Document:

Unassociated Document

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of May 31, 2007, by and among China
      Water and Drinks Inc., a Nevada corporation
      (f/k/a/
      Ugods, Inc.), and all predecessors thereof (collectively, the “Company”),
      and
      the investors identified on the signature pages hereto (each, an “Investor”
      and
      collectively, the “Investors”).
      

     

    WHEREAS,
      the Company entered into an Amended and Restated Agreement for Share Exchange,
      dated May 11, 2007 (the “Exchange
      Agreement”),
      with
      Gain Dynasty Investments Limited, a company formed under the laws of the British
      Virgin Islands (“BVI”) and Mr. Xu Hong Bin, the sole shareholder of BVI,
      pursuant to which the Company will, subject to the terms and conditions thereof,
      acquire all of the equity interest of BVI, in exchange for 85.53% of the Common
      Stock (as defined below) on a fully diluted basis as of the time of the closing
      of the exchange under the Exchange Agreement and immediately prior to the
      Closing under this Agreement (the “Exchange”).

     

    WHEREAS,
      the closing of the Exchange is conditioned, among other things, on the
      consummation of the financing contemplated by this Agreement immediately
      thereafter.

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      exemptions from registration under the Securities Act (as defined below), the
      Company desires to issue and sell to each Investor, and each Investor, severally
      and not jointly, desires to purchase from the Company, shares of the Company’s
      Common Stock, as more fully described in this Agreement.

     

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

     

    ARTICLE
      1.

     

    DEFINITIONS

     

    1.1. Definitions.
      In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms shall have the meanings indicated in this
      Section 1.1:

     

    “2007
      Annual
      Report”
      means
      the
      Annual Report on Form 10-KSB of the Company for the fiscal year ending December
      31, 2007, as filed with the Commission.

     

    “2007
      Guaranteed
      ATNI” has
      the
      meaning set forth in Section 4.11.

     

    “2007
      Make Good Shares” has
      the
      meaning set forth in Section 4.11.

     

    “2008
      Annual
      Report”
      means
      the
      Annual Report on Form 10-KSB of the Company for the fiscal year ending December
      31, 2008, as filed with the Commission.

     

    “2008
      Guaranteed
      ATNI” has
      the
      meaning set forth in Section 4.11.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “2008
      Guaranteed
      EPS” has
      the
      meaning set forth in Section 4.11.

     

    “2008
      Make Good Shares” has
      the
      meaning set forth in Section 4.11. 

     

    “Action”
      means
      any action, suit, inquiry, notice of violation, proceeding (including any
      partial proceeding such as a deposition) or investigation pending or threatened
      in writing against or affecting the Company, any Subsidiary or any of their
      respective properties before or by any court, arbitrator, governmental or
      administrative agency, regulatory authority (federal, state, county, local
      or
      foreign), stock market, stock exchange or trading facility.

     

    “Affiliate”
      means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144.

     

    “Available
      Undersubscription Amount”
      has the
      meaning set forth in Section 4.14(c).

     

    “Basic
      Amount”
has
      the
      meaning set forth in Section 4.14(b).

     

    “Business
      Day”
      means
      any day except Saturday, Sunday and any day which is a federal legal holiday
      or
      a day on which banking institutions in the State of New York, the State of
      Nevada or the province of Guangdong in the PRC are authorized or required by
      law
      or other governmental action to close.

     

    “Buy-In”
      has
      the
      meaning set forth in Section 4.1(c).

     

    “BVI”
      has the
      meaning set forth in the recitals to this Agreement.

     

    “BVI
      Financial Statements”
has
      the
      meaning set forth in Section 5.1(e).

     

    “Certificate
      of Amendment”
means
      the Certificate of Amendment to the Company’s Articles of Incorporation
      increasing the Company’s authorized Common Stock to not less than 150,000,000
      shares.

     

    "Certificate
      of Designation" shall
      mean a Certificate of Designation to be filed prior to the Closing by the
      Company with the Secretary of State of the State of Nevada, setting forth the
      rights, preferences and privileges of the Shares, in the form attached as
Exhibit
      A
      hereto.

     

    “Closing”
      means
      the closing of the purchase and sale of the Shares
      pursuant
      to Article II.

     

    “Closing
      Date”
      means
      the Business Day on which all of the conditions set forth in Sections 5.1 and
      5.2 hereof are satisfied, or such other date as the parties may
      agree.

     

    "Closing
      Escrow Agreement"
      means
      the Closing Escrow Agreement, dated as of the date hereof, between the Company
      and the escrow agent (the “Escrow
      Agent”)
      identified therein, in the form of Exhibit
      B
      hereto.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Commission”
      means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
      means
      the common stock of the Company, par value $0.001 per share, and any securities
      into which such common stock may hereafter be reclassified or for which it
      may
      be exchanged as a class.

     

    “Common
      Stock Equivalents”
      means
      any securities of the Company or any Subsidiary which entitle the holder thereof
      to acquire Common Stock at any time, including without limitation, any debt,
      preferred stock, rights, options, warrants or other instrument that is at any
      time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock or other securities that entitle the holder
      to
      receive, directly or indirectly, Common Stock.

     

    “Company
      Deliverables”
      has the
      meaning set forth in Section 2.2(a).

     

    “Company
      U.S. Counsel”
      means
      Loeb & Loeb LLP.

     

    “Disclosure
      Materials”
      has the
      meaning set forth in Section 3.1(h).

     

    “Effective
      Date”
      means
      the date that the Registration Statement required by Section 2(a) of the
      Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Evaluation
      Date” has
      the
      meaning set forth in Section 3.1(s).

     

    “Exchange”
      has the
      meaning set forth in the recitals to this Agreement.

     

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

     

    “Exchange
      Agreement”
      has the
      meaning set forth in the recitals to this Agreement.

     

    “GAAP”
      means
      U.S. generally accepted accounting principles.

     

    “Intellectual
      Property Rights”
      has the
      meaning set forth in Section 3.1(p).

     

    “Investment
      Amount”
      means,
      with respect to each Investor, the Investment Amount indicated on such
      Investor’s signature page to this Agreement.

     

    “Investor
      Deliverables”
      has the
      meaning set forth in Section 2.2(b).

     

    “Investor
      Party”
      has the
      meaning set forth in Section 4.7.

     

    “Lien”
      means
      any lien, charge, encumbrance, security interest, right of first refusal, right
      of participation or other restrictions of any kind.

     

    “Lockup
      Agreement”
      means
      the Lockup Agreement, dated as of the date hereof, by and between the Company
      and each person listed as a signatory thereto, in the form attached as
Exhibit
      C
      hereto.

     

    
      
        
        

      

      
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    “Losses”
      means
      any loss, liability, obligation, claim, contingency, damage, cost or expense,
      including all judgments, amounts paid in settlements, court costs and reasonable
      attorneys’ fees and costs of investigation related thereto.

     

    “Make
      Good Escrow Agreement” means
      the
      Make Good Escrow Agreement, dated as of the date hereof, among the Company,
      The
      Pinnacle Fund, L.P., as agent (the “Agent”),
      the
      escrow agent identified therein (the “Make
      Good Escrow Agent”),
      the
      Make Good Pledgor and the Investors, in the form of Exhibit
      D
      hereto.

     

    “Make
      Good Pledgor” means
      Mr.
      Xu Hong Bin. 

     

    “Material
      Adverse Effect”
      means
      any of (i) a material and adverse effect on the legality, validity or
      enforceability of any Transaction Document, (ii) a material and adverse effect
      on the results of operations, assets, prospects, business or condition
      (financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
      or (iii) an adverse impairment to the Company’s ability to perform on a timely
      basis its obligations under any Transaction Document.

     

    “Money
      Laundering Laws”
has
      the
      meaning set forth in Section 3.1(gg).

     

    “New
      York Courts”
      means
      the state and federal courts sitting in the City of New York, Borough of
      Manhattan.

     

    “Notice
      of Acceptance”
      has the
      meaning set forth in Section 4.14(c).

     

    “OFAC”
      has the
      meaning set forth in Section 3.1(ff).

     

    “Offer”
has
      the
      meaning set forth in Section 4.14(b).

     

    “Offer
      Notice”
has
      the
      meaning set forth in Section 4.14(b).

     

    “Offer
      Period”
      has the
      meaning set forth in Section 4.14(c).

     

    “Offered
      Securities”
has
      the
      meaning set forth in Section 4.14(b).

     

    “Outside
      Date”
      means
      the thirtieth day following the date of this Agreement.

     

    “Person”
      means an
      individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “PRC”
means
      the People’s Republic of China, not including Taiwan, Hong Kong and
      Macau.

     

    “PRC
      Subsidiaries”
means,
      collectively, JuanJiang TaoDa Ltd, Co, a Wholly Owned Foreign Enterprise
      registered in the PRC, ShuanDong TaoDa Ltd, Co, a Wholly Owned Foreign
      Enterprise registered in the PRC, GuangDong TaoDa Ltd, Co, a Wholly Owned
      Foreign Enterprise registered in the PRC, and ChuangChun TaoDa Ltd, Co, a Wholly
      Owned Foreign Enterprise registered in the PRC. 

     

    
      
        
        

      

      
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    “Proceeding”
      means an
      action, claim, suit, investigation or proceeding (including, without limitation,
      an investigation or partial proceeding, such as a deposition), whether commenced
      or threatened.

     

    “Refused
      Securities”
      has the
      meaning set forth in Section 4.14(d).

     

    “Registration
      Rights Agreement”
      means
      the Registration Rights Agreement, dated as of the date hereof, among the
      Company and the Investors, in the form of Exhibit
      E
      hereto.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Investors of the Underlying
      Shares.

     

    “Rule
      144”
      means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “SEC
      Reports”
      has the
      meaning set forth in Section 3.1(h).

     

    “Securities”
      means
      the
      Shares and the Underlying Shares.

     

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

     

    “Share
      Delivery Date”
      has the
      meaning set forth in Section 4.1(c).

     

    “Shares”
means
      the 4,477,612 shares of Series A Convertible Preferred Stock issued or issuable
      to the Investors pursuant to this Agreement.

     

    “Short
      Sales”
      include,
      without limitation, all “short sales” as defined in Rule 200 promulgated under
      Regulation SHO under the Exchange Act and all types of direct and indirect
      stock
      pledges, forward sale contracts, options, puts, calls, swaps and similar
      arrangements (including on a total return basis), and sales and other
      transactions through non-US broker dealers or foreign regulated
      brokers.

     

    “Stock
      Pledge Agreement” means
      the
      Stock Pledge Agreement, dated as of the date hereof, by and among the Company,
      the Investors, Xu Hong Bin and Chen Xing Hua, in the form of Exhibit
      F
      hereto.

     

    “Stockholder
      Approval”
      has the
      meaning set forth in Section 4.16.

     

    “Subsequent
      Placement”
has
      the
      meaning set forth in Section 4.14(a).

     

    “Subsequent
      Placement Agreement”
has
      the
      meaning set forth in Section 4.14(f).

     

    
      
        
        

      

      
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    “Subsidiary”
      means
      any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X
      promulgated by the Commission under the Exchange Act. The term “Subsidiaries”
shall be deemed to include BVI, and its subsidiaries as if the Exchange shall
      have been consummated as of the time of the execution of this Agreement, with
      the effect that all references to Subsidiaries of the Company in this Agreement
      shall also refer to BVI, and its subsidiaries.

     

    “Trading
      Day”
      means
      (i) a day on which the Common Stock is traded on a Trading Market (other than
      the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading
      Market (other than the OTC Bulletin Board), a day on which the Common Stock
      is
      traded in the over-the-counter market, as reported by the OTC Bulletin Board,
      or
      (iii) if the Common Stock is not quoted on any Trading Market, a day on which
      the Common Stock is quoted in the over-the-counter market as reported by the
      Pink Sheets LLC (or any similar organization or agency succeeding to its
      functions of reporting prices); provided, that in the event that the Common
      Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
      Trading Day shall mean a Business Day.

     

    “Trading
      Market”
      means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market
      or OTC Bulletin Board on which the Common Stock is listed or quoted for trading
      on the date in question.

     

    “Transaction
      Documents”
      means
      this Agreement, the Certificate of Designation, the Registration Rights
      Agreement, the Closing Escrow Agreement, the Lockup Agreements, the Make Good
      Escrow Agreement, the Stock Pledge Agreement and any other documents or
      agreements executed in connection with the transactions contemplated
      hereunder.

     

    “Trigger
      Date”
has
      the
      meaning set forth in Section 4.14(a).

     

    “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion or exchange of the
      Shares.

     

    “Undersubscription
      Amount”
has
      the
      meaning set forth in Section 4.14(b).

     

    ARTICLE
      2.

     

    PURCHASE
      AND SALE

     

    2.1. Closing.
      Subject
      to the terms and conditions set forth in this Agreement, at the Closing the
      Company shall issue and sell to each Investor, and each Investor shall,
      severally and not jointly, purchase from the Company, the Shares representing
      such Investor’s Investment Amount. The Closing shall take place at the offices
      of Bryan Cave LLP, 1290 Avenue of the Americas, New York, NY 10104 on the
      Closing Date or at such other location or time as the parties may
      agree.

     

    2.2. Closing
      Deliveries.
      (a)
      At the
      Closing, the Company shall deliver or cause to be delivered to each Investor
      the
      following (the “Company
      Deliverables”):

     

    (i) one
      or
      more stock certificates, evidencing Shares with an aggregate stated value equal
      to such Investor’s Investment Amount, registered in the name of such
      Investor;

     

    
      
        
        

      

      
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    (ii) a
      copy of
      the executed, filed and effective Certificate of Designation, accompanied by
      a
      certificate evidencing the acceptance thereof by the Secretary of State of
      the
      State of Nevada;

     

    (iii) an
      executed consent of at least a majority of the shares of Common Stock then
      outstanding, irrevocably approving an increase in the Company’s authorized
      Common Stock to not less than 150,000,000 shares;

     

    (iv) the
      Closing Escrow Agreement, duly executed by all parties thereto;

     

    (v) the
      Make
      Good Escrow Agreement, duly executed by all parties thereto, together with
      written confirmation that the “Escrow Shares” (as defined therein) have been
      delivered to the escrow agent thereunder, along with bank signature stamped
      stock powers executed in blank (or such other signed instrument of transfer
      acceptable to the Company’s transfer agent);

     

    (vi) the
      Stock
      Pledge Agreement, duly executed by all parties thereto, together with the
      certificates representing the Shares comprising the Collateral (each as defined
      in the Pledge Agreement) for the benefit of each such Investor in accordance
      with the Stock Pledge Agreement, stamped with a bank medallion guarantee, along
      with stock powers duly executed in blank;

     

    (vii) the
      legal
      opinion of Company U.S. Counsel, in agreed form, addressed to the
      Investors;

     

    (viii) the
      legal
      opinion of special Nevada counsel to the Company, in agreed form, addressed
      to
      the Investors;

     

    (ix) the
      legal
      opinion of special British Virgin Islands counsel to BVI, in agreed form,
      addressed to the Investors;

     

    (x) the
      legal
      opinion of special PRC counsel to each of the PRC Subsidiaries, in agreed form,
      addressed to the Investors; 

     

    (xi) the
      Registration Rights Agreement, duly executed by the Company;

     

    (vi) the
      Lockup Agreement, duly executed by each party thereto.

     

    (b) At
      the
      Closing, each Investor shall deliver or cause to be delivered the following
      (collectively, the “Investors
      Deliverables”):

     

    (i) to
      the
      Escrow Agent for deposit and disbursement in accordance with the Closing Escrow
      Agreement, its Investment Amount, in United States dollars and in immediately
      available funds, by wire transfer to an account designated in writing by the
      Company for such purpose;

     

    
      
        
        

      

      
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    (ii) to
      the
      Company, the Registration Rights Agreement, duly executed by such
      Investor;

     

    (iii) to
      the
      Company, the Make Good Escrow Agreement, duly executed by such Investor;
      and

     

    (iv) to
      the
      Company, the Stock Pledge Agreement, duly executed by such
      Investor.

     

    ARTICLE
      3.

     

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1. Representations
      and Warranties of the Company.
      The
      Company, hereby makes the following representations and warranties to each
      Investor:

     

    (a) Subsidiaries.
      The
      Company has no direct or indirect Subsidiaries other than as specified in the
      Schedule
      3.1(a).
      Except
      as disclosed in Schedule
      3.1(a),
      the
      Company owns, directly or indirectly, all of the capital stock of each
      Subsidiary free and clear of any and all Liens, and all the issued and
      outstanding shares of capital stock of each Subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights. As
      of
      the Closing, the Company shall own 100% of the capital stock of BVI, free and
      clear of all Liens. BVI is the indirect beneficial owner of 100% of the capital
      stock of each of the PRC Subsidiaries.

     

    (b) Organization
      and Qualification.
      The
      Company and each Subsidiary are duly incorporated or otherwise organized,
      validly existing and in good standing under the laws of the jurisdiction of
      its
      incorporation or organization (as applicable), with the requisite power and
      authority to own and use its properties and assets and to carry on its business
      as currently conducted. Neither the Company nor any Subsidiary is in violation
      of any of the provisions of its respective certificate or articles of
      incorporation, bylaws or other organizational or charter documents. The Company
      and each Subsidiary are duly qualified to conduct its respective businesses
      and
      are in good standing as a foreign corporation or other entity in each
      jurisdiction in which the nature of the business conducted or property owned
      by
      it makes such qualification necessary, except where the failure to be so
      qualified or in good standing, as the case may be, could not, individually
      or in
      the aggregate, have or reasonably be expected to result in a Material Adverse
      Effect.

