment in the Securities being purchased by the Buyer from the
Company. Such Buyer further acknowledges that such Buyer understands the risks
of investing in companies domiciled and/or which operate primarily in the
People’s Republic of China and that the purchase of the Securities involves
substantial risks.

     

    5.5     Accredited
Investor. Each Buyer is (i) an “accredited investor” as that term is
defined in Rule 501 of Regulation D promulgated under the 1933 Act, (ii)
experienced in making investments of the kind described in this Agreement and
the related documents, (iii) able, by reason of Buyer’s business and financial
experience and professional advisors (who are not affiliated with or compensated
in any way by the Company or any of its affiliates or selling agents), to
protect Buyer’s own interests in connection with the transactions described in
this Agreement, and the related documents, and (iv) able to afford the entire
loss of Buyer’s investment in the Securities being purchased by the Buyer from
the Company.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    5.7     Communication
of Offer.  The offer to sell the Securities was directly
communicated to such Buyer by the Company.  At no time was such Buyer
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.

     

    5.6     Brokers. No broker, finder or investment
banker is entitled to any brokerage, finder’s or other fee or SEC in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of such Buyer.

     

    5.7    Knowledge
of Company. Such Buyer and such Buyer’s advisors,
if any, have been, upon request, furnished with all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Securities being purchased by such Buyer from the
Company.  Such Buyer and such Buyer’s advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries.

     

    5.8    Risk
Factors. Each Buyer understands that such
Buyer’s investment in the Securities being purchased by such Buyer from the
Company involves a high degree of risk.  Such Buyer understands that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
being purchased by the Buyer from the Company. Such Buyer warrants that such
Buyer is able to bear the complete loss of such Buyer’s investment in the
Securities being purchased by the Buyer from the Company.  Each Buyer
has reviewed and understands the risk factors contained in the Company’s
prospectus filed with the SEC on November 10, 2008.

     

    5.9     Full
Disclosure. No
representation or warranty made by such Buyer in this Agreement and no
certificate or document furnished or to be furnished to the Company pursuant to
this Agreement contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading. Except as set forth or referred to
in this Agreement, Buyer does not have any agreement or understanding with any
person relating to acquiring, holding, voting or disposing of any equity
Securities of the Company.

    


    5.12   Short
Sales and Confidentiality. Other than the
transaction contemplated hereunder, the Buyer has not directly or indirectly,
nor has any person acting on behalf of or pursuant to any understanding with the
Buyer, executed any disposition, including short sales (but not including the
location and/or reservation of borrowable shares of Common Stock), in the
securities of the Company during the period commencing from the time that the
Buyer first received a term sheet from the Company or any other person setting
forth the material terms of the transactions contemplated hereunder until the
date that the transactions contemplated by this Agreement are first publicly
announced by the Company.  The Buyer covenants that until such time as
the transactions contemplated by this Agreement are publicly disclosed by the
Company, the Buyer will maintain the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and terms of
this transaction). The Buyer understands and acknowledges that the SEC currently
takes the position that coverage of short sales of shares of the Common Stock
“against the box” prior to the effective date of a registration statement with
the Securities is a violation of Section 5 of the 1933 Act, as set forth in Item
65, Section 5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. Notwithstanding the foregoing, the Buyer does
not make any representation, warranty or covenant hereby that it will not engage
in short sales in the securities of the Company after the date that the
transactions contemplated by this Agreement are first publicly announced by the
Company. Notwithstanding the foregoing, in the case of a Buyer that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Buyer's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Buyer's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.

    


    Article
6

     

    COVENANTS OF THE
COMPANY

     

    6.1     Reservation
of Common Stock. As of the
date hereof, the Company has reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, the maximum number
of shares of Common Stock for the purpose of enabling the Company to issue the
Underlying Shares.

     

    6.2     Compliance
with Laws. The Company
hereby agrees to comply and to cause each Subsidiary and each Related Party to
comply in all respects with the Company’s reporting, filing and other
obligations under the Laws.

