Document:

Exhibit 10.1

STANDBY EQUITY DISTRIBUTION AGREEMENT

          THIS AGREEMENT dated as of the 20th  day of March 2006 (the “Agreement”) between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the “Investor”), and CHINA AUTOMOTIVE SYSTEMS, INC., a corporation organized and existing under the laws of the State of Delaware (the “Company”).

          WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company up to Fifteen Million Dollars ($15,000,000) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”); and

          WHEREAS, such investments will be made in reliance upon the provisions of Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the “Securities Act”), and or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder.

          WHEREAS, the Company has engaged Newbridge Securities Corporation (the “Placement Agent”), to act as the Company’s exclusive placement agent in connection with the sale of the Company’s Common Stock to the Investor hereunder pursuant to the Placement Agent Agreement dated the date hereof by and among the Company, the Placement Agent and the Investor (the “Placement Agent Agreement”).

          NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I.
 Certain Definitions

          Section 1.1.   “Advance” shall mean the portion of the Commitment Amount requested by the Company in the Advance Notice.

          Section 1.2.   “Advance Date” shall mean the first (1st) Trading Day after expiration of the applicable Pricing Period for each Advance.

          Section 1.3.   “Advance Notice” shall mean a written notice in the form of Exhibit A attached hereto to the Investor executed by an officer of the Company and setting forth the Advance amount that the Company requests from the Investor.

          Section 1.4.   “Advance Notice Date” shall mean each date the Company delivers (in accordance with Section 2.2(b) of this Agreement) to the Investor an Advance Notice requiring the Investor to advance funds to the Company, subject to the terms of this Agreement.  No Advance Notice Date shall be less than five (5) Trading Days after the prior Advance Notice Date.

          Section 1.5.   “Bid Price” shall mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if the Common Stock is not traded on a Principal Market, the highest reported bid price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc.

          Section 1.6.   “Closing” shall mean one of the closings of a purchase and sale of Common Stock pursuant to Section 2.3.

          Section 1.7.   “Commitment Amount” shall mean the aggregate amount of up to Fifteen Million Dollars ($15,000,000) which the Investor has agreed to provide to the Company in order to purchase the Company’s Common Stock pursuant to the terms and conditions of this Agreement , provided that, the Company shall not effect any sale under this Agreement and the Investor shall not have the right or the obligation to purchase shares of Common Stock under this Agreement to the extent that after giving effect to such purchase and sale the aggregate number of shares issued under this Agreement and the shares acquired under the Securities Purchase Agreement dated the date hereof would exceed four million five hundred fourteen thousand nine hundred eight (4,514,907) shares of Common Stock (which is less than 20% of the _twenty two million five
hundred seventy four thousand five hundred forty three (22,574,543) outstanding shares of Common  Stock as of the date of this  Agreement) unless or until the Company obtains any necessary shareholder approval or consent  in accordance with Nasdaq rules prior to such issuance.

          Section 1.8.   “Commitment Period” shall mean the period commencing on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the Company and the Investor may mutually agree in writing, and expiring on the earliest to occur of (x) the date on which the Investor shall have made payment of Advances pursuant to this Agreement in the aggregate amount of Fifteen Million Dollars ($15,000,000), (y) the date this Agreement is terminated pursuant to Section 2.4, or (z) the date occurring twenty-four (24) months after the Effective Date.

          Section 1.9.   “Common Stock” shall mean the Company’s common stock, par value $0.0001 per share.

          Section 1.10.  “Condition Satisfaction Date” shall have the meaning set forth in Section 7.2.

          Section 1.11.  “Damages” shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses of expert witnesses and investigation).

          Section 1.12.  “Effective Date” shall mean the date on which the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in Section 7.2(a). 

          Section 1.13.  “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

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          Section 1.14.  “Material Adverse Effect” shall mean any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement or the Registration Rights Agreement in any material respect.

          Section 1.15.  “Market Price” shall mean the lowest daily VWAP of the Common Stock during the Pricing Period.

          Section 1.16.  “Maximum Advance Amount” shall be Five Million  Dollars ($5,000,000) per Advance Notice subject to the limitations set forth in Section 1.7 of this Agreement.

          Section 1.17.  “NASD” shall mean the National Association of Securities Dealers, Inc.

          Section 1.18.  “Person” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

          Section 1.19.  “Placement Agent” shall mean Newbridge Securities Corporation, a registered broker-dealer.

          Section 1.20.  “Pricing Period” shall mean the five (5) consecutive Trading Days after the Advance Notice Date.

          Section 1.21.  “Principal Market” shall mean the Nasdaq National Market, the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin Board or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

          Section 1.22.   “Purchase Price” shall be set at ninety eight and one half percent (981⁄2 %) of the Market Price during the Pricing Period.

          Section 1.23.   “Registrable Securities” shall mean the shares of Common Stock to be issued hereunder (i) in respect of which the Registration Statement has not been declared effective by the SEC, (ii) which have not been sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act (“Rule 144”) or (iii) which have not been otherwise transferred to a holder who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend.

          Section 1.24.   “Registration Rights Agreement” shall mean the Registration Rights Agreement dated the date hereof, regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor.

          Section 1.25.   “Registration Statement” shall mean a registration statement on Form S-1, S-3 or SB-2 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and the Registration Rights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act.

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          Section 1.26.   “Regulation D” shall have the meaning set forth in the recitals of this Agreement.

          Section 1.27.   “SEC” shall mean the Securities and Exchange Commission.

          Section 1.28.   “Securities Act” shall have the meaning set forth in the recitals of this Agreement.

          Section 1.29.   “SEC Documents” shall mean Annual Reports on Form 10-K or Form 10-KSB, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements of the Company as supplemented to the date hereof, filed by the Company for a period of at least twelve (12) months immediately preceding the date hereof or the Advance Date, as the case may be, until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement.

          Section 1.30.   “Trading Day” shall mean any day during which the New York Stock Exchange shall be open for business.

          Section 1.31.   “VWAP” shall mean the volume weighted average price of the Company’s Common Stock as quoted by Bloomberg, LP.

ARTICLE II.
 Advances

          Section 2.1.     Advances.

                      Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII hereof), the Company may request an Advance by the Investor by the delivery of an Advance Notice.  The number of shares of Common Stock that the Investor shall purchase pursuant to each Advance shall be determined by dividing the amount of the Advance by the Purchase Price.  No fractional shares shall be issued. Fractional shares shall be rounded to the next higher whole number of shares.  The aggregate maximum amount of all Advances that the Investor shall be obligated to make under this Agreement shall not exceed the Commitment Amount.

          Section 2.2.     Mechanics.

                      (a)       Advance Notice.  At any time during the Commitment Period, the Company may deliver an Advance Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, the amount for each Advance as designated by the Company in the applicable Advance Notice shall not be more than the Maximum Advance Amount.  The aggregate amount of the Advances pursuant to this Agreement shall not exceed the Commitment Amount.  The Company acknowledges that the Investor may sell shares of the Company’s Common Stock corresponding with a particular Advance Notice after the Advance Notice is received by the Investor.  There shall be a minimum of five (5) Trading Days between each Advance Notice Date.