     

    (c) Authorization;
      Enforcement.
      Upon
      the filing of the Certificate of Designation with the State of Nevada, the
      Company and Subsidiaries will have the requisite corporate power and authority
      to enter into and to consummate the transactions contemplated by each of the
      Transaction Documents and otherwise to carry out its obligations thereunder.
      The
      execution and delivery of each of the Transaction Documents by the Company
      and
      each Subsidiary (to the extent such Subsidiary is a party thereto) and the
      consummation by each of them of the transactions contemplated thereby have
      been
      duly authorized by all necessary action on the part of the Company and each
      Subsidiary and no further action is required by the Company or Subsidiaries
      in
      connection with such authorization. Each Transaction Document has been (or
      upon
      delivery will have been) duly executed by the Company (and each Subsidiary
      to
      the extent any such Subsidiary is a party thereto) and, when delivered in
      accordance with the terms hereof, will constitute the valid and binding
      obligation of the Company (and each such Subsidiary, as applicable) enforceable
      against the Company (and each Subsidiary, as applicable) in accordance with
      its
      terms, except as such enforceability may be limited by applicable bankruptcy,
      insolvency, reorganization, moratorium, liquidation or similar laws relating
      to,
      or affecting generally the enforcement of, creditors’ rights and remedies or by
      other equitable principles of general application.

     

    
      
        
        

      

      
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    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      (and each Subsidiary to the extent a party thereto) and the consummation by
      the
      Company (and each such Subsidiary, as applicable) of the transactions
      contemplated thereby do not and will not (i) subject to the filing of the
      Certificate of Designation with the State of Nevada, conflict with or violate
      any provision of the Company’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or (ii)
      conflict with, or constitute a default (or an event that with notice or lapse
      of
      time or both would become a default) under, or give to others any rights of
      termination, amendment, acceleration or cancellation (with or without notice,
      lapse of time or both) of, any agreement, credit facility, debt or other
      instrument (evidencing a Company or Subsidiary debt or otherwise) or other
      understanding to which the Company or any Subsidiary is a party or by which
      any
      property or asset of the Company or any Subsidiary is bound or affected, or
      (iii) result in a violation of any law, rule, regulation, order, judgment,
      injunction, decree or other restriction of any United States or PRC court or
      governmental authority to which the Company or a Subsidiary is subject
      (including federal and state securities laws and regulations), or by which
      any
      property or asset of the Company or a Subsidiary is bound or affected; except
      in
      the case of each of clauses (ii) and (iii), such as could not, individually
      or
      in the aggregate, have or reasonably be expected to result in a Material Adverse
      Effect. 

     

    (e) Filings,
      Consents and Approvals.
      Neither
      the Company, nor any Subsidiary, is required to obtain any consent, waiver,
      authorization or order of, give any notice to, or make any filing or
      registration with, any United States or PRC court or other federal, state,
      local
      or other governmental authority or other Person in connection with the
      execution, delivery and performance by the Company and each Subsidiary to the
      extent a party thereto of the Transaction Documents, other than (i) the filing
      with the Commission of one or more Registration Statements in accordance with
      the requirements of the Registration Rights Agreement, (ii) filings required
      by
      state securities laws, (iii) the filing of a Notice of Sale of Securities on
      Form D with the Commission under Regulation D of the Securities Act, (iv) the
      filings required in accordance with Section 4.5, (v) filings, consents and
      approvals required by the rules and regulations of the applicable Trading
      Market, (vi) the filing of the Certificate of Designation with the State of
      Nevada and (vii) those that have been made or obtained prior to the date of
      this
      Agreement. 

     

    (f) Issuance
      of the Shares.
      Immediately following the filing of the Certificate of Designation with the
      State of Nevada, the Shares shall be duly authorized and, when issued and paid
      for in accordance with the Transaction Documents, will be duly and validly
      issued, fully paid and nonassessable, free and clear of all Liens. Upon the
      Stockholder Approval and immediately following the filing of the Certificate
      of
      Amendment with the State of Nevada, the Company shall reserve from its duly
      authorized capital stock the shares of Common Stock issuable pursuant to this
      Agreement in order to issue the Underlying Shares. 

     

    
      
        
        

      

      
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    (g) Capitalization.
      The
      number of shares and type of all authorized, issued and outstanding capital
      stock of the Company, and all shares of Common Stock reserved for issuance
      under
      the Company’s various option and incentive plans, is specified in the SEC
      Reports. Except as specified in the SEC Reports, no securities of the Company
      are entitled to preemptive or similar rights, and no Person has any right of
      first refusal, preemptive right, right of participation, or any similar right
      to
      participate in the transactions contemplated by the Transaction Documents.
      Except as specified in the SEC Reports, there are no outstanding options,
      warrants, scrip rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities, rights or obligations convertible into
      or
      exchangeable for, or giving any Person any right to subscribe for or acquire,
      any shares of Common Stock, or contracts, commitments, understandings or
      arrangements by which the Company or any Subsidiary is or may become bound
      to
      issue additional shares of Common Stock, or securities or rights convertible
      or
      exchangeable into shares of Common Stock. The issue and sale of the Securities
      hereunder will not, immediately or with the passage of time, obligate the
      Company or any Subsidiary to issue shares of Common Stock or other securities
      to
      any Person (other than the Investors) and will not result in a right of any
      holder of Company or Subsidiary securities to adjust the exercise, conversion,
      exchange or reset price under such securities.

     

    (h) SEC
      Reports; Financial Statements.
      The
      Company has filed all reports required to be filed by it under the Securities
      Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
      for the twelve months preceding the date hereof (or such shorter period as
      the
      Company was required by law to file such reports), including, for this purpose,
      the current reports on Form 8-K that are being filed by the Company on or about
      the date hereof to disclose the transactions contemplated hereby and by the
      Exchange Agreement (the foregoing materials being collectively referred to
      herein as the “SEC
      Reports”
      and,
      together with the Schedules to this Agreement (if any), the “Disclosure
      Materials”)
      on a
      timely basis or has timely filed a valid extension of such time of filing and
      has filed any such SEC Reports prior to the expiration of any such extension.
      Except as set forth on Schedule
      3.1(h)
      hereto,
      as of their respective dates, the SEC Reports complied in all material respects
      with the requirements of the Securities Act and the Exchange Act and the rules
      and regulations of the Commission promulgated thereunder, and none of the SEC
      Reports, when filed, contained any untrue statement of a material fact or
      omitted to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in light of the circumstances under which
      they were made, not misleading. The financial statements of the Company and
      each
      Subsidiary included in the SEC Reports comply in all material respects with
      applicable accounting requirements and the rules and regulations of the
      Commission with respect thereto as in effect at the time of filing. Such
      financial statements have been prepared in accordance with GAAP applied on
      a
      consistent basis during the periods involved, except as may be otherwise
      specified in such financial statements or the notes thereto, and fairly present
      in all material respects the financial position of the Company and its
      consolidated Subsidiaries as of and for the dates thereof and the results of
      operations and cash flows for the periods then ended, subject, in the case
      of
      unaudited statements, to normal, immaterial, year-end audit adjustments. The
      BVI
      Financial Statements comply in all material respects with applicable accounting
      requirements and the rules and regulations of the Commission with respect
      thereto as in effect at the time of filing. The BVI Financial Statements have
      been prepared in accordance with GAAP applied on a consistent basis during
      the
      periods involved, except as may be otherwise specified in such financial
      statements or the notes thereto, and fairly present in all material respects
      the
      financial position of BVI and its consolidated Subsidiaries as of and for the
      dates thereof and the results of operations and cash flows for the periods
      then
      ended, subject, in the case of unaudited statements, to normal, immaterial,
      year-end audit adjustments.

     

    
      
        
        

      

      
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    (i) Press
      Releases.
      The
      press releases disseminated by the Company during the twelve months preceding
      the date of this Agreement taken as a whole do not contain any untrue statement
      of a material fact or omit to state a material fact required to be stated
      therein or necessary in order to make the statements therein, in light of the
      circumstances under which they were made and when made, not
      misleading.

     

    (j) Material
      Changes.
      Except
      as
      specifically disclosed in the SEC Reports, (i) there has been no event,
      occurrence or development that has had or that could reasonably be expected
      to
      result in a Material Adverse Effect, (ii) neither the Company nor any Subsidiary
      of the Company has incurred any liabilities (contingent or otherwise) other
      than
      (A) trade payables, accrued expenses and other liabilities incurred in the
      ordinary course of business consistent with past practice and (B) liabilities
      not required to be reflected in the Company’s or its Subsidiaries’ financial
      statements pursuant to GAAP or required to be disclosed in filings made with
      the
      Commission, (iii) neither the Company nor any of its Subsidiaries has altered
      its method of accounting or the identity of its auditors, (iv) neither the
      Company nor any of its Subsidiaries has declared or made any dividend or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock, and (v) neither the Company nor any of its Subsidiaries has issued any
      equity securities to any officer, director or Affiliate, except pursuant to
      existing Company stock option plans. The Company does not have pending before
      the Commission any request for confidential treatment of
      information.

     

    (k) Litigation.
      There
      is no Action which (i) adversely affects or challenges the legality, validity
      or
      enforceability of any of the Transaction Documents or the Securities or (ii)
      except as specifically disclosed in the SEC Reports, could, if there were an
      unfavorable decision, individually or in the aggregate, have or reasonably
      be
      expected to result in a Material Adverse Effect. Neither the Company nor any
      Subsidiary, nor any director or officer thereof (in his or her capacity as
      such), is or has been the subject of any Action involving a claim of violation
      of or liability under federal or state securities laws or a claim of breach
      of
      fiduciary duty, except as specifically disclosed in the SEC Reports. There
      has
      not been, and to the knowledge of the Company, there is not pending any
      investigation by the Commission involving the Company, any of its Subsidiaries
      or any of their respective current or former directors or officers (in his
      or
      her capacity as such). The Commission has not issued any stop order or other
      order suspending the effectiveness of any registration statement filed by the
      Company or any Subsidiary under the Exchange Act or the Securities
      Act.

     

    
      
        
        

      

      
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    (l) Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company. Neither the Company nor
      any
      Subsidiary has any employment or labor contracts, agreements or other
      understandings with any Person. 

     

    (m) Indebtedness;
      Compliance.
      Except
      as disclosed on Schedule
      3.1(m),
      neither
      the Company nor any Subsidiary is a party to any indenture, debt, loan or credit
      agreement by which it or any of its properties is bound. Neither the Company
      nor
      any Subsidiary (i) is in default under or in violation of (and no event has
      occurred that has not been waived that, with notice or lapse of time or both,
      would result in a default by the Company or any Subsidiary under), nor has
      the
      Company or any Subsidiary received notice of a claim that it is in default
      under
      or that it is in violation of, any indenture, loan or credit agreement or any
      other agreement or instrument to which it is a party or by which it or
      any of
      its properties is bound (whether
      or not such default or violation has been waived), (ii) is in violation of
      any
      order of any court, arbitrator or governmental body, or (iii) is or has been
      in
      violation of any statute, rule or regulation of any governmental authority,
      including without limitation all foreign, federal, state and local laws relating
      to taxes, environmental protection, occupational health and safety, product
      quality and safety and employment and labor matters, except in each case as
      could not, individually or in the aggregate, have or reasonably be expected
      to
      result in a Material Adverse Effect. The Exchange Agreement complies with all
      applicable laws, rules and regulations of the United States and the PRC. The
      Company is in compliance with all effective requirements of the Sarbanes-Oxley
      Act of 2002, as amended, and the rules and regulations thereunder, that are
      applicable to it, except where such noncompliance could not have or reasonably
      be expected to result in a Material Adverse Effect.

     

    (n) Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits could not,
      individually or in the aggregate, have or reasonably be expected to result
      in a
      Material Adverse Effect, and neither the Company nor any Subsidiary has received
      any notice of proceedings relating to the revocation or modification of any
      such
      permits.

     

    (o) Title
      to Assets.
      The
      Company and the Subsidiaries have valid land use rights for all real property
      that is material to their respective businesses and good title in all personal
      property owned by them that is material to their respective businesses, in
      each
      case free and clear of all Liens, except for Liens as do not materially affect
      the value of such property and do not materially interfere with the use made
      and
      proposed to be made of such property by the Company and the Subsidiaries. Any
      real property and facilities held under lease by the Company and the
      Subsidiaries are held by them under valid, subsisting and enforceable leases
      of
      which the Company and the Subsidiaries are in compliance, except as could not,
      individually or in the aggregate, have or reasonably be expected to result
      in a
      Material Adverse Effect.

     

    (p) Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      copyrights, licenses and other similar rights that are necessary or material
      for
      use in connection with their respective businesses as described in the SEC
      Reports and which the failure to so have could, individually or in the
      aggregate, have or reasonably be expected to result in a Material Adverse Effect
      (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a written notice that the
      Intellectual Property Rights used by the Company or any Subsidiary violates
      or
      infringes upon the rights of any Person. Except as set forth in the SEC Reports,
      to the knowledge of the Company, all such Intellectual Property Rights are
      enforceable and there is no existing infringement by another Person of any
      of
      the Intellectual Property Rights. No former or current employee, no former
      or
      current consultant, and no third-party joint developer of the Company or any
      Subsidiary has any Intellectual Property Rights made, developed, conceived,
      created or written by the aforesaid employee or consultant during the period
      of
      his or her retention by the Company or any Subsidiary, as the case may be,
      which
      can be asserted against the Company or any Subsidiary, as the case may
      be.

     

    
      
        
        

      

      
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    (q) Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged. The Company has no reason to believe that it will not be able to renew
      its and the Subsidiaries’ 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 on terms consistent with market for the Company’s and
      such Subsidiaries’ respective lines of business.

     

    (r) Transactions
      With Affiliates and Employees; Customers.
      Except
      as set forth in the SEC Reports, none of the officers or directors of the
      Company or any Subsidiary of the Company, and, to the knowledge of the Company,
      none of the employees of the Company, or any of its Subsidiaries, is presently
      a
      party to any transaction with the Company or any Subsidiary (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 entity in which any officer, director, or any
      such
      employee has a substantial interest or is an officer, director, trustee or
      partner. No material customer of the Company or any Subsidiary has indicated
      their intention to diminish their relationship with the Company or any
      Subsidiary (as the case may be) and neither the Company nor any Subsidiary
      has
      any knowledge from which it could reasonably conclude that any such customer
      relationship may be adversely affected.

     

    (s) Internal
      Accounting Controls.
      The
      Company and the 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 GAAP 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. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and its Subsidiaries and designed such disclosure
      controls and procedures to ensure that material information relating to the
      Company, including its Subsidiaries, is made known to the certifying officers
      by
      others within those entities, particularly during the period in which the
      Company’s Form 10-KSB or 10-QSB, as the case may be, is being prepared. The
      Company’s certifying officers have evaluated the effectiveness of the Company’s
      controls and procedures in accordance with Item 307 of Regulation S-B under
      the
      Exchange Act for the Company’s most recently ended fiscal quarter or fiscal
      year-end (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed Form 10-KSB or Form 10-QSB the
      conclusions of the certifying officers about the effectiveness of the disclosure
      controls and procedures based on their evaluations as of the Evaluation Date.
      Since the Evaluation Date, there have been no significant changes in the
      Company’s or its Subsidiaries’ internal controls (as such term is defined in
      Item 308(c) of Regulation S-B under the Exchange Act) or, to the Company’s
      knowledge, in other factors that could significantly affect the Company’s or its
      Subsidiaries’ internal controls.

     

    
      
        
        

      

      
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    (t) Solvency.
      Based
      on the financial condition of the Company, including its Subsidiaries, as of
      the
      Closing Date (and assuming that the Closing shall have occurred), (i) the
      Company’s fair saleable value of its assets exceeds the amount that will be
      required to be paid on or in respect of the Company’s existing debts and other
      liabilities (including known contingent liabilities) as they mature, (ii) the
      Company’s assets do not constitute unreasonably small capital to carry on its
      business for the current fiscal year as now conducted and as proposed to be
      conducted including its capital needs taking into account the particular capital
      requirements of the business conducted by the Company, and projected capital
      requirements and capital availability thereof, and (iii) the current cash flow
      of the Company, together with the proceeds the Company would receive, were
      it to
      liquidate all of its assets, after taking into account all anticipated uses
      of
      the cash, would be sufficient to pay all amounts on or in respect of its debt
      when such amounts are required to be paid. The Company does not intend to incur
      debts beyond its ability to pay such debts as they mature (taking into account
      the timing and amounts of cash to be payable on or in respect of its
      debt).