     

    6.3     Exchange
Act. The Company will
continue to report to the SEC under Section 15(d) of the 1934 Act, as
applicable, and will use its commercially reasonable efforts to comply in all
respects with its reporting and filing obligations under the 1934 Act, and will
not take any action or file any document (whether or not permitted by the 1934
Act or the rules thereunder) to terminate or suspend any such registration or to
terminate or suspend its reporting and filing obligations under the 1934 until
the earlier of eighteen (18) months from the Closing Date or the Restriction
Termination Date.

     

    6.4     Corporate
Existence; No Conflicting Agreements. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company. The
Company shall not enter into any agreement, the terms of which agreement would
restrict or impair the right or ability of the Company to perform any of its
obligations under this Agreement or any of the other agreements attached as
exhibits hereto.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.5     Listing,
Securities Exchange Act of 1934 and Rule 144 Requirements.

     

    6.5.1  The Company shall not take any action
which would cause its Common Stock not to be traded on the OTC Bulletin Board,
except that the Company may list the Common Stock on the Nasdaq Stock Market or
the American or New York Stock Exchange if it meets the applicable listing
requirements.  

     

    6.5.2  Commencing not later than one hundred
and eighty (180) days from the Trigger Date, the Company shall submit an
application for the listing of its Common Stock on the NASDAQ Global Market or
NASDAQ Capital Market or the NYSE Amex or any successor market thereto, and,
from and after the date of such listing, the Common stock shall continue to be
listed on one of such markets or exchanges until the earlier of eighteen (18)
months from the Closing Date or the Restriction Termination Date. The Company
shall use commercially reasonable efforts to have the listing of its Common
Stock on a national securities exchange completed promptly after submitting the
respective listing application.  “Trigger Date” shall mean the date on
which the Company fulfills all of its requirements for listing on a national
securities exchange.  If, for any time after the Trigger Date and
prior to the earlier of eighteen (18) months from the Closing Date or the
Restriction Termination Date, the Company is not in compliance with this Section
6.5.2, then the Company shall pay to the Buyers as liquidated damages and not as
a penalty, an amount equal to half percent (0.5%) of the Purchase Price of the
shares of Series B Preferred Stock, or the shares underlying Series B Preferred
Stock, then owned of record by the Buyers, for each thirty (30) day period (pro
rata for any period less than thirty days) payable on the third business day
afterthe end of each
thirty (30) day period or shorter part thereof for which liquidated damages are
payable; provided, however, that such liquidated damages shall not exceed four
percent (4%) of the Purchase Price paid by the Buyers.

     

    6.6     No
Convertible Debt or Preferred Stock. On or prior to the Closing Date, the
Company will cause to be cancelled or paid all convertible debt in the Company.
Until the eighteen (18) month anniversary of the Closing Date, the Company will
not issue any convertible debt or any shares of any class or series of Preferred
Stock.

     

    6.7    Reset
Equity Deals. On or prior to the Closing Date, the
Company will cause to be cancelled any and all reset features related to any
shares outstanding that could result in additional shares being issued. Until
the earlier of (a) eighteen (18) months from the Closing Date or (b) the
Restriction Termination Date, the Company will not enter into any transactions
that have any reset features that could result in additional shares being
issued.

     

    6.8
     Use
of Proceeds. The Company
will use the net proceeds from the sale of the Securities and the exercise of
the Warrants, after payment of legal fees and other closing costs, as set forth
in Schedule 6.8.  The Company shall also allocate $300,000 which will
be retained in escrow and maintained by the Escrow Agent pursuant to the Closing
Escrow Agreement for the payment of professional fees, including audit and legal
fees, which are payable subsequent to the Closing.

     

    6.9     Make
Good Shares Based on Income from Operations.

     

    6.9.1  Pursuant to the Make Good Escrow
Agreement, the Company shall deliver to the Escrow Agent (i) resolutions
executed by the Board of Directors of the Company and (ii) irrevocable
instructions to the transfer agent executed by the Company for the issuance of
up to an additional 2,080,000 shares of Common Stock in accordance with this
Section 6.9 (the “Make
Good Shares”).