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                      (b)       Date of Delivery of Advance Notice.  An Advance Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 5:00 pm Eastern Time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any time on a day which is not a Trading Day.  No Advance Notice may be deemed delivered on a day that is not a Trading Day. 

                      (c)       Minimum Acceptable Price.     The minimum price (“Minimum Acceptable Price”), below which no purchase or sale of Common Stock shall occur, shall, in connection with each Advance Notice delivered by the Company, be equal to an amount not less than  ninety percent (90%) of the closing Bid Price of the Common Stock the Trading Day immediately preceding the Advance Notice Date for each Advance Notice.  Upon the issuance by the Company of an Advance Notice along with a Minimum Acceptable Price, (i) the amount of the Advance set forth in such Advance Notice shall automatically be reduced by twenty percent (20%) for each Trading Day during the Pricing Period the VWAP of the Common Stock is below the Minimum Acceptabl
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Price (each such day, an “Excluded Day”) and (ii) the Market Price shall be the lowest daily VWAP of the Common Stock during the Pricing Period days which are not Excluded Days.  The number of shares of Common Stock to be delivered to the Investor at the Closing (in accordance with Section 2.3 of this Agreement) shall correspond with the reduced Advance Notice amount.  The Company, and only the Company, may waive the Minimum Acceptable Price with respect to any particular Advance Notice by providing the Investor with written notice of waiver on or prior to the Advance Notice Date.   

          Section 2.3.     Closings.  On each Advance Date (i) the Company shall deliver to the Investor shares of the Company’s Common Stock, representing the amount of the Advance specified in such Advance Notice pursuant to Section 2.1 herein, registered in the name of the Investor and (ii) upon receipt of such shares, the Investor shall deliver to the Company the amount of the Advance specified in the Advance Notice by wire transfer of immediately available funds.  In addition, on or prior to the Advance Date, each of the Company and the Investor shall deliver to the other all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.  To the extent the Company has not paid the fees, expenses, and disbursements of the
Investor or the Company’s counsel in accordance with Section 12.4, the amount of such fees, expenses, and disbursements may be deducted by the Investor (and shall be paid to the relevant party) directly out of the proceeds of the Advance with no reduction in the amount of shares of the Company’s Common Stock to be delivered on such Advance Date. 

          Section 2.4.     Termination of Investment.  The obligation of the Investor to make an Advance to the Company pursuant to this Agreement shall terminate permanently (including with respect to an Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of fifty (50) Trading Days, other than due to the acts of the Investor, during the Commitment Period, or (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure is not cured within thirty (30) days after receipt of written notice from the Investor, provided, however, that this termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to such Registration Statement
and ending upon the date on which such post effective amendment is declared effective by the SEC.

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          Section 2.5.     Agreement to Advance Funds.  The Investor agrees to advance the amount specified in the Advance Notice to the Company after the completion of each of the following conditions and the other conditions set forth in this Agreement:

                      (a)       the execution and delivery by the Company, and the Investor, of this Agreement and the Exhibits hereto;

                      (b)       The Investor shall have received the shares of Common Stock applicable to the Advance in accordance with Section 2.3.  Such shares shall be free of restrictive legends.

                      (c)       the Company’s Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement shall have been declared effective by the SEC;

                      (d)       the Company shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the Registrable Securities, or shall have the availability of exemptions therefrom.  The sale and issuance of the Registrable Securities shall be legally permitted by all laws and regulations to which the Company is subject; 

                      (e)       the Company shall have filed with the Commission in a timely manner all reports, notices and other documents required of a “reporting company” under the Exchange Act and applicable Commission regulations;

                      (f)       the fees as set forth in Section 12.4 below shall have been paid or can be withheld as provided in Section 2.3; and

                      (g)      the conditions set forth in Section 7.2 shall have been satisfied.

                      (h)      the Company shall have provided to the Investor an acknowledgement, from the Company’s independent certified public accountants as to its ability to provide all consents required in order to file a registration statement in connection with this transaction;

                      (i)       The Company’s transfer agent shall be DWAC eligible.

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          Section 2.6.     Hardship.  In the event the Investor sells shares of the Company’s Common Stock after receipt of an Advance Notice and the Company fails to perform its obligations as mandated in Section 2.3, and specifically the Company fails to deliver to the Investor on the Advance Date the shares of Common Stock corresponding to the applicable Advance, the Company acknowledges that the Investor shall suffer financial hardship and therefore shall be liable for any and all losses, commissions, fees, or financial hardship caused to the Investor.

ARTICLE III.
 Representations and Warranties of Investor

          Investor hereby represents and warrants to, and agrees with, the Company that the following are true and correct as of the date hereof and as of each Advance Date:

          Section 3.1.     Organization and Authorization.  The Investor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder.  The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other proceedings on the part of the Investor.  The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments (including, without limitations, the Registration Rights Agreement), on behalf of the Investor.  This Agreement has been duly executed
and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

          Section 3.2.     Evaluation of Risks.  The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction.  It recognizes that its investment in the Company involves a high degree of risk.

          Section 3.3.     No Legal Advice From the Company.  The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with its own legal counsel and investment and tax advisors.  The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

          Section 3.4.     Investment Purpose. The securities are being purchased by the Investor for its own account, and for investment purposes.  The Investor agrees not to assign or in any way transfer the Investor’s rights to the securities or any interest therein and acknowledges that the Company will not recognize any purported assignment or transfer except in accordance with applicable Federal and state securities laws.  No other person has or will have a direct or indirect beneficial interest in the securities.  The Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s securities unless the securities are registered under Federal and applicable state securities laws and the applicable prospectus is delivered in connection with such sale, hypothecation or other transfer or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is available.

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          Section 3.5.     Accredited Investor.  The Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

          Section 3.6.     Information.  The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed investment decision.  The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management.  Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.  The Investor understands that its investment involves a high degree of risk.  The Investor is in a position regarding the Company, which, based upon
employment, family relationship or economic bargaining power, enabled and enables such Investor to obtain information from the Company in order to evaluate the merits and risks of this investment.  The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction.

          Section 3.7.     Receipt of Documents. The Investor and its counsel have received and read in their entirety:  (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company’s Form 10-KSB for the year ended December 31, 2004 and Forms 10-Q for the periods ended March 31, 2005, June 30, 2005 and September 30, 2005; and (iv) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.  

          Section 3.8.     Registration Rights Agreement.  The parties have entered into the Registration Rights Agreement dated the date hereof.

          Section 3.9.     No General Solicitation.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the shares of Common Stock offered hereby.

          Section 3.10.   Not an Affiliate.  The Investor is not an officer, director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any “Affiliate” of the Company (as that term is defined in Rule 405 of the Securities Act). 