     

    (u) Certain
      Fees.
      Except
      as described in Schedule
      3.1(u),
      no
      brokerage or finder’s fees or commissions are or will be payable by the Company
      or any of its Subsidiaries to any broker, financial advisor or consultant,
      finder, placement agent, investment banker, bank or other Person with respect
      to
      the transactions contemplated by this Agreement. The Investors shall have no
      obligation with respect to any fees or with respect to any claims (other than
      such fees or commissions owed by an Investor pursuant to written agreements
      executed by such Investor which fees or commissions shall be the sole
      responsibility of such Investor) made by or on behalf of other Persons for
      fees
      of a type contemplated in this Section that may be due in connection with the
      transactions contemplated by this Agreement.

     

    (v) Certain
      Registration Matters.
      Assuming the accuracy of the Investors’ representations and warranties set forth
      in Section 3.2(b)-(e), no registration under the Securities Act is required
      for
      the offer and sale of the Shares and the offer of the Underlying Shares by
      the
      Company to the Investors under the Transaction Documents. The Company is
      eligible to register its Common Stock for resale by the Investors under Form
      S-1
      promulgated under the Securities Act. Except as specified in Schedule
      3.1(v),
      the
      Company has not granted or agreed to grant to any Person any rights (including
      “piggy-back” registration rights) to have any securities of the Company
      registered with the Commission or any other governmental authority that have
      not
      been satisfied.

     

    
      
        
        

      

      
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    (w) Listing
      and Maintenance Requirements.
      Except
      as specified in the SEC Reports, the Company has not, in the two years preceding
      the date hereof, received notice from any Trading Market to the effect that
      the
      Company is not in compliance with the listing or maintenance requirements
      thereof. The Company is, and has no reason to believe that it will not in the
      foreseeable future continue to be, in compliance with the listing and
      maintenance requirements for continued listing of the Common Stock on the
      Trading Market on which the Common Stock is currently listed or quoted. The
      issuance and sale of the Securities under the Transaction Documents does not
      contravene the rules and regulations of the Trading Market on which the Common
      Stock is currently listed or quoted, and no approval of the stockholders of
      the
      Company thereunder is required for the Company to issue and deliver to the
      Investors the Securities as contemplated by the Transaction
      Documents.

     

    (x) Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately following the
      Closing will not have become, an “investment company” within the meaning of the
      Investment Company Act of 1940, as amended.

     

    (y) Application
      of Takeover Protections.
      The
      Company has taken all necessary action, if any, in order to render inapplicable
      any control share acquisition, business combination, poison pill (including
      any
      distribution under a rights agreement) or other similar anti-takeover provision
      under the Company’s Articles of Incorporation (or similar charter documents) or
      the laws of its state of incorporation that is or could become applicable to
      the
      Investors as a result of the Investors and the Company fulfilling their
      obligations or exercising their rights under the Transaction Documents,
      including without limitation the Company’s issuance of the Securities and the
      Investors’ ownership of the Securities. 

     

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

     

    (aa) Consultation
      with Auditors.
      The
      Company has consulted its independent auditors concerning the accounting
      treatment of the transactions contemplated by the Transaction Documents, and
      in
      connection therewith has furnished such auditors complete copies of the
      Transaction Documents.

     

    (bb) Make
      Good Shares.
      Make
      Good Pledgor is the sole record and beneficial owner of the 2007 Make Good
      Shares and 2008 Make Good Shares, and holds such shares free and clear of all
      Liens.

     

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

     

    
      
        
        

      

      
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    (dd) PFIC.
      Neither
      the Company nor any Subsidiary is or intends to become a “passive foreign
      investment company” within the meaning of Section 1297 of the U.S. Internal
      Revenue Code of 1986, as amended.

     

    (ee) OFAC.
      Neither
      the Company nor any Subsidiary nor, to the knowledge of the Company, any
      director, officer, agent, employee, Affiliate or Person acting on behalf of
      the
      Company or any Subsidiary is currently subject to any U.S. sanctions
      administered by the Office of Foreign Assets Control of the U.S. Treasury
      Department (“OFAC”);
      and
      the Company will not directly or indirectly use the proceeds of the sale of
      the
      Shares, or lend, contribute or otherwise make available such proceeds to any
      Subsidiary, joint venture partner or other Person or entity, towards any sales
      or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country
      sanctioned by OFAC or for the purpose of financing the activities of any Person
      currently subject to any U.S. sanctions administered by OFAC.

     

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

     

    (gg) Other
      Representations and Warranties Relating to the PRC Subsidiaries.
      

     

    (i) All
      material consents, approvals, authorizations or licenses requisite under PRC
      law
      for the due and proper establishment and operation of each of the PRC
      Subsidiaries have been duly obtained from the relevant PRC governmental
      authorities and are in full force and effect.

     

    (ii) All
      filings and registrations with the PRC governmental authorities required in
      respect of each of the PRC Subsidiaries and their respective operations
      including, without limitation, the registration with the Ministry of Commerce,
      the State Administration of Industry and Commerce, the State Administration
      for
      Foreign Exchange, tax bureau and customs authorities have been duly completed
      in
      accordance with the relevant PRC rules and regulations, except where, the
      failure to complete such filings and registrations does not, and would not,
      individually or in the aggregate, have a Material Adverse Effect.

     

    (iii) Each
      of
      the PRC Subsidiaries has complied with all relevant PRC laws and regulations
      regarding the contribution and payment of its registered share capital, the
      payment schedule of which has been approved by the relevant PRC governmental
      authorities. There are no outstanding rights of, or commitments made by the
      Company or any Subsidiary to sell any equity interest in any of the PRC
      Subsidiaries.

     

    
      
        
        

      

      
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    (iv) None
      of
      the PRC Subsidiaries is in receipt of any letter or notice from any relevant
      PRC
      governmental authority notifying it of revocation of any licenses or
      qualifications issued to it or any subsidy granted to it by any PRC governmental
      authority for non-compliance with the terms thereof or with applicable PRC
      laws,
      or the need for compliance or remedial actions in respect of the activities
      carried out by such PRC Subsidiary, except such revocation does not, and would
      not, individually or in the aggregate, have a Material Adverse
      Effect.

     

    (v) Each
      of
      the PRC Subsidiaries has conducted its respective business activities within
      the
      permitted scope of business or has otherwise operated its respective business
      in
      compliance with all relevant legal requirements and with all requisite licenses
      and approvals granted by competent PRC governmental authorities other than
      such
      non-compliance that do not, and would not, individually or in the aggregate,
      have a Material Adverse Effect. As to licenses, approvals and government grants
      and concessions requisite or material for the conduct of any part of the
      business of any PRC Subsidiary which is subject to periodic renewal, the Company
      has no knowledge of any grounds on which such requisite renewals will not be
      granted by the relevant PRC governmental authorities.

     

    (vi) With
      regard to employment and staff or labor, each of the PRC Subsidiaries has
      complied with all applicable PRC laws and regulations in all material respects,
      including without limitation, laws and regulations pertaining to welfare funds,
      social benefits, medical benefits, insurance, retirement benefits, pensions
      or
      the like, other than such non-compliance that do not, and would not,
      individually or in the aggregate, have a Material Adverse Effect.

     

    (hh) Disclosure.
      All
      disclosure provided to the Investors regarding the Company, the Subsidiaries
      or
      their respective businesses and the transactions contemplated hereby, furnished
      by or on behalf of the Company (including the Company’s representations and
      warranties set forth in this Agreement) are true and correct and do not contain
      any untrue statement of a material fact or omit to state any material fact
      necessary in order to make the statements made therein, in light of the
      circumstances under which they were made, not misleading.

     

    3.2. Representations
      and Warranties of the Investors.
      Each
      Investor hereby, for itself and for no other Investor, represents and warrants
      to the Company as follows:

     

    (a) Organization;
      Authority.
      Such
      Investor is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with the requisite
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the applicable Transaction Documents and otherwise
      to carry out its obligations thereunder. The execution, delivery and performance
      by such Investor of the transactions contemplated by this Agreement has been
      duly authorized by all necessary corporate or, if such Investor is not a
      corporation, such partnership, limited liability company or other applicable
      like action, on the part of such Investor. Each of this Agreement and the
      Registration Rights Agreement has been duly executed by such Investor, and
      when
      delivered by such Investor in accordance with the terms hereof, will constitute
      the valid and legally binding obligation of such Investor, enforceable against
      it in accordance with its terms, except as such enforceability may be limited
      by
      applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      or
      similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general
      application.

     

    
      
        
        

      

      
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    (b) Investment
      Intent.
      Such
      Investor is acquiring the Securities as principal for its own account for
      investment purposes only and not with a view to or for distributing or reselling
      such Securities or any part thereof, without prejudice, however, to such
      Investor’s right at all times to sell or otherwise dispose of all or any part of
      such Securities in compliance with applicable federal and state securities
      laws.
      Subject to the immediately preceding sentence, nothing contained herein shall
      be
      deemed a representation or warranty by such Investor to hold the Securities
      for
      any period of time. Such Investor is acquiring the Securities hereunder in
      the
      ordinary course of its business. Such Investor does not have any agreement
      or
      understanding, directly or indirectly, with any Person to distribute any of
      the
      Securities.

     

    (c) Investor
      Status.
      At the
      time such Investor was offered the Securities, it was, and at the date hereof
      it
      is, an “accredited investor” as defined in Rule 501(a) under the Securities Act.
      Such Investor is not a registered broker-dealer under Section 15 of the Exchange
      Act.

     

    (d) General
      Solicitation.
      Such
      Investor is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    (e) Access
      to Information.
      Such
      Investor acknowledges that it has reviewed the Disclosure Materials and has
      been
      afforded (i) the opportunity to ask such questions as it has deemed necessary
      of, and to receive answers from, representatives of the Company concerning
      the
      terms and conditions of the offering of the Securities and the merits and risks
      of investing in the Securities; (ii) access to information about the Company
      and
      the Subsidiaries and their respective financial condition, results of
      operations, business, properties, management and prospects sufficient to enable
      it to evaluate its investment; and (iii) the opportunity to obtain such
      additional information that the Company possesses or can acquire without
      unreasonable effort or expense that is necessary to make an informed investment
      decision with respect to the investment. Neither such inquiries nor any other
      investigation conducted by or on behalf of such Investor or its representatives
      or counsel shall modify, amend or affect such Investor’s right to rely on the
      truth, accuracy and completeness of the Disclosure Materials and the Company’s
      representations and warranties contained in the Transaction
      Documents.

     

    (f) Certain
      Trading Activities.
      Such
      Investor has not directly or indirectly, nor has any Person acting on behalf
      of
      or pursuant to any understanding with such Investor, engaged in any transactions
      in the securities of the Company (including, without limitations, any Short
      Sales involving the Company’s securities) since the earlier to occur of (1) the
      time that such Investor was first contacted by the Company regarding an
      investment in the Company and (2) the 30th
      day
      prior to the date of this Agreement. Such Investor covenants that neither it
      nor
      any Person acting on its behalf or pursuant to any understanding with it will
      engage in any transactions in the securities of the Company (including Short
      Sales) prior to the time that the transactions contemplated by this Agreement
      are publicly disclosed.

     

    
      
        
        

      

      
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    (g) Independent
      Investment Decision.
      Such
      Investor has independently evaluated the merits of its decision to purchase
      the
      Securities pursuant to the Transaction Documents, and such Investor confirms
      that it has not relied on the advice of any other Investor’s business and/or
      legal counsel in making such decision. Such Investor has not relied on the
      business or legal advice of the Company or any of its agents, counsel or
      Affiliates in making its investment decision hereunder, and confirms that none
      of such Persons has made any representations or warranties to such Investor
      in
      connection with the transactions contemplated by the Transaction
      Documents.

     

    (h) Confidentiality.
      Such
      Investor hereby acknowledges that all information pertaining to the investment
      in the Securities that was provided to such Investor is confidential and such
      Investor shall not disclose any such confidential information to any third
      party
      prior to the public announcement of the transaction contemplated by this
      Agreement in accordance with Section 4.5 herein, other than as set forth
      herein.

     

    The
      Company acknowledges and agrees that no Investor has made or makes any
      representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in this Section 3.2.

     

    ARTICLE
      4.

     

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1.         
      (a)  Securities
      may only be disposed of in compliance with state and federal securities laws.
      In
      connection with any transfer of the Securities other than pursuant to an
      effective registration statement, to the Company, to an Affiliate of an Investor
      or in connection with a pledge as contemplated in Section 4.1(b), the Company
      may require the transferor thereof to provide to the Company an opinion of
      counsel selected by the transferor, the form and substance of which opinion
      shall be reasonably satisfactory to the Company, to the effect that such
      transfer does not require registration of such transferred Securities under
      the
      Securities Act.

     

    (b) Certificates
      evidencing the Securities will contain the following legend, until such time
      as
      they are not required under Section 4.1(c):

     

    [NEITHER
      THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES
      HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE
      SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
      IN
      RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
      AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
      SOLD
      EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT
      OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
      TO,
      THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
      TO
      THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY. [THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
      CONVERSION OF THESE SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION
      WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

     

    
      
        
        

      

      
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    The
      Company acknowledges and agrees that an Investor may from time to time pledge,
      and/or grant a security interest in some or all of the Securities pursuant
      to a
      bona fide margin agreement in connection with a bona fide margin account and,
      if
      required under the terms of such agreement or account, such Investor may
      transfer pledged or secured Securities to the pledgees or secured parties.
      Such
      a pledge or transfer would not be subject to approval or consent of the Company
      and no legal opinion of legal counsel to the pledgee, secured party or pledgor
      shall be required in connection with the pledge, but such legal opinion may
      be
      required in connection with a subsequent transfer following default by the
      Investor transferee of the pledge. No notice shall be required of such pledge.
      At the appropriate Investor’s expense, the Company will execute and deliver such
      reasonable documentation as a pledgee or secured party of Securities may
      reasonably request in connection with a pledge or transfer of the Securities
      including the preparation and filing of any required prospectus supplement
      under
      Rule 424(b)(3) of the Securities Act or other applicable provision of the
      Securities Act to appropriately amend the list of selling stockholders
      thereunder. Except as otherwise provided in Section 4.1(c), any Securities
      subject to a pledge or security interest as contemplated by this Section 4.1(b)
      shall continue to bear the legend set forth in this Section 4.1(b) and be
      subject to the restrictions on transfer set forth in Section
      4.1(a).

     

    (c) Certificates
      evidencing Underlying Shares shall not contain any legend (including the legend
      set forth in Section 4.1(b)): (i) following a sale or transfer of such
      Underlying Shares pursuant to an effective registration statement (including
      the
      Registration Statement), or (ii) following a sale or transfer of such Underlying
      Shares pursuant to Rule 144 (assuming the transferee is not an Affiliate of
      the
      Company), or (iii) while such Underlying Shares are eligible for sale under
      Rule
      144(k). If an Investor shall make a sale or transfer of Underlying Shares either
      (x) pursuant to Rule 144 or (y) pursuant to a registration statement and in
      each
      case shall have delivered to the Company or the Company’s transfer agent the
      certificate representing Underlying Shares containing a restrictive legend
      which
      are the subject of such sale or transfer
      and a representation letter in customary form (the
      date of
      such sale or transfer and Underlying Share delivery being the “Share
      Delivery Date”)
      and (1)
      the Company shall fail to deliver or cause to be delivered to such Investor
      a
      certificate representing such Underlying Shares that is free from all
      restrictive or other legends by the third Trading Day following the Share
      Delivery Date and (2) following such third Trading Day after the Share Delivery
      Date and prior to the time such Underlying Shares are received free from
      restrictive legends, the Investor, or any third party on behalf of such
      Investor, purchases (in an open market transaction or otherwise) shares of
      Common Stock to deliver in satisfaction of a sale by the Investor of such
      Underlying Shares (a "Buy-In"),
      then
      the Company shall pay in cash to the Investor (for costs incurred either
      directly by such Investor or on behalf of a third party) the amount by which
      the
      total purchase price paid for Common Stock as a result of the Buy-In (including
      brokerage commissions, if any) exceed the proceeds received by such Investor
      as
      a result of the sale to which such Buy-In relates. The Investor shall provide
      the Company written notice indicating the amounts payable to the Investor in
      respect of the Buy-In. The
      Company may not make any notation on its records or give instructions to any
      transfer agent of the Company that enlarge the restrictions on transfer set
      forth in this Section.

     

    
      
        
        

      

      
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    4.2. Furnishing
      of Information.
      As long
      as any Investor owns the Securities, the Company covenants to timely file (or
      obtain extensions in respect thereof and file within the applicable grace
      period) all reports required to be filed by the Company after the date hereof
      pursuant to the Exchange Act. As long as any Investor owns Securities, if the
      Company is not required to file reports pursuant to such laws, it will prepare
      and furnish to the Investors and make publicly available in accordance with
      Rule
      144(c) such information as is required for the Investors to sell the Underlying
      Shares under Rule 144. The Company further covenants that it will take such
      further action as any holder of Securities may reasonably request, all to the
      extent required from time to time to enable such Person to sell the Underlying
      Shares without registration under the Securities Act within the limitation
      of
      the exemptions provided by Rule 144.

     

    4.3. Integration.
      The
      Company shall not, and shall use its best efforts to ensure that no Affiliate of
      the Company shall, sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Investors, or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market in a manner that would require stockholder approval of the sale
      of the Securities to the Investors.