     

    6.9.2  For purposes of this Section 6.9, the
Company’s Income from Operations for the years ended December 31, 2009 and/or
2010 is $4,500,000.00 (the “2009
Target Income”), and
$7,000,000.00 (the “2010
Target Income”),
respectively.

     

    6.9.3  If the Company’s actual
Income from Operations for the year ended December 31, 2009 (the “Actual 2009 Income”) is a
number that is greater than the product of the 2009 Target Income multiplied by
0.9, then the Company shall be deemed to have met the 2009 Target Income and no
Make Good Shares shall be delivered.

     

    6.9.4  If the Actual 2009 Income is a number
that is less than the product of the 2009 Target Income multiplied by 0.9, then
the Company shall instruct the Escrow Agent to deliver to each Buyer on a
pro-rata basis (determined by dividing each Buyer’s Purchase Price by the
aggregate Purchase Price delivered to the Company by the Buyers hereunder) such
number of Make Good Shares, which is equal to the percentage of variation of the
Actual 2009 Income from the 2009 Target Income multiplied by the number of
shares of Series B Preferred Stock acquired by such Buyer pursuant to this
Agreement.

     

    6.9.5  If the Company’s actual
Income from Operations for the year ended December 31, 2010 (the “Actual 2010 Income”) is a
number that is greater than the product of for the 2010 Target Income multiplied
by 0.9, then the Company shall be deemed to have met the 2010 Target Income and
no Make Good Shares shall be delivered.

    


    6.9.6  If the Actual 2010 Income is a number
that is less than the product of  the 2010 Target Income multiplied by
0.9, then the Company shall instruct the Escrow Agent to deliver to each Buyer
on a pro-rata basis (determined by dividing each Buyer’s Purchase Price by the
aggregate Purchase Price delivered to the Company by the Buyers hereunder) such
number of Make Good Shares which is equal to the of variation of the Actual 2010
Income from the 2010 Target Income multiplied by the number of shares of Series
B Preferred Stock acquired by such Buyer pursuant to this
Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.9.7  The distribution of Make Good Shares
pursuant to this Section 6.9 shall be made within five (5) business days after
the Company files its Form 10-K with the SEC for the applicable
year.  In the event that the Company does not file its Form 10-K for
the year ended December 31, 2009 or 2010 with the SEC within thirty (30) days
after the date that filing was required, after giving effect to any extension
pursuant to Rule 12b-25 of the Exchange Act, all of the Make Good Shares shall
be delivered to the Buyers.

     

    6.9.8  The parties understand that, pursuant
to the Make Good Escrow Agreement, the Escrow Agent will not make any deliveries
of shares without the signed written instructions from the Company and the
Buyers.

     

    6.10  Insider
Selling.  No Restricted Stockholders
may sell any shares of Common Stock in the public market prior to the earlier of
18 months from the Closing Date or the Restriction Termination Date; provided,
however, that if any Restricted Stockholder who is director and not an executive
officer of the Company shall cease to be a director, such Person may sell not
more than a total of 50,000 shares of Common Stock in the public market during
the period set forth in this sentence.  Restricted Stockholders shall
mean any Person who is an officer, director or Affiliate of the Company or who
becomes an officer or director of the Company subsequent to the Closing
Date.  Without limiting the generality of the foregoing, the
Restricted Stockholders shall not to directly or indirectly offer to sell, grant
an option for the purchase or sale of, transfer, pledge assign, hypothecate,
distribute or otherwise encumber or dispose of any securities in the Company in
a transaction which is not in the public market unless the transferee agrees to
be bound by the provisions of this Section 6.10. The Company shall require
any newly elected officer or director to agree to the restriction set forth in
this Section 6.10.  Andrew Barron Worden and the Buyers shall not be
considered Restricted Stockholders.  The restrictions in this Section
6.10 shall not apply to shares issued pursuant to a stock option or long-term
incentive plans which may be approved by the Compensation Committee provided
that such committee is comprised of a majority of independent
directors.