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          Section
3.11.   Trading Activities.  The Investor’s
trading activities with respect to the Company’s Common Stock shall be in
compliance with all applicable federal and state securities laws, rules and
regulations and the rules and regulations of the Principal Market on which the
Company’s Common Stock is listed or traded. Neither the Investor nor its
affiliates has an open short position in the Common Stock of the Company, the
Investor agrees that it shall not, and that it will cause its affiliates not to,
engage in any short sales of or hedging transactions with respect to the Common
Stock, provided that the Company acknowledges and agrees that upon
receipt of an Advance Notice the Investor has the right to sell the shares to be
issued to the Investor pursuant to the Advance Notice during the applicable
Pricing Period.  

ARTICLE IV.
 Representations and Warranties of the Company

          Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents (as defined herein), the Company hereby represents and warrants to, and covenants with, the Investor that the following are true and correct as of the date hereof:

          Section 4.1.     Organization and Qualification.  The Company is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite corporate power to own its properties and to carry on its business as now being conducted.  Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which 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 on the Company and its subsidiaries taken as a whole.

          Section 4.2.     Authorization, Enforcement, Compliance with Other Instruments.  (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, 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, (iii) this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related
agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and assuming the execution and delivery thereof and acceptance by the Investor and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their 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 creditors’ rights and remedies.

          Section 4.3.     Capitalization.  As of the date hereof the authorized capital stock of the Company consists of 80,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”), of which 22,574,543 shares of Common Stock and no shares of Preferred Stock are issued and outstanding.  All of such outstanding shares have been validly issued and are fully paid and nonassessable.  Except as disclosed (or arising under plans disclosed in) in the SEC Documents, no shares of Common Stock are subject

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to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company.  Except as disclosed in the SEC Documents, as of the date hereof, (i) 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, 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, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities, (iii) there are no outstanding
registration statements other than on Form S-8, (iv) 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 Securities Act (except pursuant to the Registration Rights Agreement); and (v) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein.  The Company has furnished to the Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

          Section 4.4.     No Conflict.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws 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 the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect.  Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries.  The business of the Company and its subsidiaries is not being conducted in violation of any material law, ordinance, regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is
not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof.  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 date hereof.  The Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing.

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          Section 4.5.     SEC Documents; Financial Statements.  Since January 1, 2003, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Exchange Act.  The Company has delivered to the Investor or its representatives, or made available through the SEC’s website at http://www.sec.gov, true and complete copies of the SEC Documents.  As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) 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 Investor which is not included in the SEC Documents 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 circumstances under which they were made, not misleading.

          Section 4.6.     10b-5.  The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

          Section 4.7.     No Default.  Except as disclosed in the SEC Documents, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or
other material agreement applicable to the Company or instrument to which the Company is a party or by which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect on the Company’s business or financial condition.

          Section 4.8.     Absence of Events of Default.  Except for matters described in the SEC Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect on the Company’s business, properties, prospects, financial condition or results of operations.

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          Section 4.9.     Intellectual Property Rights.  The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.   The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.  

          Section 4.10.    Employee Relations.  Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.  The Company and its subsidiaries believe that their relations with their employees are good.

          Section 4.11.    Environmental Laws.  The Company and its subsidiaries are (i) in compliance with any and all applicable material foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

          Section 4.12.    Title.  Except as set forth in the SEC Documents, the Company has good and valid title to its properties and material assets owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company.  Any real property and facilities held under lease by the Company and 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.

          Section 4.13.    Insurance.  The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged.  Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.

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          Section 4.14.    Regulatory Permits.  The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, 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.

          Section 4.15.    Internal Accounting Controls.  The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient 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 accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

          Section 4.16.    No Material Adverse Breaches, etc.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.

          Section 4.17.    Absence of Litigation.  Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a Material Adverse Effect on the business, operations, properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.

          Section 4.18.    Subsidiaries.  Except as disclosed in the SEC Documents, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity.

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          Section
4.19.    Tax Status.  Except as disclosed in the
SEC Documents, the Company and each of its subsidiaries has made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and (unless and only to the
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) 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 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.

          Section 4.20.    Certain Transactions.  Except as set forth in the SEC Documents none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and 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 officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

          Section 4.21.    Fees and Rights of First Refusal.  The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

          Section 4.22.    Use of Proceeds.  The Company shall use the net proceeds from this offering for general corporate purposes, including, without limitation, the payment of loans incurred by the Company or for acquisitions.  However, in no event shall the Company use the net proceeds from this offering for the payment (or loan to any such person for the payment) of any judgment, or other liability, incurred by any executive officer, officer, director or employee of the Company, except for any liability owed to such person for services rendered, or if any judgment or other liability is incurred by such person originating from services rendered to the Company, or the Company has indemnified such person from liability.

          Section 4.23.    Opinion of Counsel.  Investor shall receive an opinion letter from counsel to the Company on the date hereof.

          Section 4.24.    Opinion of Counsel.  The Company will obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may be reasonably required in order to sell (assuming proper prospectus delivery) the securities issuable hereunder without restriction.

          Section 4.25.    Dilution.  The Company is aware and acknowledges that issuance of shares of the Company’s Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock.

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ARTICLE V.
 Indemnification

          The Investor and the Company represent to the other the following with respect to itself:

          Section 5.1.     Indemnification.

                       (a)       In consideration of the Investor’s execution and delivery of this Agreement, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Investor Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable

attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Investor Indemnitee not arising out of any action or inaction of an Investor Indemnitee, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees. 
To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

                       (b)       In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement, the Registration Rights Agreement, or any instr
ument or
document contemplated hereby or thereby executed by the Investor, (b) any breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement,  the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on  misrepresentations or due to a  breach by the Investor and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees.  To the extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

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                       (c)       The obligations of the parties to indemnify or make contribution under this Section 5.1 shall survive termination.

ARTICLE VI.
 Covenants of the Company

          Section 6.1.     Registration Rights.  The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof.

          Section 6.2.     Listing of Common Stock.  For so long as any securities issuable hereunder held by the Investor remain outstanding, the Company acknowledges, represents, warrants and agrees that it will use all reasonable efforts to maintain the listing of its Common Stock on the Principal Market; provided however that in the event that the Company (i) is acquired by merger or consolidation or (ii) sells all or substantially all of its assets,  the Investor shall have the right to require the surviving entity to  issue in exchange for any shares of Common Stock of the Company held by the Investor such amount of securities, cash and/or property that each share of Common Stock is acquired for in such transaction.

          Section 6.3.     Exchange Act Registration.  The Company will cause its Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Exchange Act.

          Section 6.4.     Transfer Agent Instructions.  Upon effectiveness of the Registration Statement the Company shall deliver instructions to its transfer agent to issue shares of Common Stock to the Investor free of restrictive legends on or before each Advance Date.