     

    4.4. Subsequent
      Registrations.
      The
      Company may not file any registration statement (other than on Form S-8) with
      the Commission with respect to any securities of the Company prior to the time
      that all Underlying Shares are registered pursuant to one or more effective
      Registration Statement(s), and the prospectuses forming a portion of such
      Registration Statement(s) is available for the resale of all Underlying
      Shares.

     

    4.5. Securities
      Laws Disclosure; Publicity.
      By 9:00
      a.m. (New York time) on the Trading Day following the execution of this
      Agreement, and by 9:00 a.m. (New York time) on the Trading Day following the
      Closing Date, the Company shall issue press releases disclosing the transactions
      contemplated hereby and the Closing (including details with respect to the
      make
      good provision contained in Section 4.11 herein). On the Trading Day following
      the execution of this Agreement the Company will file a Current Report on Form
      8-K disclosing the material terms of the Transaction Documents, including
      details with respect to the make good provision contained in Section 4.11 herein
      (and attach as exhibits thereto the Transaction Documents), and on the Trading
      Day following the Closing Date the Company will file an additional Current
      Report on Form 8-K to disclose the Closing. In addition, the Company will make
      such other filings and notices in the manner and time required by the Commission
      and the Trading Market on which the Common Stock is listed. Notwithstanding
      the
      foregoing, the Company shall not publicly disclose the name of any Investor,
      or
      include the name of any Investor in any filing with the Commission (other than
      the Registration Statement and any exhibits to filings made in respect of this
      transaction in accordance with periodic filing requirements under the Exchange
      Act) or any regulatory agency or Trading Market, without the prior written
      consent of such Investor, except to the extent such disclosure is required
      by
      law or Trading Market regulations.

     

    
      
        
        

      

      
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    4.6. Limitation
      on Issuance of Future Priced Securities.
      During
      the six months following the Closing Date, the Company shall not issue any
      “Future Priced Securities” as such term is described by NASD
      IM-4350-1.

     

    4.7. Indemnification
      of Investors.
      In
      addition to the indemnity provided in the Registration Rights Agreement, the
      Company will indemnify and hold the Investors and their directors, officers,
      shareholders, partners, employees and agents (each, an “Investor
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation (collectively, “Losses”)
      that
      any such Investor Party may suffer or incur as a result of or relating to any
      misrepresentation, breach or inaccuracy of any representation, warranty,
      covenant or agreement made by the Company in any Transaction Document. In
      addition to the indemnity contained herein, the Company will reimburse each
      Investor Party for its reasonable legal and other expenses (including the cost
      of any investigation, preparation and travel in connection therewith) incurred
      in connection therewith, as such expenses are incurred. Except as otherwise
      set
      forth herein, the mechanics and procedures with respect to the rights and
      obligations under this Section 4.7 shall be the same as those set forth in
      Section 5 of the Registration Rights Agreement.

     

    4.8. Non-Public
      Information .
      The
      Company covenants and agrees that following the Closing Date neither it nor
      any
      other Person acting on its behalf will provide any Investor or its agents or
      counsel with any information that the Company believes constitutes material
      non-public information, unless prior thereto such Investor shall have executed
      a
      written agreement regarding the confidentiality and use of such information.
      The
      Company understands and confirms that each Investor shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company. The Company shall file a Form 8-K or make a public announcement
      describing the offering not later than the business day after the Closing Date.
      In the Form 8-K or public announcement, the Company will specifically disclose
      any material non-public information provided to the Investors by it or any
      Person acting on its behalf, such that following such filing, the Investors
      will
      not be in possession of any material, non-public information with respect to
      the
      Company. 

     

    4.9. Listing
      of Securities.
      The
      Company agrees, (i) if the Company applies to have the Common Stock traded
      on
      any other Trading Market, it will include in such application the Underlying
      Shares, and will take such other action as is necessary or desirable to cause
      the Underlying Shares to be listed on such other Trading Market as promptly
      as
      possible, and (ii) the Company will take all action reasonably necessary to
      continue the listing and trading of its Common Stock on a Trading Market and
      will comply in all material respects with the Company’s reporting, filing and
      other obligations under the bylaws or rules of the Trading Market.

     

    
      
        
        

      

      
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    4.10. Use
      of
      Proceeds.
      The
      Company will use the net proceeds from the sale of the Shares hereunder for
      working capital purposes and not for the satisfaction of any portion of the
      Company’s debt (other than payment of trade payables and accrued expenses in the
      ordinary course of the Company’s business and consistent with prior practices),
      or to redeem any Common Stock or Common Stock Equivalents.

     

    4.11. Make
      Good Shares.
      

     

    (a) The
      Make
      Good Pledgor
      agrees
      that in
      the
      event that the After-Tax Net Income reported in the 2007 Annual Report is less
      than $19,000,000 (the “2007
      Guaranteed ATNI”),
      the
      Agent will
      instruct the Make
      Good
      Escrow
      Agent to release to the Investors (in accordance with the Make Good Escrow
      Agreement) on a pro-rata basis (determined by dividing each Investor’s
      Investment Amount as of the Closing Date by the aggregate of all Investment
      Amounts delivered to the Company by the Investors hereunder) for no
      consideration other than their part of their respective Investment Amount at
      Closing, 11,194,030
      shares of Common Stock (as
      equitably adjusted for any stock splits, stock combinations, stock dividends
      or
      similar transactions)
      (the
“2007
      Make Good Shares”).
      In
      the
      event that either (i) the earnings per share reported in the 2008 Annual Report
      is less than $0.300 on a fully diluted basis (as equitably adjusted for any
      stock splits, stock combinations, stock dividends or similar transactions)
      (the
“2008
      Guaranteed EPS”)
      or
      (ii) the After-Tax Net Income reported in the 2008 Annual Report plus
      the
      amount of any charges recorded against the Company’s After-Tax Net Income that
      were attributable to the release or transfer of any or all of the 2007 Make
      Good
      Shares is less than $30,000,000
      (the
“2008
      Guaranteed ATNI”),
      the
      Agent will instruct the Make
      Good
      Escrow
      Agent to release to the Investors (in accordance with the Make Good Escrow
      Agreement) on a pro rata basis (determined by dividing each Investor’s
      Investment Amount as of the Closing Date by the aggregate of all Investment
      Amounts delivered to the Company by the Investors hereunder) for no
      consideration other than their part of their respective Investment Amount at
      Closing, 11,194,030 shares of Common Stock (as
      equitably adjusted for any stock splits, stock combinations, stock dividends
      or
      similar transactions)
      (the
“2008
      Make Good Shares”).
      In
      the
      event that the After-Tax Net Income reported in the 2007 Annual Report is equal
      to or greater than the 2007 Guaranteed ATNI,
      the
      Agent shall instruct the Make
      Good
      Escrow
      Agent to release the 2007 Make Good Shares to the Make Good Pledgor in
      accordance with the Make Good Escrow Agreement. In
      the
      event that both (i) the earnings per share reported in the 2008
      Annual Report is
      equal to
      or greater than the 2008 Guaranteed EPS and (ii) the After-Tax Net Income
      reported in the 2008 Annual Report plus
      the
      amount of any charges recorded against the Company’s After-Tax Net Income that
      were attributable to the release or transfer of any or all of the 2007 Make
      Good
      Shares is equal to or greater than the 2008 Guaranteed ATNI,
      the
      Agent shall instruct the Make
      Good
      Escrow
      Agent to release the 2008 Make Good Shares to the Make Good Pledgor in
      accordance with the Make Good Escrow Agreement. Any
      such
      release to the Investors or to the Make Good Pledgor of the 2007 Make Good
      Shares or the 2008 Make Good Shares shall be made to the Investors or the Make
      Good Pledgor, as applicable, within 10
      Business
      Days after
      the date
which
      the
      2007
      Annual Report or 2008 Annual Report, as applicable, is filed. 

     

    (b) In
      connection with the foregoing,
      the Make
      Good Pledgor
      agrees
      that no later than the date of the Closing, the
      Make
      Good Pledgor will
      deposit the 2007 Make Good Shares and the 2008 Make Good Shares into escrow
      in
      accordance with the Make Good Escrow Agreement along with bank signature stamped
      stock powers executed in blank (or such other signed instrument of transfer
      acceptable to the Company’s transfer agent), and the handling and disposition of
      the 2007 Make Good Shares and 2008 Make Good Shares shall be governed by this
      Section 4.11 and the Make Good Escrow Agreement.
      The Make
      Good Pledgor
      hereby
      agrees that its obligation to transfer shares of Common Stock to Investors
      pursuant to this Section 4.11 and the Make Good Escrow Agreement shall continue
      to run to the benefit of any Investor who shall have transferred or sold all
      or
      any portion of its Securities, and that each Investor shall have the right
      to
      assign its rights to receive all or any such shares of Common Stock to other
      Persons in conjunction with negotiated sales or transfers of any of its
      Securities.

     

    
      
        
        

      

      
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    (c) The
      Company covenants and agrees that upon any transfer of 2007 Make Good Shares
      or
      2008 Make Good Shares to the Investors in accordance with the Make Good Escrow
      Agreement, the Company shall promptly instruct its transfer agent to reissue
      such 2007 Make Good Shares or 2008 Make Good Shares in the applicable Investor’s
      name and deliver the same as directed by such Investor.

     

    (d) If
      any
      term or provision of this Section 4.11 is in contradiction of or conflicts
      with
      any term or provision of the Make Good Escrow Agreement, the terms of the Make
      Good Escrow Agreement shall control.

     

    (e) Each
      Investor, by their execution hereof, agrees to hold the Agent harmless from
      and
      against any losses arising from Agent’s acceptance of its duties as Agent under
      the Make Good Escrow Agreement or performance of its duties as Agent under
      the
      Make Good Escrow Agreement other than as expressly set forth
      therein.

     

    4.12. Independent
      Board of Directors. The Company covenants and agrees that no later than 120
      days following the date of this Agreement, the Board of Directors of the Company
      shall be comprised of a minimum of five members, a majority of which shall
      be
“independent directors” as such term is defined in NASDAQ Marketplace Rule
      4200(a)(15).

     

    4.13. Third
      Party Hiring. By the thirtieth day following the Closing Date, the Company
      shall hire (i) either of CCG Elite, Hayden Communications, or Integrated
      Corporate Relations as the Company’s investor relations firm, (ii) Loeb &
Loeb LLP as the Company’s primary United States corporate legal counsel and
      (iii) Weinburg & Company or Horwath International as the Company’s
      independent public auditors (or with the consent of the Investors, another
      independent public audit firm). 

     

    4.14. Right
      of First Refusal. 

     

    (a) From
      the
      date hereof until the one year anniversary of the Effective Date (plus one
      additional day for each Trading Day following the Effective Date of any
      Registration Statement during which either (1) the Registration Statement
      is not effective or (2) the prospectus forming a portion of the
      Registration Statement is not available for the resale of all Registrable
      Securities (as defined in the Registration Rights Agreement)) (the "Trigger
      Date"),
      the
      Company will not, directly or indirectly, offer, sell, grant any option to
      purchase, or otherwise dispose of (or announce any offer, sale, grant or any
      option to purchase or other disposition of) any of its or its Subsidiaries’
equity or equity equivalent securities, including, without limitation, any
      debt,
      preferred stock or other instrument or security that is, at any time during
      its
      life and under any circumstances, convertible into or exchangeable or
      exercisable for shares of Common Stock or Common Stock Equivalents (any such
      offer, sale, grant, disposition or announcement being referred to as a
      "Subsequent
      Placement")
      unless
      the Company shall have first complied with this Section 4.14. 

     

    
      
        
        

      

      
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    (b) The
      Company shall deliver to each Investor hereunder a written notice
      (the "Offer
      Notice")
      of any
      proposed or intended issuance or sale or exchange (the "Offer")
      of the
      securities being offered (the "Offered
      Securities")
      in a
      Subsequent Placement, which Offer Notice shall (v) identify and describe the
      Offered Securities, (w) include the final form of documents and agreements
      governing the Subsequent Placement, (x) specify the price and other terms
      upon which the Offered Securities are to be issued, sold or exchanged, and
      the
      number or amount of the Offered Securities to be issued, sold or exchanged,
      (y) identify the persons or entities (if known) to which or with which the
      Offered Securities are to be offered, issued, sold or exchanged and (z) offer
      to
      issue and sell to or exchange with such Investors all of the Offered Securities,
      allocated among such Investors (a) based on such Investor's pro rata portion
      of
      the total Investment Amount hereunder (the "Basic
      Amount"),
      and
      (b) with respect to each Investor that elects to purchase its Basic Amount,
      any
      additional portion of the Offered Securities attributable to the Basic Amounts
      of other Investors as such Investor shall indicate it will purchase or acquire
      should the other Investors subscribe for less than their Basic Amounts (the
      "Undersubscription
      Amount"),
      which
      process shall be repeated until the Investors shall have an opportunity to
      subscribe for any remaining Undersubscription Amount.

     

    (c) To
      accept
      an Offer, in whole or in part, such Investor must deliver a written notice
      to
      the Company prior to the end of the fifth Business Day after such Investor's
      receipt of the Offer Notice (the "Offer
      Period"),
      setting forth the portion of such Investor's Basic Amount that such Investor
      elects to purchase and, if such Investor shall elect to purchase all of its
      Basic Amount, the Undersubscription Amount, if any, that such Investor elects
      to
      purchase (in either case, the "Notice
      of Acceptance").
      If
      the Basic Amounts subscribed for by all Investors are less than the total of
      all
      of the Basic Amounts, then each Investor who has set forth an Undersubscription
      Amount in its Notice of Acceptance shall be entitled to purchase, in addition
      to
      the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
      for; provided,
      however,
      that if
      the Undersubscription Amounts subscribed for exceed the difference between
      the
      total of all the Basic Amounts and the Basic Amounts subscribed for (the
      "Available
      Undersubscription Amount"),
      each
      Investor who has subscribed for any Undersubscription Amount shall be entitled
      to purchase only that portion of the Available Undersubscription Amount as
      the
      Basic Amount of such Investor bears to the total Basic Amounts of all Investors
      that have subscribed for Undersubscription Amounts, subject to rounding by
      the
      Company to the extent its deems reasonably necessary.

     

    (d) The
      Company shall have twenty Business Days from the expiration of the Offer Period
      above to (i) offer, issue, sell or exchange all or any part of such Offered
      Securities as to which a Notice of Acceptance has not been given by the
      Investors (the "Refused
      Securities"),
      but
      only to the offerees described in the Offer Notice (if so described therein)
      and
      only upon terms and conditions (including, without limitation, unit prices
      and
      interest rates) that are not more favorable to the acquiring person or persons
      or less favorable to the Company than those set forth in the Offer Notice and
      (ii) to publicly announce (a) the execution of such Subsequent Placement
      Agreement (as defined below), and (b) either (x) the consummation of the
      transactions contemplated by such Subsequent Placement Agreement or (y) the
      termination of such Subsequent Placement Agreement, which shall be filed with
      the Commission on a Current Report on Form 8-K with such Subsequent Placement
      Agreement and any documents contemplated therein filed as exhibits thereto.
      If
      no disclosure has been made by the Company by the end of the twenty Business
      Day
      period referred to in this subsection (d), the Subsequent Placement shall be
      deemed to have been abandoned and the Investors shall no longer be deemed to
      be
      in possession of any non-public information with respect to the
      Company.

     

    
      
        
        

      

      
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    (e) In
      the
      event the Company shall propose to sell less than all the Refused Securities
      (any such sale to be in the manner and on the terms specified in this Section
      4.14), then each Investor may, at its sole option and in its sole discretion,
      reduce the number or amount of the Offered Securities specified in its Notice
      of
      Acceptance to an amount that shall be not less than the number or amount of
      the
      Offered Securities that such Investor elected to purchase pursuant to Section
      4.14(c) above multiplied by a fraction, (i) the numerator of which shall be
      the
      number or amount of Offered Securities the Company actually proposes to issue,
      sell or exchange (including Offered Securities to be issued or sold to Investors
      pursuant to Section 4.14(c) above prior to such reduction) and (ii) the
      denominator of which shall be the original amount of the Offered Securities.
      In
      the event that any Investor so elects to reduce the number or amount of Offered
      Securities specified in its Notice of Acceptance, the Company may not issue,
      sell or exchange more than the reduced number or amount of the Offered
      Securities unless and until such securities have again been offered to the
      Investors in accordance with Section 4.14(b) above.

     

    (f) Upon
      the
      closing of the issuance, sale or exchange of all or less than all of the Refused
      Securities, the Investors shall acquire from the Company, and the Company shall
      issue to the Investors, the number or amount of Offered Securities specified
      in
      the Notices of Acceptance, as reduced pursuant to Section 4.14(e) above if
      the
      Investors have so elected, upon the terms and conditions specified in the Offer.
      The purchase by the Investors of any Offered Securities is subject in all cases
      to the preparation, execution and delivery by the Company and the Investors
      of a
      purchase agreement relating to such Offered Securities reasonably satisfactory
      in form and substance to the Investors and their respective counsel (such
      agreement, the “Subsequent
      Placement Agreement”).

     

    (g) Any
      Offered Securities not acquired by the Investors or other persons in accordance
      with Section 4.14(f) above may not be issued, sold or exchanged until they
      are
      again offered to the Investors under the procedures specified in this
      Agreement.