     

    6.11   Employment
and Consulting Contracts. Until the earlier of eighteen (18)
months from the Closing Date or the Restriction Termination Date, the Company
shall have a unanimous approval from the Compensation Committee or the full
Board of Directors, that any awards other than salary are usual, appropriate and
reasonable for any officer, director or consultants whose compensation is more
than $100,000 per annum.  This Section 6.11 does not apply to
attorneys, accountants and other persons who provide professional services to
the Company.

     

    6.12   Subsequent
Equity Sales.  From the date hereof until the earlier
of eighteen (18) months from the Closing Date or the Restriction Termination
Date, the Company shall not effect or enter into an agreement to effect any
Subsequent Financing involving a “Variable
Rate Transaction” or an
“MFN
Transaction” (each as
defined below).  The term “Variable
Rate Transaction” shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or (B)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common
Stock.  The term “MFN
Transaction” shall mean a
transaction in which the Company issues or sells any securities in a capital
raising transaction or series of related transactions which grants to a Buyer
the right to receive additional shares based upon future transactions of the
Company on terms more favorable than those granted to such Buyer in such
offering.  Any Buyer shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be in
addition to any right to collect damages. Notwithstanding the foregoing, this
Section 6.12 shall not apply in respect of an Exempt Issuance, except that no
Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.

     

    6.13   Stock
Splits. All forward and
reverse stock splits shall affect all equity and derivative holders
proportionately.

     

    6.14   Retention
of Top 10 Audit Firm. On or before December 1, 2010, the Company shall
retain a top 10 audit firm that is mutually acceptable to the Company and the
Buyers.

    


    6.15   Board of
Directors. Within 90 days after Closing, the Board of Directors shall be
composed of five or seven directors of which a majority shall be independent and
the Board shall appoint an Audit Committee comprised of independent
directors.

    


    6.16   Payment
of Due Diligence Expenses.
At Closing the Escrow Agent shall disburse to Barron the sum of $25,000.00 for
its due diligence expenses.

     

    6.17   No
Outside Interests.  Until the earlier of
eighteen (18) months from the Closing Date or the Restriction Termination Date,
the Company’s chairman and chief executive officer will devote their full time
and attention to the business of the Company and shall not have any business
interests or activities other than as chairman or chief executive officer,
as the case may be, except that he or she may devote time, which shall not
be material and which shall not interfere with his or her duties as the
Company’s chairman or chief executive officer, as the case may be, to personal
passive investments and charitable and community activities.

     

    6.18   Retention
of Transfer Agent.  Upon the Company’s listing
of its Common Stock on a securities exchange, the Company shall appoint
StockTrans or any other transfer agent acceptable to such exchange as the
Company’s transfer agent.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Article
7

     

    COVENANTS
OF THE BUYER

     

    Each
Buyer, severally and not jointly, covenants and agrees with the Company as
follows:

     

    7.1     Compliance
with Law; Non-Frustration.
Each Buyer’s trading activities with respect to shares of the Company’s Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and rules and regulations of any public market on
which the Company’s Common Stock is listed. Each Buyer acknowledges and agrees
that it will not convert the Series B Preferred Stock then held by such Buyer
with the only purpose to prevent the Company from requiring the Buyers to
exercise the Warrants pursuant to Section 12(a)(ii) of the Warrant by invoking a
violation of the 4.9% Limitation as defined therein. The Company shall have the
right to deny such conversion requests by the Buyers.