          Section 6.5.     Corporate Existence.  The Company will take all steps necessary to preserve and continue the corporate existence of the Company.

          Section 6.6.     Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance.  The Company will immediately notify the Investor upon its becoming aware of the occurrence of any of the following events in respect of a registration statement or related prospectus relating to an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other Federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of  any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification
with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus of any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of 

16

any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus.  The Company shall not deliver to the Investor any Advance Notice during the continuation of any of the
foregoing events.

          Section 6.7.     Restriction on Sale of Capital Stock.  During the Commitment Period, and except as may be contemplated or required by the Company’s currently proposed transaction with Ramius Capital Group, LLC, the Company shall not, without ten (10) business days prior written notice to the Investor, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, (ii) issue or sell any Preferred Stock, warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than such Common Stock’s Bid Price determined immediately prior to its issuance, or (iii) file any
registration statement on Form S-8.

          Section 6.8.     Consolidation; Merger.  The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity (a “Consolidation Event”) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement.

          Section 6.9.     Issuance of the Company’s Common Stock.  The sale of the shares of Common Stock shall be made in accordance with the provisions and requirements of Regulation D and any applicable state securities law.

          Section 6.10.    Review of Public Disclosures.  All SEC filings (including, without limitation, all filings required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K, etc) and other public disclosures made by the Company, including, without limitation, all press releases, investor relations materials, and scripts of analysts meetings and calls, shall be examined and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants.

          Section 6.11.    Market Activities.          The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Stock or (ii) bid for or purchase the Common Stock, or pay anyone any compensation for soliciting purchases of the Common Stock; provided that this shall not be construed to prevent the Company from engaging in a standard bonafide open-market stock buyback program if it should choose to do so.

17

ARTICLE VII.
 Conditions for Advance and Conditions to Closing

          Section 7.1.     Conditions Precedent to the Obligations of the Company.  The obligation hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below.

                       (a)       Accuracy of the Investor’s Representations and Warranties.  The representations and warranties of the Investor shall be true and correct in all material respects.

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

          Section 7.2.     Conditions Precedent to the Right of the Company to Deliver an Advance Notice and the Obligation of the Investor to Purchase Shares of Common Stock.  The right of the Company to deliver an Advance Notice and the obligation of the Investor hereunder to acquire and pay for shares of the Company’s Common Stock incident to a Closing is subject to the fulfillment by the Company, on (i) the date of delivery of such Advance Notice and (ii) the applicable Advance Date (each a “Condition Satisfaction Date”), of each of the following conditions:

                       (a)       Registration
of the Common Stock with the SEC.  The Company shall have filed with
the SEC a Registration Statement with respect to the resale of the Registrable
Securities in accordance with the terms of the Registration Rights
Agreement.  As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC’s concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or intends to take
such action), and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related prospectus shall
exist.  The Registration Statement must have been declared effective by the
SEC prior to the first Advance Notice Date.

                       (b)       Authority.  The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the Registration Rights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of exemptions therefrom.  The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which the Company is subject.

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                       (c)       Fundamental Changes. There shall not exist any fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post-effective amendment to the Registration Statement, unless such post-effective amendment has been filed.  

                       (d)       Performance by the Company.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement (including, without limitation, the conditions specified in Section 2.5 hereof) and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date.

                       (e)       No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by this Agreement.

                       (f)       No Suspension of Trading in or Delisting of Common Stock.  The trading of the Common Stock is not suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market).  The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market (if the Common Stock is traded on a Principal Market).  The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a Principal Market), unless it can reasonably be expected that even if such delisting were to occur the Common Stock would then five (5) business after such delisting become listed on another Princip
al Market,
including the OTC Bulletin Board

                       (g)      Maximum Advance Amount.  The amount of an Advance requested by the Company shall not exceed the Maximum Advance Amount.  In addition, in no event shall the number of shares issuable to the Investor pursuant to an Advance cause the aggregate number of shares of Common Stock beneficially owned by the Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company.  For the purposes of this section beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.

                       (h)      No Knowledge.  The Company has no knowledge of any event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective.

                       (i)       Executed Advance Notice.  The Investor shall have received the Advance Notice executed by an officer of the Company and the representations contained in such Advance Notice shall be true and correct as of each Condition Satisfaction Date.

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ARTICLE VIII.
 Due Diligence Review; Non-Disclosure of Non-Public Information

          Section 8.1.     Due Diligence Review.  Prior to the filing of the Registration Statement the Company shall make available for inspection and review by the Investor, its advisors and representatives, and any underwriter participating in any disposition of the Registrable Securities on behalf of the Investor pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement.

          Section 8.2.     Non-Disclosure of Non-Public Information.

                       (a)       The Company shall not disclose non-public information to the Investor, its advisors, or its representatives, unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investor, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review.  The Company may, as a condition to disclosing any non-public information hereunder, require the Investor’s advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investor.

                       (b)       Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the cou
rse of due
diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading.  Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement
or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

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ARTICLE IX.
 Choice of Law/Jurisdiction

          Section 9.1.    Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County, New Jersey and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action asserted pursuant to this paragraph.

ARTICLE X.
 Assignment; Termination

          Section 10.1.   Assignment.  Neither this Agreement nor any rights of the Company hereunder may be assigned to any other Person.

          Section 10.2.   Termination.  (a) The obligations of the Investor to make Advances under Article II hereof shall terminate twenty-four (24) months after the Effective Date.

          (b)       The Company may terminate this Agreement upon twenty (20) calendar days prior written notice to the Investor provided that (i) there are no Advances outstanding and (ii) the Company has paid all amounts owed to the Investor pursuant to this Agreement or any other Agreement between the Company and the Investor.

ARTICLE XI.
 Notices

          Section 11.1.   Notices.  Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

	
  
If to the   Company, to:
  	
  
China   Automotive Systems, Inc.
  
	
  
 
  	
  
No. 1   Henglong Road, Yu Qiao Development Zone
  
	
  
 
  	
  
Sashi   District, Jing Zhou City, Hubei Province
  
	
  
 
  	
  
People’s   Republic of China
  
	
  
 
  	
  
Attention:     Hanlin   Chen
  
	
  
 
  	
  
Facsimile:     (86-27)   5980-8808
  

21

	
  
With a copy   to:
  	
  
Heller Ehrman   LLP
  
	
   
  	
  
4350 La   Jolla Village Drive – 7th Floor
  
	
  
 
  	
  
San Diego,   CA 92122
  
	
  
 
  	
  
Attention:     Hayden   Trubitt, Esq
  
	
  
 
  	
  
Facsimile:     (858)   587-5903
  
	
  
 
  	
  
 
  
	
  
If to the   Investor(s):
  	
  
Cornell   Capital Partners, LP
  
	
  
 
  	
  
101 Hudson   Street –Suite 3700
  
	
  
 
  	
  
Jersey City,   NJ 07302
  
	
  
 
  	
  
Attention:     Mark   Angelo
  
	
  
 
  	
  
                     Portfolio   Manager
  
	
   
  	
  
Facsimile:    (201)   985-8266 
  
	
  
 
  	
  
 
  
	
  
With a Copy   to:
  	
  
David   Gonzalez, Esq.
  