     

    (h) In
      exchange for the Company’s willingness to agree to these procedures, each
      Investor hereby irrevocably agrees that it will hold in strict confidence any
      and all Offer Notices, the information contained therein, and the fact that
      the
      Company is contemplating a Subsequent Placement, until such time as the Company
      is obligated to make the disclosures required by Section 4.14(d), or unless
      it
      notifies the Company in writing that it no longer desires to receive Offer
      Notices. 

     

    4.15. Liquidated
      Damages for Governmental Rescission of Restructuring Transaction. If any
      governmental agency in the PRC challenges or otherwise takes any action that
      adversely affects the transactions contemplated by the Exchange Agreement,
      and
      the Company cannot undo such governmental action or otherwise remedy the
      material adverse effect caused thereby so that the transaction contemplated
      by
      the Exchange Agreement can legally occur as contemplated under this Agreement,
      to the reasonable satisfaction of the Investors within sixty (60) days of the
      occurrence of such governmental action, then, upon written demand from an
      Investor, the Company shall promptly, and in any event within thirty (30) days
      from the date of such written demand, pay to that Investor, as liquidated
      damages, an amount equal to that Investor’s entire Investment Amount without
      interest thereon. As a condition to the receipt of such payment, the Investor
      shall return to the Company, or to an agreeable third party for the benefit
      of
      the Company, for cancellation the certificates evidencing the Securities
      acquired by the Investor under the Agreement.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    4.16. Stockholder
      Approval.

     

    (a) By
      the
      Closing Date, the Company shall have obtained the approval of its stockholders
      in order to increase the number of authorized shares of Common Stock to not
      less
      than 150,000,000 (the “Stockholder
      Approval”).

     

    (b) In
      furtherance of obtaining the Stockholder Approval, the Company shall take such
      action as is necessary in order to file the Certificate of Amendment as
      contemplated in subsection (c) below and effectuate the actions set forth in
      subsection (a) above (including, without limitation, the mailing by the Company
      of an Information Statement meeting the requirements of Section 14C of the
      Exchange Act).

     

    (c) Within
      forty-five (45) calendar days following the Closing, the Company shall have
      filed the Certificate of Amendment amending the Articles of Incorporation of
      the
      Company to increase the authorized shares of Common Stock of the Company
to
      not
      less than 150,000,000
      shares with the Secretary of State of the State of Nevada and delivered to
      the
      Investors a copy date stamped by the Secretary of State of the State of Nevada
      indicating their receipt and acceptance thereof.

     

    4.17. Liquidated
      Damages for Deregistration or Failure of Common Stock to be Listed. In the
      event that at any time following the Closing Date and prior to the time that
      a
      Registration Statement is effective (i) for any or no reason either the NASD
      or
      the Commission takes any action which has the effect of suspending the
      effectiveness of any registration statement of the Company filed with the
      Commission or (ii) the Common Stock is not listed on a Trading Market, then,
      upon written demand from an Investor, the Company shall promptly, and in any
      event within thirty (30) days from the date of such written demand, pay to
      that
      Investor, as liquidated damages, an amount equal to that Investor’s entire
      Investment Amount. As a condition to the receipt of such payment, the Investor
      shall return to the Company, or to an agreeable third party for the benefit
      of
      the Company, for cancellation the certificates evidencing the Securities
      acquired by the Investor under the Agreement.

     

    4.18. Form
      8-A. The Company covenants and agrees to file a Form 8-A with the Commission
      in order to register the Common Stock pursuant to Section 12(b) or Section
      12(g)
      of the Exchange Act prior to the filing of any Registration Statement with
      the
      Commission.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    4.19. Business
      Activities. For two (2) years following the Closing Date, the Company shall
      not, and the Company shall not permit any of its Subsidiaries to, directly
      or
      indirectly, engage in any business other than that conducted on the date of
      this
      Agreement by BVI and its consolidated subsidiaries and as described in the
      Current Report on Form 8-K required by Section 5.1(g).

     

    ARTICLE
      5.

     

    CONDITIONS
      PRECEDENT TO CLOSING

     

    5.1. Conditions
      Precedent to the Obligations of the Investors to Purchase
      Securities.
      The
      obligation of each Investor to acquire Securities at the Closing is subject
      to
      the satisfaction or waiver by such Investor, at or before the Closing, of each
      of the following conditions:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Company contained herein shall be true
      and
      correct in all material respects (other than those qualified by materiality
      which must be true and correct in all respects) as of the date when made and
      as
      of the Closing as though made on and as of such date;

     

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

     

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

     

    (d) Adverse
      Changes.
      Since
      the date of execution of this Agreement, no event or series of events shall
      have
      occurred that reasonably could have or result in a Material Adverse Effect
      or a
      material adverse change with respect to the Subsidiaries;

     

    (e) BVI
      Financial Statements.
      BVI
      shall have delivered audited consolidated financial statements of Olympic
      Forward Trading Company, Limited for the fiscal years ended December 31, 2005
      and 2006, which shall have been audited by Madsen & Associates CPA’s, Inc.
      and the Investors and shall have received an audit report from Madsen &
Associates CPA’s, Inc. for such financial statements, a copy of which shall be
      promptly provided to the Investors (collectively, the “BVI
      Financial Statements”)
      which
      report and the BVI Financial Statements contained therein shall be satisfactory
      to the Investors in their sole and absolute discretion; 

     

    (f) PRC
      and BVI Opinions.
      The
      Company shall have delivered to the Investors, and the Investors shall be able
      to rely upon, the legal opinions that the Company shall have received from
      its
      legal counsel in the PRC and in the British Virgin Islands, with such legal
      opinions being in a form acceptable to the Investors in their sole
      discretion;

     

    (g) Exchange
      Agreement Form 8-K.
      Concurrently with or immediately prior to the Closing, the Company shall have
      acquired all of the outstanding capital stock of BVI pursuant to the Exchange
      Agreement, and the Company shall provide the Investors with the Current Report
      on Form 8-K to be filed in accordance with the Exchange Agreement, containing
      the audited financial statements of BVI and other required disclosure with
      respect to BVI; 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (h) Derivative
      Securities.
      Any
      issued and outstanding options, convertible notes or other securities of the
      Company that are exercisable or exchangeable for or convertible into Common
      Stock shall have been exercised, converted or exchanged for Common Stock in
      a
      manner satisfactory to the Investors;

     

    (i) Certificate
      of Designation The
      Company shall have filed the Certificate of Designation with the State of Nevada
      and delivered to the Investors a copy date stamped by the Secretary of State
      of
      the State of Nevada indicating their receipt and acceptance
      thereof;

     

    (j) Related
      Business.
      Since
      the date of execution of this Agreement, neither the Company nor any of its
      Subsidiaries has, directly or indirectly, engaged in any business other than
      as
      conducted by BVI and its consolidated subsidiaries on the date of this
      Agreement;

     

    (k) Company
      Deliverables.
      The
      Company shall have delivered the Company Deliverables in accordance with Section
      2.2(a); and

     

    (l) Termination.
      This
      Agreement shall not have been terminated as to such Investor in accordance
      with
      Section 6.5.

     

    5.2. Conditions
      Precedent to the Obligations of the Company to Sell Securities.
      The
      obligation of the Company to sell Securities at the Closing is subject to the
      satisfaction or waiver by the Company, at or before the Closing, of each of
      the
      following conditions:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of each Investor contained herein shall be true
      and correct in all material respects as of the date when made and as of the
      Closing Date as though made on and as of such date;

     

    (b) Performance.
      Each
      Investor shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by such Investor at or
      prior to the Closing;

     

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

     

    (d) Investors
      Deliverables.
      Each
      Investor shall have delivered its Investors Deliverables in accordance with
      Section 2.2(b); and

     

    (e) Termination.
      This
      Agreement shall not have been terminated as to such Investor in accordance
      with
      Section 6.5.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      6.

     

    MISCELLANEOUS

     

    6.1. Fees
      and Expenses.
      At the
      Closing, the Company shall pay to Bryan Cave LLP $50,000 as reimbursement of
      Pinnacle China Fund, L.P. and The Pinnacle Fund, L.P. for their respective
      legal
      fees in connection with the Transaction Documents (either of Pinnacle China
      Fund, L.P. or The Pinnacle Fund, L.P. may deduct such amount from the Investment
      Amount deliverable to the Company at Closing), it being understood that Bryan
      Cave LLP has only rendered legal advice to Pinnacle China Fund, L.P. and The
      Pinnacle Fund, L.P., and not to the Company or any other Investor in connection
      with the transactions contemplated hereby, and that each of the Company and
      the
      other Investors has relied for such matters on the advice of its own respective
      counsel. Except as specified in the immediately preceding sentence, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of the Transaction
      Documents. The Company shall pay all stamp and other taxes and duties levied
      in
      connection with the sale of the Securities.

     

    6.2. Entire
      Agreement.
      The
      Transaction Documents, together with the Exhibits and Schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements, understandings, discussions and
      representations, oral or written, with respect to such matters, which the
      parties acknowledge have been merged into such documents, exhibits and
      schedules.

     

    6.3. Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile (provided the sender receives a machine-generated
      confirmation of successful transmission) at the facsimile number specified
      in
      this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b)
      the
      next Trading Day after the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified in this Section
      on
      a day that is not a Trading Day or later than 6:30 p.m. (New York City time)
      on
      any Trading Day, or (c) upon actual receipt by the party to whom such notice
      is
      required to be given, if sent by any means other than facsimile transmission.
      The address for such notices and communications shall be as
      follows:

    

      
        	
                If
                  to the Company:

              	
                China
                  Water and Drinks Inc.

              
	 	
                9101
                  West Sahara, Suite 105-195

              
	 	
                Las
                  Vegas, NV 89117

              
	 	
                Facsimile:
                  +86 0755 2552 3376

              
	 	
                Attn.:
                  Chen Xing Hua

              
	 	 
	
                With
                  a copy to:

              	
                Loeb
                  & Loeb LLP

              
	 	
                345
                  Park Avenue

              
	 	
                New
                  York, NY 10154

              
	 	
                Facsimile:
                  (212) 504-3013

              
	 	
                Attn.:
                  Mitchell S. Nussbaum, Esq.

              

      

    

     

    
      
        
        

      

      
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                If
                  to an Investor:

              	
                To
                  the address set forth under such Investor’s name on the signature pages
                  hereof;

              

      

    

     

    or
      such
      other address as may be designated in writing hereafter, in the same manner,
      by
      such Person.

     

    6.4. Amendments;
      Waivers; No Additional Consideration.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed by the Company and the Investors holding a majority of the
      Securities. No waiver of any default with respect to any provision, condition
      or
      requirement of this Agreement shall be deemed to be a continuing waiver in
      the
      future or a waiver of any subsequent default or a waiver of any other provision,
      condition or requirement hereof, nor shall any delay or omission of either
      party
      to exercise any right hereunder in any manner impair the exercise of any such
      right. No consideration shall be offered or paid to any Investor to amend or
      consent to a waiver or modification of any provision of any Transaction Document
      unless the same consideration is also offered to all Investors who then hold
      Securities.

     

    6.5. Termination.
      This
      Agreement may be terminated prior to Closing:

     

    (a) by
      written agreement of the Investors and the Company; and

     

    (b) by
      an
      Investor (as to itself but no other Investor) upon written notice to the
      Company, if the Closing shall not have taken place by 6:30 p.m. Eastern time
      on
      the Outside Date; provided, that the right to terminate this Agreement under
      this Section 6.5(b) shall not be available to any Person whose failure to
      comply with its obligations under this Agreement has been the cause of or
      resulted in the failure of the Closing to occur on or before such
      time.

     

    In
      the
      event of a termination pursuant to Section 6.5(a) upon delivery of a joint
      written notice from the Company and the Investors to the Escrow Agent or in
      the
      event of a termination pursuant to Section 6.5(b) upon delivery of written
      notice by an Investor to the Escrow Agent, such Investor shall have the right
      to
      a return of up to its entire Investment Amount deposited with the Escrow Agent
      pursuant to Section 2.2(b)(i), without interest or deduction. The Company
      covenants and agrees to cooperate with such Investor in obtaining the return
      of
      its Investment Amount, and shall not communicate any instructions to the
      contrary to the Escrow Agent.

     

    In
      the
      event of a termination pursuant to this Section, the Company shall promptly
      notify all non-terminating Investors. Upon a termination in accordance with
      this
      Section 6.5, the Company and the terminating Investor(s) shall not have any
      further obligation or liability (including as arising from such termination)
      to
      the other and no Investor will have any liability to any other Investor under
      the Transaction Documents as a result therefrom.

     

    6.6. Construction.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party. This Agreement shall be
      construed as if drafted jointly by the parties, and no presumption or burden
      of
      proof shall arise favoring or disfavoring any party by virtue of the authorship
      of any provisions of this Agreement or any of the Transaction
      Documents.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    6.7. Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Investors. Any Investor may assign any or all of its rights
      under
      this Agreement to any Person to whom such Investor assigns or transfers any
      Shares, provided such transferee agrees in writing to be bound, with respect
      to
      the transferred Shares, by the provisions hereof that apply to the
“Investors.”

     

    6.8. No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.7 (as to each Investor Party).

     

    6.9. Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each party agrees that all Proceedings
      concerning the interpretations, enforcement and defense of the transactions
      contemplated by this Agreement and any other Transaction Documents (whether
      brought against a party hereto or its respective Affiliates, employees or
      agents) shall be commenced exclusively in the New York Courts. Each party hereto
      hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein (including with respect
      to the enforcement of the any of the Transaction Documents), and hereby
      irrevocably waives, and agrees not to assert in any Proceeding, any claim that
      it is not personally subject to the jurisdiction of any such New York Court,
      or
      that such Proceeding has been commenced in an improper or inconvenient forum.
      Each party hereto hereby irrevocably waives personal service of process and
      consents to process being served in any such Proceeding by mailing a copy
      thereof via registered or certified mail or overnight delivery (with evidence
      of
      delivery) to such party at the address in effect for notices to it under this
      Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      Each party hereto hereby irrevocably waives, to the fullest extent permitted
      by
      applicable law, any and all right to trial by jury in any legal proceeding
      arising out of or relating to this Agreement or the transactions contemplated
      hereby. If either party shall commence a Proceeding to enforce any provisions
      of
      a Transaction Document, then the prevailing party in such Proceeding shall
      be
      reimbursed by the other party for its reasonable attorneys’ fees and other costs
      and expenses incurred with the investigation, preparation and prosecution of
      such Proceeding.

     

    6.10. Survival.
      The
      representations, warranties, agreements and covenants contained herein shall
      survive the Closing and the delivery of the Shares.

     

    6.11. Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together 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, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission, such signature shall create a valid and binding obligation of
      the
      party executing (or on whose behalf such signature is executed) with the same
      force and effect as if such facsimile signature page were an original
      thereof.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    6.12. Severability.
      If any
      provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    6.13. Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Investor
      exercises a right, election, demand or option under a Transaction Document
      and
      the Company does not timely perform its related obligations within the periods
      therein provided, then such Investor may rescind or withdraw, in its sole
      discretion from time to time upon written notice to the Company, any relevant
      notice, demand or election in whole or in part without prejudice to its future
      actions and rights.

     

    6.14. Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof, or in lieu of and substitution
      therefor, a new certificate or instrument, but only upon receipt of evidence
      reasonably satisfactory to the Company of such loss, theft or destruction and
      customary and reasonable indemnity, if requested. The applicants for a new
      certificate or instrument under such circumstances shall also pay any reasonable
      third-party costs associated with the issuance of such replacement Securities.
      If a replacement certificate or instrument evidencing any Securities is
      requested due to a mutilation thereof, the Company may require delivery of
      such
      mutilated certificate or instrument as a condition precedent to any issuance
      of
      a replacement.

     

    6.15. Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Investors and the Company will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations described in the foregoing
      sentence and hereby agrees to waive in any action for specific performance
      of
      any such obligation the defense that a remedy at law would be
      adequate.

     

    6.16. Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Investor pursuant
      to
      any Transaction Document or an Investor enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    6.17. Independent
      Nature of Investors’ Obligations and Rights.
      The
      obligations of each Investor under any Transaction Document are several and
      not
      joint with the obligations of any other Investor, and no Investor shall be
      responsible in any way for the performance of the obligations of any other
      Investor under any Transaction Document. The decision of each Investor to
      purchase Securities pursuant to the Transaction Documents has been made by
      such
      Investor independently of any other Investor. Nothing contained herein or in
      any
      Transaction Document, and no action taken by any Investor pursuant thereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      Each
      Investor acknowledges that no other Investor has acted as agent for such
      Investor in connection with making its investment hereunder and that no Investor
      will be acting as agent of such Investor in connection with monitoring its
      investment in the Securities or enforcing its rights under the Transaction
      Documents. Each Investor shall be entitled to independently protect and enforce
      its rights, including without limitation the rights arising out of this
      Agreement or out of the other Transaction Documents, and it shall not be
      necessary for any other Investor to be joined as an additional party in any
      proceeding for such purpose. The Company acknowledges that each of the Investors
      has been provided with the same Transaction Documents for the purpose of closing
      a transaction with multiple Investors and not because it was required or
      requested to do so by any Investor.