     

    7.2     Transfer
Restrictions. The Buyers acknowledge that (a) the
Series B Preferred Stock, Warrants and Underlying Shares have not been
registered under the provisions of the 1933 Act, and may not be transferred
unless (i) subsequently registered thereunder or (ii) the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Series B Preferred
Stock, Warrants and Underlying Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; and (b) any sale of
the Underlying Shares made in reliance on Rule 144 promulgated under the 1933
Act may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such securities under circumstances
in which the seller, or the person through whom the sale is made, may be deemed
to be an underwriter, as that term is used in the 1933 Act, may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder.  Each Buyer agrees that until the
Restriction Termination Date it will not sell the Common Stock short or effect
any sales based upon market-based metrics.

     

    7.3   
Restrictive
Legend. Each Buyer acknowledges and agrees that
the Securities and the Underlying Shares shall bear a restrictive legend and a
stop-transfer order may be placed against transfer of any such Securities except
that the requirement for a restrictive legend shall not apply to Shares sold
pursuant to a current and effective registration statement or a sale pursuant to
Rule 144 or any successor rule.

     

    Article
8

     

    CONDITIONS
PRECEDENT TO THE COMPANY’S OBLIGATIONS

     

    The
obligation of the Company to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:

     

    8.1     No
Termination. This
Agreement shall not have been terminated pursuant to Article 10
hereof.

     

    8.2     Representations
True and Correct. The
representations and warranties of the Buyers contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as if made on as of the Closing
Date.

     

    8.3     Compliance
with Covenants. The Buyers
shall have performed and complied in all material respects with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied by it prior to or at the Closing Date.

     

    8.4     No
Adverse Proceedings. On
the Closing Date, no action or proceeding shall be pending by any public
authority or individual or entity before any court or administrative body to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.

     

    Article
9

     

    CONDITIONS
PRECEDENT TO BUYER’S OBLIGATIONS

     

    The
obligation of the Buyers to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date unless
specified otherwise, of the following conditions:

     

    9.1     No
Termination. This
Agreement shall not have been terminated pursuant to Article 10
hereof.

     

    9.2     Representations
True and Correct. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as if made on as of the Closing
Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    9.3     Compliance
with Covenants . The Company shall have performed and
complied in all material respects with all covenants, agreements, and conditions
required by this Agreement to be performed or complied by it prior to or at the
Closing Date.

     

    9.4     No
Adverse Proceedings. On
the Closing Date, no action or proceeding shall be pending by any public
authority or individual or entity before any court or administrative body to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.

     

    9.5     Company’s
Status.  The
Company shall be current in its filing with the SEC and the Company’s Common
Stock must be trading on the OTC Bulletin Board.

     

    Article
10                      

     

    TERMINATION,
AMENDMENT AND WAIVER

     

    10.1   Termination. This Agreement may be terminated at
any time prior to the Closing Date

     

    10.1.1 by mutual written consent
of the Buyer and the Company;

    


    10.1.2  by
either party if the Closing contemplated by this Agreement shall not have
occurred on or before December 15, 2009, other than solely by reason of a breach
of this Agreement by the terminating party (or parties if the reference herein
is to the Buyers), provided,
that no Buyer shall have the right to terminate this Agreement pursuant
to this Section 10.1.2 after delivering the Purchase Price to the Escrow Agent
pursuant to the Closing Escrow Agreement;

     

    10.1.2  by the Company upon a material breach
of any representation, warranty, covenant or agreement on the part of any Buyer
set forth in this Agreement, or any Buyer upon a material breach of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of the Company or
the Buyer, respectively, shall have become untrue, in either case such that any
of the conditions set forth in Article 8 or Article 9 hereof would not be
satisfied (a “Terminating
Breach”), and such breach
shall, if capable of cure, not have been cured within five (5) business days
after receipt by the party in breach of a notice from the non-breaching party
setting forth in detail the nature of such breach.

     

    10.2   Effect
of Termination. Except as
otherwise provided herein, in the event of the termination of this Agreement
pursuant to Section 10.1 hereof, there shall be no liability on the part of the
Company or any Buyer or any of their respective officers, directors, agents or
other representatives and all rights and obligations of any party hereto shall
cease.