	
  
 
  	
  
101 Hudson   Street – Suite 3700
  
	
  
 
  	
  
Jersey City,   NJ 07302
  
	
  
 
  	
  
Facsimile:     (201)   985-8266
  

Each party shall provide five (5) days’ prior written notice to the other party of any change in address or facsimile number.

ARTICLE XII.
 Miscellaneous

          Section 12.1.   Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof, though failure to deliver such copies shall not affect the validity of this Agreement.

          Section 12.2.   Entire Agreement; Amendments.  This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

          Section 12.3.   Reporting Entity for the Common Stock.  The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.  The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity.

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          Section 12.4.   Fees and Expenses.  The Company hereby agrees to pay the following fees:

                       (a)       Structuring Fees.  Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, except that (i) on the date hereof the Company shall pay a structuring fee of Seventeen Thousand Five Hundred Dollars ($17,500) to Yorkville Advisors Management, LLC and (ii) on each Advance Date, the Company shall pay Yorkville Advisors Management, LLC a structuring fee of Five Hundred Dollars ($500) directly out the gross proceeds of each Advance.

                       (b)       Due Diligence Fee. Company shall pay the Investor a non-refundable due diligence fee of Ten Thousand Dollars ($10,000) upon submission of the due diligence documents to the Investor.

                       (c)       Commitment Fees.

                                   (i)        On each Advance Date the Company shall pay to the Investor, directly out of the gross proceeds of each Advance, an amount equal to four and one half percent (4 1⁄2%) of the amount of each Advance.  The Company hereby agrees that if such payment, as is described above, is not made by the Company on the Advance Date, such payment shall be made as outlined and mandated by Section 2.3 of this Agreement.  

                                   (ii)       Upon the execution of this Agreement the Company shall issue to the Investor thirty seven thousand twenty two (37,022)   shares of Common Stock (the “Investor’s Shares”).

For a period of twelve (12) months from the date hereof the Investor shall not sell more than eight percent (8%) of the total Investor’s Shares, held by the Investor at the time, in any thirty (30) calendar day Period.

                                   (iii)      Fully Earned.  The Investor’s Shares shall be deemed fully earned as of the date hereof. 

                                   (iv)      Registration Rights.  The Investor’s Shares will have “piggy-back” registration rights.

          Section 12.5.    Brokerage.  Other than the Company’s fees to Newbridge Securities Corporation and/or Trenwith Securities each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party.  The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder’s fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby.

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          Section 12.6.    Confidentiality.  If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties hereto shall keep confidential any information obtained from any other party (except information publicly available or in such party’s domain prior to the date hereof, and except as required by court order) and shall promptly return to the other parties all schedules, documents, instruments, work papers or other written information without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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          IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Distribution Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

	
  
 
  	
  
COMPANY:
  
	
  
 
  	
  
CHINA AUTOMOTIVE SYSTEMS, INC.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ Hanlin   Chen
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Name:
  	
  
Hanlin Chen
  
	
  
 
  	
  
Title:
  	
  
Chairman,   President and Chief Executive Officer
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
INVESTOR:
  
	
  
 
  	
  
CORNELL CAPITAL PARTNERS, LP
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
Yorkville Advisors, LLC
  
	
  
 
  	
  
Its:
  	
  
General Partner
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ Mark   Angelo
  
	
   
  	
  
 
  	
  

  
	
  
 
  	
  
Name:
  	
  
Mark Angelo
  
	
  
 
  	
  
Title:
  	
  
Portfolio   Manager
  

25

EXHIBIT A

ADVANCE NOTICE

CHINA AUTOMOTIVE SYSTEMS, INC.

          The undersigned, _______________________ hereby certifies, with respect to the sale of shares of Common Stock of CHINA AUTOMOTIVE SYSTEMS, INC. (the “Company”) issuable in connection with this Advance Notice, delivered pursuant to the Standby Equity Distribution Agreement (the “Agreement”), as follows: 

          1.          The undersigned is the duly elected ______________ of the Company.

          2.          There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post effective amendment to the Registration Statement, unless such post-effective amendment has already been filed. 

          3.           The Company has performed in all material respects all covenants and agreements to be performed by the Company and has complied in all material respects with all obligations and conditions contained in the Agreement on or prior to the Advance Notice Date, and shall continue to perform in all material respects all covenants and agreements to be performed by the Company through the applicable Advance Date.

          4.          The undersigned hereby represents, warrants and covenants that it has made all filings (“SEC Filings”) required to be made by it pursuant to applicable securities laws (including, without limitation, all filings required under the Securities Exchange Act of 1934, which include Forms 10-Q or 10-QSB, 10-K or 10-KSB, 8-K, etc.).  All SEC Filings and other public disclosures made by the Company, including, without limitation, all press releases, analysts meetings and calls, etc. (collectively, the “Public Disclosures”), have been reviewed and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants.  None of the Company’s Public Disclosures contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

          5.          The Advance requested is _____________________.

          The undersigned has executed this Certificate this ____ day of _________________.

	
   
  	
  
CHINA AUTOMOTIVE SYSTEMS, INC.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Name:
  	
  
 
  
	
  
 
  	
  
Title:
  	
  
 
  

If Returning This Advance Notice via Facsimile Please Send To:  (201) 946-0851 

	
  
If by Mail,   via Federal Express To:
  	
  
Cornell   Capital Partners, LP
  
	
   
 	
  101 Hudson   Street, Suite 3700, Jersey City, NJ 07302Exhibit 10.2

CHINA AUTOMOTIVE SYSTEMS, INC. 
 PLACEMENT AGENT AGREEMENT

Dated as of: March 20, 2006

Newbridge Securities Corporation
 1451 Cypress Creek Road, Suite 204
 Fort Lauderdale, Florida 33309

Ladies and Gentlemen:

The undersigned, China Automotive Systems, Inc., a Delaware corporation (the “Company”) and hereby agrees with Newbridge Securities Corporation (the “Placement Agent”) as follows:

          1. Offering.  The Company hereby engages the Placement Agent to act as its exclusive placement agent in connection with the Standby Equity Distribution Agreement dated the date hereof by and between the Company and Cornell Capital Partners, LP (the “Investor”)  (the “Standby Equity Distribution Agreement”), pursuant to which the Company shall issue and sell to the Investor, from time to time, and the Investor shall purchase from the Company (the “Offering”) up to Fifteen Million Dollars ($15,000,000) (the “Commitment Amount”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at price per share equal to the Purchase Price, as that term is defined in the Standby Equity Distribution Agreement.  The Placement Agent services shall consist of reviewing the terms of the
Standby Equity Distribution Agreement and advising the Company with respect to those terms.