     

    6.18. Limitation
      of Liability.
      Notwithstanding anything herein to the contrary, the Company acknowledges and
      agrees that the liability of an Investor arising directly or indirectly, under
      any Transaction Document of any and every nature whatsoever shall be satisfied
      solely out of the assets of such Investor, and that no trustee, officer, other
      investment vehicle or any other Affiliate of such Investor or any investor,
      shareholder or holder of shares of beneficial interest of such a Investor shall
      be personally liable for any liabilities of such Investor.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGES FOLLOW]

     

    
      
        
        

      

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

    
      	 	 	 
	 	
              CHINA
                WATER AND DRINKS INC.

            
	 
 	 
 	 
 
	
            	By:  	
               

              
                

                Name:

                Title:

              

            
	 	 	 
	 	
              Only
                as to Sections 2.2(a)(v), 2.2(a)(vi) and 4.11 herein:

            
	 	 	 
	 	
              

              Xu
                Hong Bin

            
	 	
            
	 	
              Only
                as to Sections 2.2(a)(vi):

            
	 	 
	 	
              

              Chen
                Xing Hua

            

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR INVESTORS FOLLOWS]

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

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

    

      
        	 	
                NAME
                  OF INVESTOR

              
	 	 
	 	
                
 
	 	
                By:
                  

                
                  

                

                Name:
                  

                Title:

              
	 	 
	 	
                Investment
                  Amount: $ ___________________________

              
	 	 
	 	
                Tax
                  ID No.: ___________________________________

              
	 	 
	 	
                ADDRESS
                  FOR NOTICE

              
	 	 
	 	
                c/o:
                  _________________________________________

              
	 	 
	 	
                Street:
                  _______________________________________

              
	 	 
	 	
                City/State/Zip:
                  _________________________________

              
	 	 
	 	
                Attention:
                  ____________________________________

              
	 	 
	 	
                Tel:
                  _________________________________________

              
	 	 
	 	
                Fax:
                  _________________________________________

              
	 	 
	 	
                DELIVERY
                  INSTRUCTIONS

              
	 	
                   
                  (if different from above)

              
	 	 
	 	
                c/o:
                  _________________________________________

              
	 	 
	 	
                Street:
                  _______________________________________

              
	 	 
	 	
                City/State/Zip:
                  _________________________________

              
	 	 
	 	
                Attention:
                  ____________________________________

              
	 	 
	 	
                Tel:
                  _________________________________________

              

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule
      3.1(a)

     

    List
      of Subsidiaries

    

    
      	
              Subsidiary

            	
              Jurisdiction
                of Organization/Registration

            	
              Ownership

            
	
              Gain
                Dynasty Investments Limited

            	
              BVI
                limited company

            	
              100%
                owned by the Company

            
	
              Olympic
                Forward Trading Company, Limited

            	
              Registered
                in Hong Kong 

            	
              100%
                owned by Gain Dynasty     

            
	
              Guangdong
                Taoda Drink Co., Limited

            	
              WOFE
                registered in China   

            	
              100%
                owned by Olympic

            
	
              Zhanjiang
                Taoda Drink Co., Limited

            	
              WOFE
                registered in China   

            	
              100%
                owned by Olympic

            
	
              Changchun
                Taoda Beverage Co., Limited

            	
              WOFE
                registered in China   

            	
              100%
                owned by Olympic

            
	
              Shandong
                Olympic Forward Drink Co., Limited

            	
              WOFE
                registered in China   

            	
              100%
                owned by Olympic

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule
      3.1(g)

    

    

    Capitalization

    

    

    Warrants
      to purchase an aggregate of 2,238,806 shares of Common Stock.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule
      3.1(h)

    

    SEC
      Reports; Financial Statements

     

    None.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule
      3.1(m)

    

    Indebtedness

    

    The
      Company borrowed funds from a bank in October of 2003 to acquire an investment
      property that is held by the Company for long term investment purposes. 
The funds borrowed were collateralized by a mortgage on this investment
      property.  The monthly installments of the long term loan vary from month
      to month depending on the interest rate and the interest rate the loan carried
      ranged from 5.5% to 5.6% per annum during 2006 and 2005.  The long term
      debt matures in October 2012.  

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule
      3.1(u)

    

    Certain
      Fees

    

    Commission
      and Placement Agent Fees:   

    

    
      	·  	
              $3,000,000
                cash fee

            

    

    

    
      	·  	
              Warrants
                to purchase an aggregate of 2,238,806 shares of Common Stock
                

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Schedule
      3.1(v)

    

    Certain
      Registration Matters

    

    The
      following Persons have been granted piggy back registration rights:

    

    
      	
              Ipacific
                Assets Management Limited

            	
              2,576,000
                shares

            
	
              Michael
                Daniels

            	
              100,000
                shares

            
	
              Micah
                Eldred

            	
              100,000
                sharesREGISTRATION
      RIGHTS AGREEMENT

     

    This
      Registration Rights Agreement (this "Agreement")
      is made
      and entered into as of May 31, 2007, by and among China Water and Drinks Inc.,
      a
      Nevada corporation (the "Company"),
      and
      the investors signatory hereto (each an "Investor"
      and
      collectively, the "Investors").
      

    

    This
      Agreement is made pursuant to the Securities Purchase Agreement, dated as the
      date hereof among the Company and the Investors (the “Purchase
      Agreement”).

     

    The
      Company and the Investors hereby agree as follows: 

     

    1. Definitions.
      Capitalized terms used and not otherwise defined herein that are defined in
      the
      Purchase Agreement will have the meanings given such terms in the Purchase
      Agreement. As used in this Agreement, the following terms have the respective
      meanings set forth in this Section 1:

     

    “2007
      Delivery Date”
      means
      the date on which the 2007 Make Good Shares are required to be delivered to
      the
      Investors by the Make Good Pledgors pursuant to the Make Good Escrow
      Agreement.

     

    “2008
      Delivery Date”
      means
      the date on which the 2008 Make Good Shares are required to be delivered to
      the
      Investors by the Make Good Pledgors pursuant to the Make Good Escrow
      Agreement.

     

    “Advice”
      has
      the
      meaning set forth in Section 6(d).

     

    “Commission
      Comments”
means
      written comments
      pertaining solely to Rule 415 which
      are
      received by the Company from the Commission, and a copy of which shall have
      been
      provided by the Company to the Holders, to a filed Registration Statement which
      limit the amount of shares which may be included therein to a number of shares
      which is less than such amount sought to be included thereon as filed with
      the
      Commission.

     

    “Common
      Stock”
      means
      the common stock of the Company, par value $0.001 per share, and any securities
      into which such common stock may hereafter be reclassified or for which it
      may
      be exchanged as a class.

     

    “Effective
      Date”
      means,
      as to a Registration Statement, the date on which such Registration Statement
      is
      first declared effective by the Commission.

     

    “Effectiveness
      Date”
      means
      (a) with respect to the
      Registration Statement required to be filed under Section 2(a), the earlier
      of
      (i) the 180th
      day
      following the Closing Date, and (ii) the fifth Trading Day following the date
      on
      which the Company is notified by the Commission that such Registration Statement
      will not be reviewed or is no longer subject to further review and comments,
      (b)
      with respect to a Registration Statement required to be filed under Section
      2(b), the earlier of: (i) the 60th
      day
      following the Filing
      Date for any
      Registration Statement required to be filed under Section 2(b),
      and (ii)
      the fifth Trading Day following the date on which the Company is notified by
      the
      Commission that such Registration Statement will not be reviewed or is no longer
      subject to further review and comments, (c) with respect to a Registration
      Statement required to be filed under Section 2(c), the earlier of: (i) the
      60th
      day
      following the date on which the Company becomes eligible to utilize Form S-3
      to
      register the resale of Common Stock; provided,
      that, if the Commission reviews and has written comments to such filed
      Registration Statement that would require the filing of a pre-effective
      amendment thereto with the Commission, then the Effectiveness Date under this
      clause (c)(i) shall be the 90th
      day
      following the date on which the Company becomes eligible to utilize Form S-3
      to
      register the resale of Common Stock, and (ii) the fifth Trading Day following
      the date on which the Company is notified by the Commission that the
      Registration Statement will not be reviewed or is no longer subject to further
      review and comments, (d) with respect to a Registration Statement required
      to be
      filed under Section 2(d), the earlier of: (i) the 90th
      day
      following the 2007 Delivery Date; provided, that, if the Commission reviews
      and
      has written comments to such filed Registration Statement that would require
      the
      filing of a pre-effective amendment thereto with the Commission, then the
      Effectiveness Date under this clause (d)(i) shall be the 120th
      day
      following the 2007 Delivery Date, and (ii) the fifth Trading Day following
      the
      date on which the Company is notified by the Commission that the Registration
      Statement will not be reviewed or is no longer subject to further review and
      comments and (e) with respect to a Registration Statement required to be filed
      under Section 2(e), the earlier of: (i) the 90th
      day
      following the 2008 Delivery Date; provided, that, if the Commission reviews
      and
      has written comments to such filed Registration Statement that would require
      the
      filing of a pre-effective amendment thereto with the Commission, then the
      Effectiveness Date under this clause (e)(i) shall be the 120th
      day
      following the 2008 Delivery Date, and (ii) the fifth Trading Day following
      the
      date on which the Company is notified by the Commission that the Registration
      Statement will not be reviewed or is no longer subject to further review and
      comments.

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    "Effectiveness
      Period"
      means,
      as to any Registration Statement required to be filed pursuant to this
      Agreement, the period commencing on the Effective Date of such Registration
      Statement and ending on the earliest to occur of (a) the second anniversary
      of
      such Effective Date, (b) such time as all of the Registrable Securities covered
      by such Registration Statement have been publicly sold by the Holders of the
      Registrable Securities included therein, or (iii) such time as all of the
      Registrable Securities covered by such Registration Statement may be sold by
      the
      Holders pursuant to Rule 144(k) as determined by the counsel to the Company
      pursuant to a written opinion letter to such effect, addressed and acceptable
      to
      the Company's transfer agent and the affected Holders.

     

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

     

    “Filing
      Date”
      means
      (a) with respect to the Registration Statement required to be filed under
      Section 2(a), the 90th
      day
      following the Closing Date, (b) with respect to any
      Registration Statements
      required
      to be filed under Section 2(b),
      each
      such Registration Statement shall be filed by
      the
      earlier of (i) for
      the
      initial Registration Statement required to be filed under Section 2(b),
the
      six-month anniversary of the Effective Date of the Registration Statement
      required to be filed under Section 2(a) and for
      all
      subsequent Registration Statements, the six-month anniversary of the Effective
      Date of the immediately preceding Registration Statement required to be filed
      under Section 2(b), as applicable, and (ii) for the initial Registration
      Statement required to be filed under Section 2(b),
      the
      60th
      day
      following such time as 75%
      of all
      Registrable Securities which are included in the Registration Statement required
      to be filed under Section 2(a) have been sold
      and for
      all subsequent Registration Statements, the 60th
      day
      following such time as 75% of all Registrable Securities which are included
      in
      the immediately preceding Registration Statement required to be filed under
      Section 2(b) have been sold, as applicable,
      (c)
      with respect to the Registration Statement required to be filed under Section
      2(c), the 30th
      day
      following the date on which the Company becomes eligible to utilize Form S-3
      to
      register the resale of Common Stock, (d) with respect to the Registration
      Statement required to be filed under Section 2(d), the 45th
      day
      following the 2007 Delivery Date (provided that if the Company is then eligible
      to utilize Form S-3 to register the resale of Common Stock, the Filing Date
      under this clause (d) shall be 30 days following the 2007 Delivery
      Date)
      and (e)
with
      respect to the Registration Statement required to be filed under Section 2(e),
      the 45th
      day
      following the 2008 Delivery Date (provided that if the Company is then eligible
      to utilize Form S-3 to register the resale of Common Stock, the Filing Date
      under this clause (e) shall be 30 days following the 2008 Delivery
      Date).

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Holder”
      or
“Holders”
      means
      the holder or holders, as the case may be, from time to time of Registrable
      Securities.

     

    “Indemnified
      Party”
      has the
      meaning set forth in Section 5(c).

     

    “Indemnifying
      Party”
      has the
      meaning set forth in Section 5(c).

     

    “Losses”
      has the
      meaning set forth in Section 5(a).

     

    “New
      York Courts”
      means
      the state and federal courts sitting in the City of New York, Borough of
      Manhattan.

     

    “Proceeding”
      means an
      action, claim, suit, investigation or proceeding (including, without limitation,
      an investigation or partial proceeding, such as a deposition), whether commenced
      or threatened.

     

    “Prospectus”
      means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by a Registration Statement,
      and
      all other amendments and supplements to the Prospectus, including post-effective
      amendments, and all material incorporated by reference or deemed to be
      incorporated by reference in such Prospectus.

     

    “Registrable
      Securities”
      means:
      (i) the Underlying Shares, (ii) the 22,388,060 shares of Common Stock of the
      Company which are the subject of the Stock Pledge Agreement, (iii) the 2007
      Make
      Good Shares, if the 2007 Delivery Date has occurred, (iv) the 2008 Make Good
      Shares, if the 2008 Delivery Date has occurred and (v) any securities issued
      or
      issuable upon any stock split, dividend or other distribution, recapitalization
      or similar event, or any price adjustment as a result of such stock splits,
      reverse stock splits or similar events with respect to any of the securities
      referenced in (i), (ii), (iii), or (iv) above.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Registration
      Statement”
      means
      the registration statement required to be filed in accordance with Section
      2(a)
      and any additional registration statement(s) required to be filed under Section
      2(b), Section 2(c), Section 2(d) or Section 2(e), including (in each case)
      the
      Prospectus, amendments and supplements to such registration statements or
      Prospectus, including pre- and post-effective amendments, all exhibits thereto,
      and all material incorporated by reference or deemed to be incorporated by
      reference therein. Registration Statement will also include any other required
      or acceptable form and any successor form promulgated by the
      Commission.

     

    “Rule
      144”
      means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Rule
      415”
      means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Rule
      424”
      means
      Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

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

     

    "Shares"
      means
      the shares of Series A Convertible Preferred Stock issuable to the Investors
      pursuant to the Purchase Agreement, having the rights, preferences and
      privileges set forth in the Certificate of Designation.

     

    “Stock
      Pledge Agreement” means
      the
      Stock Pledge Agreement, dated as May 31, 2007, by and among the Company, the
      Investors, Xu Hong Bin and Chen Xing Hua.

     

    “Underlying
      Shares” means
      the
      shares of Common Stock issuable upon conversion of the Shares.

     

    2. Registration.

     