     

    10.3   Amendment
and Waiver.

     

    10.3.1  This Agreement may be amended by the
parties hereto at any time by an instrument in writing signed by the parties
hereto, subject to the provisions of Section 10.3.3; provided, however that the
4.9% Limitation may not be amended or waived.

     

    10.3.2  At any time prior to the Closing Date,
the Company or the Buyers, as appropriate, may: (a) extend the time for the
performance of any of the obligations or other acts of other party or; (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto which have been made to it or them; or
(c) waive compliance with any of the agreements or conditions contained herein
for its or their benefit other than the 4.9% Limitation which may not be
waived.  Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party or parties to be bound thereby,
subject to Section 10.3.3 of this Agreement.

     

    10.3.3  Any amendment or waiver signed by 75%
of the holders of the then outstanding shares of Series B Preferred Stock, or,
after the conversion of all shares of Series B Preferred Stock, the holders of
Warrants to purchase a majority of the shares of Common Stock then issuable upon
exercise of the Warrants, shall be deemed to be approval of the Buyers;
provided, that any amendment or waiver which changes the conversion rate or
conversion price of the Series B Preferred Stock or the exercise price of the
Warrants shall require the approval of all of the holders of the
Warrants.

     

    Article
11

     

    GENERAL
PROVISIONS

     

    11.1   Transaction
Costs. Except as otherwise
provided herein, each of the parties shall pay all of his or its costs and
expenses (including attorney fees and other legal costs and expenses and
accountants’ fees and other accounting costs and expenses) incurred by that
party in connection with this Agreement; provided, that the Company shall pay to
the Buyers out of the proceeds of the sale of the Securities pursuant to this
Agreement due diligence expenses not exceeding $25,000.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    11.2   Indemnification. The Buyer agrees to indemnify, defend
and hold the Company (following the Closing Date) and its officers and directors
harmless against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities or damages, including interest, penalties and
reasonable attorney’s fees, that it shall incur or suffer, which arise out of or
result from any breach of this Agreement by the Buyers or failure by the Buyers
to perform with respect to the representations, warranties or covenants
contained in this Agreement or in any exhibit or other instrument furnished or
to be furnished under this Agreement.  The Company agrees to
indemnify, defend and hold the Buyers (following the Closing Date) harmless
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities or damages, including interest, penalties and
reasonable attorney’s fees, that it shall incur or suffer, which arise out of,
result from or relate to any breach of this Agreement or failure by the Company
to perform with respect to the representations, warranties or covenants
contained in this Agreement or in any exhibit or other instrument furnished or
to be furnished under this Agreement.  In no event shall the Company
or the Buyers be entitled to recover consequential or punitive damages resulting
from a breach or violation of this Agreement nor shall any party have any
liability hereunder in the event of gross negligence or willful misconduct of
the indemnified party.  In the event of the failure of the Company to
issue the Series B Preferred Stock and Warrants in violation of the provisions
of this Agreement, the Buyers, as their sole remedy, shall be entitled to pursue
a remedy of specific performance upon tender into the Court an amount equal to
the Purchase Price hereunder. The indemnification by the Buyers shall be limited
to the amount of the Purchase Price.

     

    11.3   Headings. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.

     

    11.4   Entire
Agreement. This Agreement
(together with the Schedule, Exhibits, Warrants and documents referred to
herein) constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof.

     

    11.5   Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been given (i) on the
date they are delivered if delivered in person; (ii) on the date initially
received if delivered by facsimile transmission followed by registered or
certified mail confirmation; (iii) on the date delivered by an overnight courier
service; or (iv) on the third business day after it is mailed by registered or
certified mail, return receipt requested with postage and other fees prepaid as
follows:

     

    If to the
Company:

     

    China
Power Equipment, Inc.