          All capitalized terms used herein and not otherwise defined herein shall have the same meaning ascribed to them as in the Standby Equity Distribution Agreement.  The Investor will be granted certain registration rights with respect to the Common Stock as more fully set forth in the Registration Rights Agreement between the Company and the Investor dated the date hereof (the “Registration Rights Agreement”).  The documents to be executed and delivered in connection with the Offering, including, but not limited, to the Company’s latest Quarterly Report on Form 10-Q as filed with the United States Securities and Exchange Commission, this Agreement, the Standby Equity Distribution Agreement, and the Registration Rights Agreement are referred to sometimes hereinafter collectively as the “Offering Materials.”  The Company’s Common Stock purchased by the
Investor under the Standby Equity Distribution Agreement is sometimes referred to hereinafter as the “Securities.”  The Placement Agent shall not be obligated to sell any Securities.

          2. Compensation.

                    A.     Upon the execution of this Agreement, the Company shall issue to the Placement Agent or its designee eighty hundred forty one (841) ) shares of the Company’s Common Stock (the “Placement Agent’s Shares”).  The Placement Agent shall be entitled to “piggy-back” registration rights with respect to the Placement Agent’s Shares, which shall be triggered upon registration of any shares of Common Stock by the Company pursuant to the Registration Rights Agreement dated the date hereof. 

          3. Representations, Warranties and Covenants of the Placement Agent.

                    A.     The Placement Agent represents, warrants and covenants as follows:

                              (i)          The Placement Agent has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby.

                              (ii)         The execution and delivery by the Placement Agent of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to which the Placement Agent is a party or by which the Placement Agent or its properties are bound, or any judgment, decree, order or, to the Placement Agent’s knowledge, any statute, rule or regulation applicable to the Placement Agent.  This Agreement when executed and delivered by the Placement Agent, will constitute the legal, valid and binding obligations of the Placement Agent, enforceable in accordance with their respective terms, except to the extent that (a) the
enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity, or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy.

                              (iii)        Upon receipt and execution of this Agreement, the Placement Agent will promptly forward copies of this Agreement to the Company or its counsel and the Investor or its counsel.

                              (iv)        The Placement Agent will not intentionally take any action that it reasonably believes would cause the Offering to violate the provisions of the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934 (the “1934 Act”), the respective rules and regulations promulgated thereunder (the “Rules and Regulations”) or applicable “Blue Sky” laws of any state or jurisdiction.

                              (v)         The Placement Agent is a member of the National Association of Securities Dealers, Inc., and is a broker-dealer registered as such under the 1934 Act and under the securities laws of the states in which the Securities will be offered or sold by the Placement Agent unless an exemption for such state registration is available to the Placement Agent.  The Placement Agent is in material compliance with the rules and regulations applicable to the Placement Agent generally and applicable to the Placement Agent’s participation in the Offering.

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          4. Representations and Warranties of the Company.

                    A.     The Company represents and warrants as follows:

                              (i)          The
execution, delivery and performance of each of this Agreement, the Standby
Equity Distribution Agreement, and the Registration Rights Agreement has been or
will be duly and validly authorized by the Company and is, or with respect to
this Agreement, the Standby Equity Distribution Agreement, and the Registration
Rights Agreement will be, a valid and binding agreement of the Company,
enforceable in accordance with its respective terms, except to the extent that
(a) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (b) the enforceability
hereof or thereof is subject to general principles of equity or (c) the
indemnification provisions hereof or thereof may be held to be in violation of
public policy.  The Securities to be issued pursuant to the transactions
contemplated by this Agreement and the Standby Equity Distribution Agreement
have been duly authorized and, when issued and paid for in accordance with this
Agreement and the Standby Equity Distribution Agreement will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except to the extent that (1) the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect and affecting the rights of creditors
generally, and (2) the enforceability thereof is subject to general principles
of equity.  All corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken by the Company.

                              (ii)         The Company has a duly authorized, issued and outstanding capitalization as set forth herein and in the Standby Equity Distribution Agreement.  The Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the agreements described herein and as described in the Standby Equity Distribution Agreement and the agreements described therein.  All issued and outstanding securities of the Company, have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or preemptive rights with respect thereto and are not
subject to personal liability solely by reason of being security holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company.  

                              (iii)        The Common Stock to be issued in accordance with this Agreement and the Standby Equity Distribution Agreement have been duly authorized and, when issued and paid for in accordance with this Agreement and the Standby Equity Distribution Agreement the certificates/instruments representing such Common Stock will be validly issued, fully-paid and non-assessable; the holders thereof will not be subject to personal liability solely by reason of being such holders; such Securities are not and will not be subject to the preemptive rights of any holder of any security of the Company.

                              (iv)        The Company has good and valid title to, or valid and enforceable leasehold estates in, all items of real and personal property necessary to conduct its business (including, without limitation, any real or personal property stated in the Offering Materials to be owned or leased by the Company), free and clear of all liens, encumbrances, claims, security interests and defects of any material nature whatsoever, other than those set forth in the Offering Materials and liens for taxes not yet due and payable.

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                              (v)         There is no litigation or governmental proceeding pending or, to the best of the Company’s knowledge, threatened against, or involving the properties or business of the Company, except as set forth in the Offering Materials. 

                              (vi)        The Company is duly organized and validly exists as a corporation in good standing under the laws of the State of Delaware.  Except as set forth in the Offering Materials, the Company does not own or control, directly or indirectly, an interest in any other corporation, partnership, trust, joint venture or other business entity.  The Company is duly qualified or licensed and in good standing as a foreign corporation in each jurisdiction in which the character of its operations requires such qualification or licensing and where failure to so qualify would have a material adverse effect on the Company.  The Company has all requisite corporate power and authority, and all material and necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies (domestic and foreign) to conduct its businesses (and proposed business) as described in the Offering Materials. Any disclosures in the Offering Materials concerning the effects of foreign, federal, state and local regulation on the Company’s businesses as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact.  The Company has all corporate power and authority to enter into this Agreement, the Standby Equity Distribution Agreement, the Registration Rights Agreement, and to carry out the provisions and conditions hereof and thereof, and all consents, authorizations, approvals and orders required in connection herewith and therewith have been obtained.  No consent, authorization or order of, and no filing with, any court, government agency or other body is required by the Company for the issuance of the Securities or
execution and delivery of the Offering Materials except for applicable federal and state securities laws.  The Company, since its inception, has not incurred any liability arising under or as a result of the application of any of the provisions of the 1933 Act, the 1934 Act or the Rules and Regulations.

                              (vii)       There has been no material adverse change in the condition or prospects of the Company, financial or otherwise, from the latest dates as of which such condition or prospects, respectively, are set forth in the Offering Materials, and the outstanding debt, the property and the business of the Company conform in all material respects to the descriptions thereof contained in the Offering Materials.