    (a) On
      or
      prior to the applicable Filing Date, the Company shall prepare and file with
      the
      Commission a Registration Statement covering the resale of
      the
      Registrable Securities (other than, in the case of the initial Registration
      Statement to be filed under this Section 2(a), the 2007 Make Good Shares and
      the
      2008 Make Good Shares) not already covered by an existing and effective
      Registration Statement for an offering to be made on a continuous basis pursuant
      to Rule 415, on Form S-1 (or on such other form appropriate for such purpose).
      Such
      Registration Statement shall contain (except if otherwise required pursuant
      to
      written comments received from the Commission upon a review of such Registration
      Statement, other than as to the characterization of any Holder as an
      underwriter, which shall not occur without such Holder’s consent) the “Plan of
      Distribution” attached hereto as Annex
      A.
      The
      Company shall cause such Registration Statement to be declared effective under
      the Securities Act as
      soon as
      possible but, in any event, no later than its Effectiveness Date, and shall
      use
      its reasonable best efforts to keep the Registration Statement continuously
      effective during the entire Effectiveness Period. In the event that the amount
      of securities which may be included in the Registration Statement filed pursuant
      to this Section 2(a) is limited due to Commission Comments, the inclusion of
      the
      Underlying Shares in such initial Registration Statement shall take precedence
      over and shall not be cut back until the following securities of the Company
      are
      cut back and removed from such Registration Statement (in the following order):
      (i) all other Registrable Securities and (ii) any securities of the Company
      to
      be included in such Registration Statement pursuant to Section 6(b). By 5:00
      p.m. (New York City time) on the Business Day immediately following the
      Effective Date of such Registration Statement, the Company shall file with
      the
      Commission in accordance with Rule 424 under the Securities Act the final
      prospectus to be used in connection with sales pursuant to such Registration
      Statement (whether or not such filing is technically required under such
      Rule).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (b) If
      all of
      the Registrable Securities to be included in the Registration Statement filed
      pursuant to Section 2(a) cannot be so included due to Commission Comments,
      then
      the Company shall prepare and file by the applicable
      Filing
      Date for such Registration Statement(s),
      such
      number of
      additional Registration Statements
      as may be necessary in order to ensure that
      all
      Registrable Securities (other
      than the 2007 Make Good Shares and 2008 Make Good Shares, unless the 2007
      Delivery Date or 2008 Delivery Date, as the case may be, shall have occurred)
      are
      covered
      by an existing and effective Registration Statement.
      Accordingly, if for example, an initial Registration Statement is filed under
      Section 2(b) to register shares taken off a Registration Statement filed under
      Section 2(a) due to Commission Comments and Commission Comments again require
      shares to be removed for such newly filed Registration Statement under this
      Section 2(b), then the Company will prepare and file additional Registration
      Statements until such time as all such required shares are covered by effective
      Registration Statements. In
      the
      event that the amount of securities which may be included in any such
      Registration Statement is limited due to Commission Comments, the inclusion
      of
      the Underlying Shares in such Registration Statement shall take precedence
      over
      and shall not be cut back until the following securities of the Company are
      cut
      back and removed from any such Registration Statement (in the following order):
      (i) all other Registrable Securities (other than the 2007 Make Good Shares
      and
      the 2008 Make Good Shares, if applicable) and (ii) any securities of the Company
      to be included in such Registration Statement pursuant to Section 6(b).
Any
      Registration Statements to be filed under this Section shall be
      for an
      offering to be made on a continuous basis pursuant to Rule 415, on Form S-1
      (or
      on such other form appropriate for such purpose). Such Registration Statement
      shall contain (except if otherwise required pursuant to written comments
      received from the Commission upon a review of such Registration Statement,
      other
      than as to the characterization of any Holder as an underwriter, which shall
      not
      occur without such Holder’s consent) the "Plan of Distribution" attached hereto
      as Annex
      A.
      The
      Company shall cause such Registration Statement to be declared effective under
      the Securities Act as soon as possible but, in any event, by its Effectiveness
      Date, and shall use its reasonable best efforts to keep such Registration
      Statement continuously effective under the Securities Act during the entire
      Effectiveness Period. By 5:00 p.m. (New York City time) on the Business Day
      immediately following the Effective Date of such Registration Statement, the
      Company shall file with the Commission in accordance with Rule 424 under the
      Securities Act the final prospectus to be used in connection with sales pursuant
      to such Registration Statement (whether or not such filing is technically
      required under such Rule).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (c) Promptly
      following any date on which the Company becomes eligible to use a registration
      statement on Form S-3 to register Registrable Securities for resale, the Company
      shall file a Registration Statement on Form S-3 covering all such Registrable
      Securities (or a post-effective amendment on Form S-3 to the then effective
      Registration Statement) and shall cause such Registration Statement to be filed
      by the Filing Date for such Registration Statement and declared effective under
      the Securities Act as soon as possible thereafter, but in any event prior to
      the
      Effectiveness Date therefor. Such
      Registration Statement shall contain (except if otherwise required pursuant
      to
      written comments received from the Commission upon a review of such Registration
      Statement, other than as to the characterization of any Holder as an
      underwriter, which shall not occur without such Holder’s consent) the “Plan of
      Distribution” attached hereto as Annex
      A.
      The
      Company shall use its reasonable best efforts to keep such Registration
      Statement continuously effective under the Securities Act during the entire
      Effectiveness Period. By 5:00 p.m. (New York City time) on the Business Day
      immediately following the Effective Date of such Registration Statement, the
      Company shall file with the Commission in accordance with Rule 424 under the
      Securities Act the final prospectus to be used in connection with sales pursuant
      to such Registration Statement (whether or not such filing is technically
      required under such Rule).

     

    (d) On
      or
      prior to the applicable Filing Date, the Company shall prepare and file with
      the
      Commission a Registration Statement covering the resale of the 2007 Make Good
      Shares on Form S-3 if the Company is then eligible to utilize such Form (or
      on
      such other form appropriate for such purpose) and shall cause such Registration
      Statement to be filed by the Filing Date for such Registration Statement and
      declared effective under the Securities Act as soon as possible thereafter,
      but
      in any event prior to the Effectiveness Date therefor. Such Registration
      Statement shall contain (except if otherwise required pursuant to written
      comments received from the Commission upon a review of such Registration
      Statement, other than as to the characterization of any Holder as an
      underwriter, which shall not occur without such Holder’s consent) the “Plan of
      Distribution” attached hereto as Annex
      A.
      The
      Company shall use its reasonable best efforts to keep such Registration
      Statement continuously effective under the Securities Act during the entire
      Effectiveness Period which is applicable to it. By 5:00 p.m. (New York City
      time) on the Business Day immediately following the Effective Date of such
      Registration Statement, the Company shall file with the Commission in accordance
      with Rule 424 under the Securities Act the final prospectus to be used in
      connection with sales pursuant to such Registration Statement (whether or not
      such filing is technically required under such Rule).

     

    (e) On
      or
      prior to the applicable Filing Date, the Company shall prepare and file with
      the
      Commission a Registration Statement covering the resale of the 2008 Make Good
      Shares on Form S-3 if the Company is then eligible to utilize such Form (or
      on
      such other form appropriate for such purpose) and shall cause such Registration
      Statement to be filed by the Filing Date for such Registration Statement and
      declared effective under the Securities Act as soon as possible thereafter,
      but
      in any event prior to the Effectiveness Date therefor. Such Registration
      Statement shall contain (except if otherwise required pursuant to written
      comments received from the Commission upon a review of such Registration
      Statement, other than as to the characterization of any Holder as an
      underwriter, which shall not occur without such Holder’s consent) the “Plan of
      Distribution” attached hereto as Annex
      A.
      The
      Company shall use its reasonable best efforts to keep such Registration
      Statement continuously effective under the Securities Act during the entire
      Effectiveness Period which is applicable to it. By 5:00 p.m. (New York City
      time) on the Business Day immediately following the Effective Date of such
      Registration Statement, the Company shall file with the Commission in accordance
      with Rule 424 under the Securities Act the final prospectus to be used in
      connection with sales pursuant to such Registration Statement (whether or not
      such filing is technically required under such Rule).

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (f) If:
      (i) a
      Registration Statement is not filed on or prior to its Filing Date covering
      the
      Registrable Securities required under this Agreement to
      be
      included therein (if the Company files a Registration Statement without
      affording the Holders the opportunity to review and comment on the same as
      required by Section 3(a) hereof, the Company shall not be deemed to have
      satisfied this clause (i)), or (ii) a Registration Statement is not declared
      effective by the Commission on or prior to its required Effectiveness Date
      or if
      by the Business Day immediately following the Effective Date the Company shall
      not have filed a “final” prospectus for the Registration Statement with the
      Commission under Rule 424(b) (whether or not such a prospectus is technically
      required by such Rule), or (iii) after its Effective Date, without regard for
      the reason thereunder or efforts therefore, such Registration Statement ceases
      for any reason to be effective and available to the Holders as to the
      Registrable Securities to which it is required to cover at any time prior to
      the
      expiration of its Effectiveness Period for more than an aggregate of 30 Trading
      Days (which need not be consecutive) (any such failure or breach being referred
      to as an “Event,”
      and for
      purposes of clauses (i) or (ii) the date on which such Event occurs, or for
      purposes of clause (iii) the date which such 30 Trading Day-period is exceeded,
      being referred to as “Event
      Date”),
      then
      in addition to any other rights the Holders may have hereunder or under
      applicable law: on each such Event Date, and on each monthly anniversary of
      each
      such Event Date (if the applicable Event shall not have been cured by such
      date)
      until the applicable Event is cured, the Company shall pay to each Holder an
      amount in cash, as partial liquidated damages and not as a penalty, equal to
      1.0% of the aggregate Investment Amount paid by such Holder for Securities
      pursuant to the Purchase Agreement; provided, however, that the total amount
      of
      partial liquidated damages payable by the Company pursuant to all Events under
      this Section shall be capped at an aggregate of 10.0% of the aggregate
      Investment Amount paid by the Investors under the Purchase Agreement. The
      partial liquidated damages pursuant to the terms hereof shall apply on a daily
      pro-rata basis for any portion of a month prior to the cure of an Event, except
      in the case of the first Event Date. In no event will the Company be liable
      for
      liquidated damages under this Agreement in excess of 1.0% of the aggregate
      Investment Amount of the Investors in any 30-day period. The Company shall
      not
      be liable for liquidated damages under this Agreement as to any Registrable
      Securities which are not permitted by the Commission to be included in a
      Registration Statement due solely to Commission Comments from the time that
      it
      is determined that such Registrable Securities are not permitted to be
      registered solely due to Commission Comments until such time as the provisions
      of this Agreement as to the next applicable Registration Statement required
      to
      be filed hereunder are triggered, in which case the provisions of this Section
      2(f) shall once again apply, if applicable.

     

    (g) Each
      Holder agrees
      to
      furnish to the Company a completed Questionnaire in the form attached to this
      Agreement as Annex
      B
      (a
“Selling
      Holder Questionnaire”).
      The
      Company shall not be required to include the Registrable Securities of a Holder
      in a Registration Statement and shall not be required to pay any liquidated
      or
      other damages under Section 2(f) to any Holder who fails to furnish to the
      Company a fully completed Selling Holder Questionnaire at least two Trading
      Days
      prior to the Filing Date (subject to the requirements set forth in Section
      3(a)).

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    3. Registration
      Procedures.

     

    In
      connection with the Company's registration obligations hereunder, the Company
      shall:

     

    (a) Not
      less
      than three Trading Days prior to the filing of a Registration Statement or
      any
      related Prospectus or any amendment or supplement thereto, the Company shall
      furnish to each Holder copies of the “Selling Stockholders” section of such
      document, the “Plan of Distribution” and any risk factor contained in such
      document that addresses specifically this transaction or the Selling
      Stockholders, as proposed to be filed which documents will be subject to the
      review of such Holder. The
      Company shall not file a Registration Statement, any Prospectus or any
      amendments or supplements thereto in which the “Selling
      Stockholder” section thereof differs from the disclosure received from a Holder
      in its Selling Holder Questionnaire (as amended or supplemented). The Company
      shall not (i) file a Registration Statement, any Prospectus or any amendments
      or
      supplements thereto in which it characterizes any Holder as an underwriter
      or
      (ii) determine not to include a Holder as a Selling Stockholder in a
      Registration Statement, without such Holder’s express written
      authorization.

     

    (b) (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to each Registration Statement and the Prospectus used in connection
      therewith as may be necessary to keep such Registration Statement continuously
      effective as to the applicable Registrable Securities for its Effectiveness
      Period and prepare and file with the Commission such additional Registration
      Statements in accordance with Section 2(b) in order to register for resale
      under
      the Securities Act all of the required Registrable Securities; (ii) cause the
      related Prospectus to be amended or supplemented by any required Prospectus
      supplement, and as so supplemented or amended to be filed pursuant to Rule
      424;
      (iii) respond as promptly as reasonably possible to any comments received from
      the Commission with respect to each Registration Statement or any amendment
      thereto and, as promptly as reasonably possible provide the Holders true and
      complete copies of all correspondence from and to the Commission relating to
      such Registration Statement that would not result in the disclosure to the
      Holders of material and non-public information concerning the Company; and
      (iv)
      comply in all material respects with the provisions of the Securities Act and
      the Exchange Act with respect to the Registration Statements and the disposition
      of the Registrable Securities covered by each Registration
      Statement.

     

    (c) Notify
      the Holders as promptly as reasonably possible (and, in the case of (i)(A)
      below, not less than two Trading Days prior to such filing and, in the case
      of
      (v) below, not less than two Trading Days prior to the financial statements
      in
      any Registration Statement becoming ineligible for inclusion therein) and (if
      requested by any such Person) confirm such notice in writing no later than
      one
      Trading Day following the day (i)(A) when a Prospectus or any Prospectus
      supplement or post-effective amendment to a Registration Statement is proposed
      to be filed; (B) when the Commission notifies the Company whether there will
      be
      a “review” of such Registration Statement and whenever the Commission comments
      in writing on such Registration Statement (the Company shall provide true and
      complete copies thereof and all written responses thereto to each of the Holders
      that pertain to the Holders as a Selling Stockholder or to the Plan of
      Distribution, but not information which the Company believes would constitute
      material and non-public information); and (C) with respect to each Registration
      Statement or any post-effective amendment, when the same has become effective;
      (ii) of any request by the Commission or any other Federal or state governmental
      authority for amendments or supplements to a Registration Statement or
      Prospectus or for additional information; (iii) of the issuance by the
      Commission of any stop order suspending the effectiveness of a Registration
      Statement covering any or all of the Registrable Securities or the initiation
      of
      any Proceedings for that purpose; (iv) of the receipt by the Company 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; and (v) of the occurrence of any event or passage of time that makes
      the financial statements included in a Registration Statement ineligible for
      inclusion therein or any statement made in such Registration Statement or
      Prospectus or any document incorporated or deemed to be incorporated therein
      by
      reference untrue in any material respect or that requires any revisions to
      such
      Registration Statement, Prospectus or other documents so that, in the case
      of
      such Registration Statement or the Prospectus, as the case may be, 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 light of the circumstances under which they were made, not
      misleading.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (d) Use
      its
      reasonable best efforts to avoid the issuance of, or, if issued, obtain the
      withdrawal of (i) any order suspending the effectiveness of a Registration
      Statement, or (ii) any suspension of the qualification (or exemption from
      qualification) of any of the Registrable Securities for sale in any
      jurisdiction, at the earliest practicable moment.

     

    (e) Furnish
      to each Holder, without charge, at least one conformed copy of each Registration
      Statement and each amendment thereto and all exhibits to the extent requested
      by
      such Person (including those previously furnished) promptly after the filing
      of
      such documents with the Commission.

     

    (f) Promptly
      deliver to each Holder, without charge, as many copies of each Prospectus or
      Prospectuses (including each form of prospectus) and each amendment or
      supplement thereto as such Persons may reasonably request. The Company hereby
      consents to the use of such Prospectus and each amendment or supplement thereto
      by each of the selling Holders in connection with the offering and sale of
      the
      Registrable Securities covered by such Prospectus and any amendment or
      supplement thereto.

     

    (g) Prior
      to
      any public offering of Registrable Securities, register or qualify the
      Registrable Securities for offer and sale under the securities or Blue Sky
      laws
      of each jurisdiction within the United States, to keep each such registration
      or
      qualification (or exemption therefrom) effective during the Effectiveness Period
      and to do any and all other acts or things necessary or advisable to enable
      the
      disposition in such jurisdictions of the Registrable Securities covered by
      the
      Registration Statements.

     

    (h) Cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be delivered to a transferee
      pursuant to the Registration Statements, which certificates shall be free,
      to
      the extent permitted by the Purchase Agreement, of all restrictive legends,
      and
      to enable such Registrable Securities to be in such denominations and registered
      in such names as any such Holders may request.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (i) Upon
      the
      occurrence of any event contemplated by Section 3(c)(v), as promptly as
      reasonably possible, prepare a supplement or amendment, including a
      post-effective amendment, to the affected Registration Statements or a
      supplement to the related Prospectus or any document incorporated or deemed
      to
      be incorporated therein by reference, and file any other required document
      so
      that, as thereafter delivered, no Registration Statement nor any Prospectus
      will
      contain an untrue statement of a material fact or omit to state a 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.

     

    4. Registration
      Expenses.
      All
      fees and expenses incident to the performance of or compliance with this
      Agreement by the Company shall be borne by the Company whether or not any
      Registrable Securities are sold pursuant to a Registration Statement. The fees
      and expenses referred to in the foregoing sentence shall include, without
      limitation, (i) all registration and filing fees (including, without limitation,
      fees and expenses (A) with respect to filings required to be made with any
      Trading Market on which the Common Stock is then listed for trading, and (B)
      in
      compliance with applicable state securities or Blue Sky laws), (ii) printing
      expenses (including, without limitation, expenses of printing certificates
      for
      Registrable Securities and of printing prospectuses if the printing of
      prospectuses is reasonably requested by the holders of a majority of the
      Registrable Securities included in the Registration Statement), (iii) messenger,
      telephone and delivery expenses, (iv) fees and disbursements of counsel for
      the
      Company, (v) Securities Act liability insurance, if the Company so desires
      such
      insurance, and (vi) fees and expenses of all other Persons retained by the
      Company in connection with the consummation of the transactions contemplated
      by
      this Agreement. In addition, the Company shall be responsible for all of its
      internal expenses incurred in connection with the consummation of the
      transactions contemplated by this Agreement (including, without limitation,
      all
      salaries and expenses of its officers and employees performing legal or
      accounting duties), the expense of any annual audit and the fees and expenses
      incurred in connection with the listing of the Registrable Securities on any
      securities exchange as required hereunder. 