    6th Floor,
Fei Jing International, No. 15 Gaoxin 6 Road, Hi-tech Industrial Development
Zone

    Xi’an,
Shaanxi, China 710075

     

    Attention:
Ms. Yarong Feng

    E-mail:
fyr@xa-fj.com

     

    Fax:

     

    With a copy
to:

     

    GUZOV
OFSINK, LLC

    600
Madison Avenue, 14th Floor

    New York,
NY 10022

    Attention:
Darren L. Ofsink

     

    E-mail:
dofsink@golawintl.com

    Fax:
 (212)
688-7273

     

    If to
Barron:

     

    Barron
Partners L.P.

    c/o
Barron Capital Advisors, LLC

    730 Fifth
Avenue, 25th
Floor

    New York,
New York 10019

    Attn:
Andrew Barron Worden

    E-mail:
abw@barronpartners.com
and onf@barronpartners.com

    Fax:
(212) 359-0222

     

    If to the
other Buyers, at their addresses set forth on Appendix A.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    11.6   Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.  Upon such determination that any
such term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.

     

    11.7   Binding
Effect. All the terms and provisions of this Agreement whether so
expressed or not, shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective administrators, executors, legal
representatives, heirs, successors and assignees.

     

    11.8   Preparation
of Agreement. This
Agreement shall not be construed more strongly against any party regardless of
who is responsible for its preparation.  The parties acknowledge each
contributed and is equally responsible for its preparation. In resolving
any dispute regarding, or construing any provision in, this Agreement, there
shall be no presumption made or inference drawn because of the drafting history
of the Agreement, or because of the inclusion of a provision not contained in a
prior draft or the deletion or modification of a provision contained in a prior
draft.

     

    11.9   Governing
Law. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to applicable principles of conflicts of
law.

     

    11.10  Jurisdiction;
Waiver of Jury Trial. If any action is brought
among the parties with respect to this Agreement or otherwise, by way of a claim
or counterclaim, the parties agree that in any such action, and on all issues,
the parties irrevocably waive their right to a trial by jury. Exclusive
jurisdiction and venue for any such action shall be the federal and state courts
situated in the City, County and State of New York. In the event suit or action
is brought by any party under this Agreement to enforce any of its terms, or in
any appeal therefrom, it is agreed that the prevailing party shall be entitled
to reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court if such party prevails on substantially all issues in
dispute.

     

    11.11 Preparation
and Filing of Securities and Exchange SEC filings. The Buyers shall reasonably
assist and cooperate with the Company in the preparation of all filings with the
SEC after the Closing Date due after the Closing Date.

     

    11.12 Further
Assurances, Cooperation. Each party shall, upon reasonable request by the
other party, execute and deliver any additional documents necessary or desirable
to complete the transactions herein pursuant to and in the manner contemplated
by this Agreement.  The parties hereto agree to cooperate and use
their respective best efforts to consummate the transactions contemplated by
this Agreement.

     

    11.13 Survival.
The representations, warranties, covenants and agreements made herein shall
survive the Closing of the transaction contemplated hereby.

     

    11.14 Third
Parties. Except
as disclosed in this Agreement, nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto and their respective
administrators, executors, legal representatives, heirs, successors and
assignees.  Nothing in this Agreement is intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.

     

    11.15 Failure
or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty, covenant or agreement herein, nor shall nay single
or partial exercise of any such right preclude other or further exercise thereof
or of any other right.  All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

     

    11.16 Counterparts.
This Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.

     

    [SIGNATURES
ON FOLLOWING PAGE]

     

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    IN WITNESS WHEREOF, the Buyers
and the Company have as of the date first written above executed this
Agreement.

    


    
      	
              Address

            	 	
              Signature

            
	
              6th Floor,
      Fei Jing International, No. 15 Gaoxin 6 Road, 

              Hi-tech
      Industrial Development Zone,Xi’an, Shaanxi,

              China
      710075

              Phone:86-29-8831-0282\
      8831-0560

              Fax:
      _______________________

               

            	 	
              Company:
      CHINA POWER EQUIPMENT, INC.

              By:______________________________________                        

                    Name:
      Yongxing Song

                    Title:
      Chief Executive Officer