                              (viii)      Except as set forth in the Offering Materials, the Company is not in breach of, or in default under, any term or provision of any material indenture, mortgage, deed of trust, lease, note, loan or any other material agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected.  The Company is not in violation of any provision of its charter or by-laws or in violation of any franchise, license, permit, judgment, decree or order, or in violation of any material statute, rule or regulation.  Neither the execution and delivery of the Offering Materials nor the issuance and sale or delivery of the
Securities, nor the consummation of any of the transactions contemplated in the Offering Materials nor the compliance by the Company with the terms and provisions hereof or thereof, has conflicted with or will conflict with, or has resulted in or will result in a breach of, any of the terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or pursuant to the terms of any indenture, mortgage,

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deed of trust, note, loan or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company may be bound or to which any of the property or assets of the Company is subject except (a) where such default, lien, charge or encumbrance would not have a material adverse effect on the Company and (b) as described in the Offering Materials; nor will such action result in any violation of the provisions of the charter or the by-laws of the Company or, assuming the due performance by the Placement Agent of its obligations hereunder, any material statute or any material order, rule or regulation applicable to the Company of any court or of any foreign, federal, state or other regulatory authority or other government body having jurisdiction over the Company.

                              (ix)         Subsequent to the dates as of which information is given in the Offering Materials, and except as may otherwise be indicated or contemplated herein or therein the Company has not (a) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, or (b) entered into any transaction other than in the ordinary course of business, or (c) declared or paid any dividend or made any other distribution on or in respect of its capital stock.  Except as described in the Offering Materials, the Company has no outstanding obligations to any officer or director of the Company other than normal payable in connection with services provided recently.

                              (x)          There are no claims for services in the nature of a finder’s or origination fee with respect to the sale of the Common Stock or any other arrangements, agreements or understandings that may affect the Placement Agent’s compensation, as determined by the National Association of Securities Dealers, Inc.

                              (xi)         The Company owns or possesses, free and clear of all liens or encumbrances and rights thereto or therein by third parties, the requisite licenses or other rights to use all trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses necessary to conduct its business (including, without limitation, any such licenses or rights described in the Offering Materials as being owned or possessed by the Company) and, except as set forth in the Offering Materials, there is no claim or action by any person pertaining to, or proceeding, pending or threatened, which challenges the exclusive rights of the Company with respect to any trademarks, service marks, copyrights, service names, trade
names, patents, patent applications and licenses used in the conduct of the Company’s businesses (including, without limitation, any such licenses or rights described in the Offering Materials as being owned or possessed by the Company) except any claim or action that would not have a material adverse effect on the Company; the Company’s current products, services or processes do not infringe or will not infringe on the patents currently held by any third party.

                              (xii)        Subject to the performance by the Placement Agent of its obligations hereunder the offer and sale of the Securities complies, and will continue to comply, in all material respects with the requirements of Rule 506 of Regulation D promulgated by the SEC pursuant to the 1933 Act and any other applicable federal and state laws, rules, regulations and executive orders.  Neither the Offering Materials nor any amendment or supplement thereto nor any documents prepared by the Company in connection with the Offering will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made,
not misleading.  All statements of material facts in the Offering Materials are true and correct as of the date of the Offering Materials.

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                              (xiii)       All material taxes which are due and payable from the Company have been paid in full or adequate provision has been made for such taxes on the books of the Company, except for those taxes disputed in good faith by the Company  

                              (xiv)       None of the Company nor any of its officers, directors, employees or agents, nor any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who is or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) which (A) might subject the
Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, or (B) if not given in the past, might have had a materially adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in the Offering Materials, or (C) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company in the future.

          5. Certain Covenants and Agreements of the Company.

          The Company covenants and agrees at its expense and without any expense to the Placement Agent as follows:

                    A.     To advise the Placement Agent of any material adverse change in the Company’s financial condition, prospects or business or of any development materially affecting the Company or rendering untrue or misleading any material statement in the Offering Materials occurring at any time as soon as the Company is either informed or becomes aware thereof.

                    B.     To use its commercially reasonable efforts to cause the Common Stock issuable in connection with the Standby Equity Distribution Agreement to be qualified or registered for sale on terms consistent with those stated in the Registration Rights Agreement and under the securities laws of such jurisdictions as the Placement Agent shall reasonably request.  Qualification, registration and exemption charges and fees shall be at the sole cost and expense of the Company.

                    C.     Upon written request, to provide and continue to provide the Placement Agent copies of all quarterly financial statements and audited annual financial statements prepared by or on behalf of the Company, other reports prepared by or on behalf of the Company for public disclosure and all documents delivered to the Company’s stockholders.

                    D.     To comply with the terms of the Offering Materials.

                    E.     To ensure that any transactions between or among the Company, or any of its officers, directors and affiliates be on terms and conditions that are no less favorable to the Company, than the terms and conditions that would be available in an “arm’s length” transaction with an independent third party.

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                    F.     Upon the effectiveness of a registration statement covering the Securities, the Company shall promptly provide the Placement Agent with an opinion of Counsel to the Company, which opinion shall be in form and substance reasonably satisfactory to the Placement Agent.

                    G.     At or prior to the Closing, the Company shall have been furnished such documents, certificates and opinions as it may reasonably require for the purpose of enabling the Placement Agent to review or pass upon the matters referred to in this Agreement and the Offering Materials, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained.

          6. Indemnification and Limitation of Liability.

                    A.     The Company hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the SEC’s Rules and Regulations promulgated thereunder (the “Rules and Regulations”), harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or
any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of the Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in (a) Section 4 of this Agreement, (b) the Offering Materials (except those written statements relating to the Placement Agent given by the Placement Agent for inclusion therein), (c) any application or other document or written communication executed by the Company or based upon written information furnished by the Company filed in any jurisdiction in order to qualify the Common Stock under the securities laws thereof, or any state securities commission or agency; (ii)
the omission or alleged omission from documents described in clauses (a), (b) or (c) above of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) the breach of any representation, warranty, covenant or agreement made by the Company in this Agreement.  The Company further agrees that upon demand by an indemnified person, at any time or from time to time, it will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Company has indemnified such person pursuant hereto.  Notwithstanding the foregoing provisions of this Paragraph 6(A), any such payment or reimbursement by the Company of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Placement
Agent or such indemnified person based upon specific finding of fact that the Placement Agent or such indemnified person’s gross negligence or willful misfeasance will be promptly repaid to the Company.

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                    B.     The Placement Agent hereby agrees that it will indemnify and hold the Company and each officer, director, shareholder, employee or representative of the Company, and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action,
suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Company or such indemnified person of the Company may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement, or (ii) any false or misleading information provided to the Company in writing by one of the Placement Agent’s indemnified persons specifically for inclusion in the Offering Materials.

                    C.     Promptly after receipt by an indemnified party of notice of commencement of any action covered by Section 6(A) or (B), the party to be indemnified shall, within five (5) business days, notify the indemnifying party of the commencement thereof; the omission by one (1) indemnified party to so notify the indemnifying party shall not relieve the indemnifying party of its obligation to indemnify any other indemnified party that has given such notice and shall not relieve the indemnifying party of any liability outside of this indemnification if not materially prejudiced thereby.  In the event that any action is brought against the indemnified party, the indemnifying party will be entitled to participate therein and, to the extent it may desire, to assume and control the defense thereof with counsel chosen by
it which is reasonably acceptable to the indemnified party.  After notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under such Section 6(A) or (B), for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, but the indemnified party may, at its own expense, participate in such defense by counsel chosen by it, without, however, impairing the indemnifying party’s control of the defense.  Subject to the proviso of this sentence and notwithstanding any other statement to the contrary contained herein, the indemnified party or parties shall have the right to choose its or their own counsel and control the defense of any action, all at the expense of the indemnifying party if (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the
defense of such action at the expense of the indemnifying party, or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the

8

indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying party; provided, however, that the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstance, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties.  No settlement of any action or proceeding against an indemnified party shall be made without the consent of the indemnifying party.

                    D.     In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 6(A) or 6(B) is due in accordance with its terms but is for any reason held by a court to be unavailable on grounds of policy or otherwise, the Company and the Placement Agent shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with the investigation or defense of same) which the other may incur in such proportion so that the Placement Agent shall be responsible for such percent of the aggregate of such losses, claims, damages and liabilities as shall equal the percentage of the gross proceeds paid to the Placement Agent and the Company shall be responsible for the balance; provided, however, that no
person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  For purposes of this Section 6(D), any person controlling, controlled by or under common control with the Placement Agent, or any partner, director, officer, employee, representative or any agent of any thereof, shall have the same rights to contribution as the Placement Agent and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each officer of the Company and each director of the Company shall have the same rights to contribution as the Company.  Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against the other party under this
Section 6(D), notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any obligation they may have hereunder or otherwise if the party from whom contribution may be sought is not materially prejudiced thereby.  

                    E.     The indemnity and contribution agreements contained in this Section 6 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified person or any termination of this Agreement.

                    F.     The Company hereby waives, to the fullest extent permitted by law, any right to or claim of any punitive, exemplary, incidental, indirect, special, consequential or other damages (including, without limitation, loss of profits) against the Placement Agent and each officer, director, shareholder, employee or representative of the placement agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations arising out of any cause whatsoever (whether such cause be based in contract, negligence, strict liability, other tort or otherwise).  Notwithstanding anything to the contrary contained herein, the aggregate liability of the Placement Agent and each officer, director,
shareholder, employee or representative of the Placement Agent and each person controlling,

9

controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations shall not exceed the compensation received by the Placement Agent pursuant to Section 2 hereof.  This limitation of liability shall apply regardless of the cause of action, whether contract, tort (including, without limitation, negligence) or breach of statute or any other legal or equitable obligation.

                    G.     For all purposes of this Section 6, it is specifically agreed that the Investor shall be deemed not to be a person controlling, controlled by or under common control with the Placement Agent.

          7. Payment of Expenses.

          The Company hereby agrees to bear all of the expenses in connection with the Offering, including, but not limited to the following: filing fees, printing and duplicating costs, advertisements, postage and mailing expenses with respect to the transmission of Offering Materials, registrar and transfer agent fees, escrow agent fees and expenses, fees of the Company’s counsel and accountants, issue and transfer taxes, if any. 

          8. Termination.

          This Agreement shall be co-terminous with, and terminate upon the same terms and conditions as those set forth in the Standby Equity Distribution Agreement.  

          9. Miscellaneous.

                    A.     This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all which shall be deemed to be one and the same instrument.

                    B.     Any notice required or permitted to be given hereunder shall be given in writing and shall be deemed effective when deposited in the United States mail, postage prepaid, or when received if personally delivered or faxed (upon confirmation of receipt received by the sending party), addressed as follows to such other address of which written notice is given to the others):

	
  If to Placement Agent, to:
  	
  
Newbridge Securities   Corporation
  
	
  
 
  	
  
1451 Cypress Creek Road,   Suite 204
  
	
  
 
  	
  
Fort Lauderdale, Florida   33309
  
	
  
 
  	
  
Attention:     Doug   Aguililla
  
	
  
 
  	
  
Facsimile:     (954)   229-9937
  
	
  
 
  	
  
 
  
	
  
If to the Company, to:
  	
  
China Automotive Systems,   Inc.
  
	
  
 
  	
  
No. 1 Henglong Road, Yu   Qiao Development Zone
  
	
  
 
  	
  
Sashi District, Jing Zhou   City, Hubei Province
  
	
  
 
  	
  
People’s Republic of China
  
	
   
  	
  
Attention:     Hanlin   Chen
  
	
  
 
  	
  
Facsimile:     (86-27)   5980-8808
  

10

	
  
With a copy to:
  	
  
Heller Ehrman LLP
  
	
  
 
  	
  
4350 La Jolla Village   Drive – 7th Floor
  
	
  
 
  	
  
San Diego, CA 92122
  
	
  
 
  	
  
Attention:     Hayden   Trubitt, Esq
  
	
  
 
  	
  
Facsimile:     (858)   587-5903
  

                    C.     This Agreement shall be governed by and construed in all respects under the laws of the State of New Jersey, without reference to its conflict of laws rules or principles.  Any suit, action, proceeding or litigation arising out of or relating to this Agreement shall be brought and prosecuted in such federal or state court or courts located within the State of New Jersey as provided by law.  The parties hereby irrevocably and unconditionally consent to the jurisdiction of each such court or courts located within the State of New Jersey and to service of process by registered or certified mail, return receipt requested, or by any other manner provided by applicable law, and hereby irrevocably and unconditionally waive any right to claim that any suit, action, proceeding or litigation so commenced has been
commenced in an inconvenient forum.

                    D.     This Agreement and the other agreements referenced herein contain the entire understanding between the parties hereto and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought.

                    E.     If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement.

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11

          IN WITNESS WHEREOF, the parties hereto have executed this Placement Agent Agreement as of the date first written above.

	
  
 
  	
  
CHINA AUTOMOTIVE SYSTEMS, INC.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ Hanlin Chen
  
	
   
  	
  
 
  	
  

  
	
  
 
  	
  
Name:
  	
  
Hanlin Chen
  
	
  
 
  	
  
Title:
  	
  
Chairman, President and   Chief Executive Officer
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
NEWBRIDGE   SECURITIES CORPORATION
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ Douglas K. Aguililla
  
	
  
 
  	
  
 
  	
  

  
	
   
  	
  Name:
  	
  Douglas K. Aguililla
  
	
   
  	
  Title:
  	
  Director of Investment   Banking
  
	
   
  	
   
  	
   
  

12

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