     

    5. Indemnification.

     

    (a) Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, agents, investment advisors,
      partners, members and employees of each of them, each Person who controls any
      such Holder (within the meaning of Section 15 of the Securities Act or Section
      20 of the Exchange Act) and the officers, directors, agents and employees of
      each such controlling Person, to the fullest extent permitted by applicable
      law,
      from and against any and all losses, claims, damages, liabilities, costs
      (including, without limitation, reasonable costs of preparation and reasonable
      attorneys' fees) and expenses (collectively, “Losses”),
      as
      incurred, arising out of or relating to any untrue or alleged untrue statement
      of a material fact contained in any Registration Statement, any Prospectus
      or
      any form of prospectus or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising out of or relating to any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein (in the case of any Prospectus or form of prospectus
      or
      supplement thereto, in light of the circumstances under which they were made)
      not misleading, except to the extent, but only to the extent, that (1) such
      untrue statements or omissions are based solely upon information regarding
      such
      Holder furnished in writing to the Company by such Holder expressly for use
      therein, or to the extent that such information relates to such Holder or such
      Holder's proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in
      the Registration Statement, such Prospectus or such form of Prospectus or in
      any
      amendment or supplement thereto (it being understood that the Holder has
      approved Annex
      A
      hereto
      for this purpose) or (2) in the case of an occurrence of an event of the type
      specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
      defective Prospectus after the Company has notified such Holder in writing
      that
      the Prospectus is outdated or defective and prior to the receipt by such Holder
      of an Advice or an amended or supplemented Prospectus, but only if and to the
      extent that following the receipt of the Advice or the amended or supplemented
      Prospectus the misstatement or omission giving rise to such Loss would have
      been
      corrected. The Company shall notify the Holders promptly of the institution,
      threat or assertion of any Proceeding of which the Company is aware in
      connection with the transactions contemplated by this Agreement. The action
      or
      inaction of any Holder shall not impair the indemnification rights of any other
      Holder hereunder.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    (b) Indemnification
      by Holders.
      Each
      Holder shall, severally and not jointly, indemnify and hold harmless the
      Company, its directors, officers, agents and employees, each Person who controls
      the Company (within the meaning of Section 15 of the Securities Act and Section
      20 of the Exchange Act), and the directors, officers, agents or employees of
      such controlling Persons, to the fullest extent permitted by applicable law,
      from and against all Losses, as incurred, arising solely out of or based solely
      upon: (x) such Holder's failure to comply with the prospectus delivery
      requirements of the Securities Act or (y) any untrue statement of a material
      fact contained in any Registration Statement, any Prospectus, or any form of
      prospectus, or in any amendment or supplement thereto, or arising solely out
      of
      or based solely upon any omission of a material fact required to be stated
      therein or necessary to make the statements therein not misleading to the
      extent, but only to the extent that, (1) such untrue statements or omissions
      are
      based solely upon information regarding such Holder furnished in writing to
      the
      Company by such Holder expressly for use therein, or to the extent that such
      information relates to such Holder or such Holder's proposed method of
      distribution of Registrable Securities and was reviewed and expressly approved
      in writing by such Holder expressly for use in the Registration Statement (it
      being understood that the Holder has approved Annex
      A
      hereto
      for this purpose), such Prospectus or such form of Prospectus or in any
      amendment or supplement thereto or (2) in the case of an occurrence of an event
      of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an
      outdated or defective Prospectus after the Company has notified such Holder
      in
      writing that the Prospectus is outdated or defective and prior to the receipt
      by
      such Holder of an Advice or an amended or supplemented Prospectus, but only
      if
      and to the extent that following the receipt of the Advice or the amended or
      supplemented Prospectus the misstatement or omission giving rise to such Loss
      would have been corrected. In no event shall the liability of any selling Holder
      hereunder be greater in amount than the dollar amount of the net proceeds
      received by such Holder upon the sale of the Registrable Securities giving
      rise
      to such indemnification obligation.

    

    (c)  Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall assume the defense thereof, including
      the employment of counsel reasonably satisfactory to the Indemnified Party
      and
      the payment of all fees and expenses incurred in connection with defense
      thereof; provided, that the failure of any Indemnified Party to give such notice
      shall not relieve the Indemnifying Party of its obligations or liabilities
      pursuant to this Agreement, except (and only) to the extent that it shall be
      finally determined by a court of competent jurisdiction (which determination
      is
      not subject to appeal or further review) that such failure shall have
      proximately and materially adversely prejudiced the Indemnifying
      Party.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; (2) the Indemnifying Party shall have failed promptly to assume the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such Indemnified Party shall have been advised
      by counsel that a conflict of interest is likely to exist if the same counsel
      were to represent such Indemnified Party and the Indemnifying Party (in which
      case, if such Indemnified Party notifies the Indemnifying Party in writing
      that
      it elects to employ separate counsel at the expense of the Indemnifying Party,
      the Indemnifying Party shall not have the right to assume the defense thereof
      and such counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld. No Indemnifying Party shall, without the prior written consent of
      the
      Indemnified Party, effect any settlement of any pending Proceeding in respect
      of
      which any Indemnified Party is a party, unless such settlement includes an
      unconditional release of such Indemnified Party from all liability on claims
      that are the subject matter of such Proceeding.

     

    All
      fees
      and expenses of the Indemnified Party (including reasonable fees and expenses
      to
      the extent incurred in connection with investigating or preparing to defend
      such
      Proceeding in a manner not inconsistent with this Section) shall be paid to
      the
      Indemnified Party, as incurred, within ten Trading Days of written notice
      thereof to the Indemnifying Party (regardless of whether it is ultimately
      determined that an Indemnified Party is not entitled to indemnification
      hereunder; provided, that the Indemnifying Party may require such Indemnified
      Party to undertake to reimburse all such fees and expenses to the extent it
      is
      finally judicially determined that such Indemnified Party is not entitled to
      indemnification hereunder).

     

    (d) Contribution.
      If a
      claim for indemnification under Section 5(a) or 5(b) is unavailable to an
      Indemnified Party (by reason of public policy or otherwise), then each
      Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
      contribute to the amount paid or payable by such Indemnified Party as a result
      of such Losses, in such proportion as is appropriate to reflect the relative
      fault of the Indemnifying Party and Indemnified Party in connection with the
      actions, statements or omissions that resulted in such Losses as well as any
      other relevant equitable considerations. The relative fault of such Indemnifying
      Party and Indemnified Party shall be determined by reference to, among other
      things, whether any action in question, including any untrue or alleged untrue
      statement of a material fact or omission or alleged omission of a material
      fact,
      has been taken or made by, or relates to information supplied by, such
      Indemnifying Party or Indemnified Party, and the parties' relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
      incurred by such party in connection with any Proceeding to the extent such
      party would have been indemnified for such fees or expenses if the
      indemnification provided for in this Section was available to such party in
      accordance with its terms.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding paragraph.
      Notwithstanding the provisions of this Section 5(d), no Holder shall be required
      to contribute, in the aggregate, any amount in excess of the amount by which
      the
      proceeds actually received by such Holder from the sale of the Registrable
      Securities subject to the Proceeding exceeds the amount of any damages that
      such
      Holder has otherwise been required to pay by reason of such untrue or alleged
      untrue statement or omission or alleged omission.

     

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties.

     

    6. Miscellaneous.

     

    (a) Remedies.
      In the
      event of a breach by the Company or by a Holder, of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, will be entitled to
      specific performance of its rights under this Agreement. The Company and each
      Holder agree that monetary damages would not provide adequate compensation
      for
      any losses incurred by reason of a breach by it of any of the provisions of
      this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall waive the defense
      that
      a remedy at law would be adequate.

    

    (b) No
      Piggyback on Registrations.
      Except
      as and to the extent specified in Schedule
      3.1(v)
      to the
      Purchase Agreement, neither the Company nor any of its security holders (other
      than the Holders in such capacity pursuant hereto) may include securities of
      the
      Company in a Registration Statement other than the Registrable Securities,
      and
      the Company shall not during the Effectiveness Period enter into any agreement
      providing any such right to any of its security holders.

    

    (c) Compliance.
      Each
      Holder severally and not jointly covenants and agrees that it will comply with
      the prospectus delivery requirements of the Securities Act as applicable to
      it
      in connection with sales of Registrable Securities pursuant to the Registration
      Statement.

    

    (d) Discontinued
      Disposition.
      Each
      Holder severally and not jointly agrees by its acquisition of Registrable
      Securities that, upon receipt of a notice from the Company of the occurrence
      of
      any event of the kind described in Section 3(c), such Holder will forthwith
      discontinue disposition of such Registrable Securities under the Registration
      Statement until such Holder's receipt of the copies of the supplemented
      Prospectus and/or amended Registration Statement or until it is advised in
      writing (the “Advice”)
      by the
      Company that the use of the applicable Prospectus may be resumed, and, in either
      case, has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such Prospectus or
      Registration Statement. The Company may provide appropriate stop orders to
      enforce the provisions of this paragraph.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    (e) Piggy-Back
      Registrations.
      If at
      any time during
      the Effectiveness Period, there
      is
      not an effective Registration Statement covering all of the Registrable
      Securities and the Company shall determine to prepare and file with the
      Commission a registration statement relating to an offering for its own account
      or the account of others under the Securities Act of any of its equity
      securities, other than on Form S-4 or Form S-8 (each as promulgated under the
      Securities Act) or their then equivalents relating to equity securities to
      be
      issued solely in connection with any acquisition of any entity or business
      or
      equity securities issuable in connection with stock option or other employee
      benefit plans, then the Company shall send to each Holder written notice of
      such
      determination and, if within fifteen days after receipt of such notice, any
      such
      Holder shall so request in writing, the Company shall include in such
      registration statement all or any part of such Registrable Securities such
      Holder requests to be registered, subject to customary underwriter cutbacks
      applicable to all holders of registration rights.

    

    (f) Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this Section 6(f),
      may
      not be amended, modified or supplemented, and waivers or consents to departures
      from the provisions hereof may not be given, unless the same shall be in writing
      and signed by the Company and the Holders of no less than a majority in interest
      of the then outstanding Registrable Securities. Notwithstanding the foregoing,
      a
      waiver or consent to depart from the provisions hereof with respect to a matter
      that relates exclusively to the rights of certain Holders and that does not
      directly or indirectly affect the rights of other Holders may be given by
      Holders of at least a majority of the Registrable Securities to which such
      waiver or consent relates.

    

    (g) Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile (provided the sender receives a machine-generated
      confirmation of successful transmission) at the facsimile number specified
      in
      this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b)
      the
      next Trading Day after the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified in this Section
      on
      a day that is not a Trading Day or later than 6:30 p.m. (New York City time)
      on
      any Trading Day, or (c) upon actual receipt by the party to whom such notice
      is
      required to be given if sent by any means other than facsimile transmission.
      The
      address for such notices and communications shall be as follows:

    

      
        	
                If
                  to the Company:

              	
                China
                  Water and Drinks Inc.

              
	 	
                9101
                  West Sahara, Suite 105-195

              
	 	
                Las
                  Vegas, NV 89117

              
	 	
                Facsimile:
                  + 86 0755 2552 3376

              
	 	
                Attn.:
                  Chen Xing Hua

              

      

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

      
        	
                With
                  a copy to:

              	
                Loeb
                  & Loeb LLP

              
	 	
                345
                  Park Avenue

              
	 	
                New
                  York, NY 10154

              
	 	
                Facsimile:
                  (212) 504-3013

              
	 	
                Attn.:
                  Mitchell S. Nussbaum, Esq.

              
	 	 
	
                If
                  to an Investor: 

              	
                To
                  the address set forth under such Investor's name on the signature
                  pages
                  hereto.

              
	 	 
	
                If
                  to any other Person who is then the registered
                  Holder:

              
	 
	 	
                To
                  the address of such Holder as it appears in the stock transfer
                  books of
                  the Company

              

      

    

     

    or
      such
      other address as may be designated in writing hereafter, in the same manner,
      by
      such Person.

     

    (h) Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      each
      Holder. The Company may not assign its rights or obligations hereunder without
      the prior written consent of each Holder. Each Holder may assign its respective
      rights hereunder in the manner and to the Persons as permitted under the
      Purchase Agreement.

     

    (h) Execution
      and Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (i) Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each party agrees that all Proceedings
      concerning the interpretations, enforcement and defense of the transactions
      contemplated by this Agreement (whether brought against a party hereto or its
      respective Affiliates, employees or agents) will be commenced in the New York
      Courts. Each party hereto hereby irrevocably submits to the exclusive
      jurisdiction of the New York Courts for the adjudication of any dispute
      hereunder or in connection herewith or with any transaction contemplated hereby
      or discussed herein, and hereby irrevocably waives, and agrees not to assert
      in
      any Proceeding, any claim that it is not personally subject to the jurisdiction
      of any New York Court, or that such Proceeding has been commenced in an improper
      or inconvenient forum. Each party hereto hereby irrevocably waives personal
      service of process and consents to process being served in any such Proceeding
      by mailing a copy thereof via registered or certified mail or overnight delivery
      (with evidence of delivery) to such party at the address in effect for notices
      to it under this Agreement and agrees that such service shall constitute good
      and sufficient service of process and notice thereof. Nothing contained herein
      shall be deemed to limit in any way any right to serve process in any manner
      permitted by law. Each party hereto hereby irrevocably waives, to the fullest
      extent permitted by applicable law, any and all right to trial by jury in any
      Proceeding arising out of or relating to this Agreement or the transactions
      contemplated hereby. If either party shall commence a Proceeding to enforce
      any
      provisions of this Agreement, then the prevailing party in such Proceeding
      shall
      be reimbursed by the other party for its attorney’s fees and other costs and
      expenses incurred with the investigation, preparation and prosecution of such
      Proceeding.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (j) Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    (k) Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their reasonable efforts to
      find and employ an alternative means to achieve the same or substantially the
      same result as that contemplated by such term, provision, covenant or
      restriction. It is hereby stipulated and declared to be the intention of the
      parties that they would have executed the remaining terms, provisions, covenants
      and restrictions without including any of such that may be hereafter declared
      invalid, illegal, void or unenforceable.

     

    (l) Headings.
      The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

    (m) Independent
      Nature of Investors' Obligations and Rights.
      The
      obligations of each Investor under this Agreement are several and not joint
      with
      the obligations of each other Investor, and no Investor shall be responsible
      in
      any way for the performance of the obligations of any other Investor under
      this
      Agreement. Nothing contained herein or in any Transaction Document, and no
      action taken by any Investor pursuant thereto, shall be deemed to constitute
      the
      Investors as a partnership, an association, a joint venture or any other kind
      of
      entity, or create a presumption that the Investors are in any way acting in
      concert or as a group with respect to such obligations or the transactions
      contemplated by this Agreement or any other Transaction Document. Each Investor
      acknowledges that no other Investor will be acting as agent of such Investor
      in
      enforcing its rights under this Agreement. Each Investor shall be entitled
      to
      independently protect and enforce its rights, including without limitation
      the
      rights arising out of this Agreement, and it shall not be necessary for any
      other Investor to be joined as an additional party in any Proceeding for such
      purpose. The Company acknowledges that each of the Investors has been provided
      with the same Registration Rights Agreement for the purpose of closing a
      transaction with multiple Investors and not because it was required or requested
      to do so by any Investor.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGES TO FOLLOW]

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

    
      	 	 	 
	 	
              CHINA
                WATER AND DRINKS INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:
                

              Title:
                

            

    

    
    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGES OF INVESTORS TO FOLLOW]

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

    
      	 	 	 
	 	
              NAME
                OF INVESTING ENTITY

            
	 	 
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:

              Title:

            

    

     

    
      
        
          	 	
                  ADDRESS
                    FOR NOTICE

                

        

         

        
          	 	
                  c/o:
                    

                	 

        

        
          	 	
                  Street:
                    

                	 

        

        
          	 	
                  City/State/Zip:
                    

                	 

        

        
          	 	
                  Attention:
                    

                	 

        

        
          	 	
                  Tel:

                	 

        

        
          	 	
                  Fax:

                	 

        

        
          	 	
                  Email:

                	 

        

      

    

      

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    Annex
      A

     

    Plan
      of
      Distribution

     

    The
      Selling Stockholders and any of their pledgees, donees, transferees, assignees
      and successors-in-interest may, from time to time, sell any or all of their
      shares of Common Stock on any stock exchange, market or trading facility on
      which the shares are traded or in private transactions. These sales may be
      at
      fixed or negotiated prices. The Selling Stockholders may use any one or more
      of
      the following methods when selling shares:

     

    
      	
              ·

            	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits Investors;

            

    

     

    
      	
              ·

            	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	
              ·

            	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	
              ·

            	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	
              ·

            	
              privately
                negotiated transactions;

            

    

     

    
      	
              ·

            	
              to
                cover short sales made after the date that this Registration Statement
                is
                declared effective by the Commission;

            

    

     

    
      	
              ·

            	
              broker-dealers
                may agree with the Selling Stockholders to sell a specified number
                of such
                shares at a stipulated price per
                share;

            

    

     

    
      	
              ·

            	
              a
                combination of any such methods of sale;
                and

            

    

     

    
      	
              ·

            	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    The
      Selling Stockholders may also sell shares under Rule 144 under the Securities
      Act, if available, rather than under this prospectus.

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated. The
      Selling Stockholders do not expect these commissions and discounts to exceed
      what is customary in the types of transactions involved.

     

    The
      Selling Stockholders may from time to time pledge or grant a security interest
      in some or all of the shares of Common Stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell shares of Common Stock from time to time under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act of 1933 amending the list
      of
      selling stockholders to include the pledgee, transferee or other successors
      in
      interest as selling stockholders under this prospectus.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    Upon
      the
      Company being notified in writing by a Selling Stockholder that any material
      arrangement has been entered into with a broker-dealer for the sale of Common
      Stock through a block trade, special offering, exchange distribution or
      secondary distribution or a purchase by a broker or dealer, a supplement to
      this
      prospectus will be filed, if required, pursuant to Rule 424(b) under the
      Securities Act, disclosing (i) the name of each such Selling Stockholder and
      of
      the participating broker-dealer(s), (ii) the number of shares involved, (iii)
      the price at which such the shares of Common Stock were sold, (iv)the
      commissions paid or discounts or concessions allowed to such broker-dealer(s),
      where applicable, (v) that such broker-dealer(s) did not conduct any
      investigation to verify the information set out or incorporated by reference
      in
      this prospectus, and (vi) other facts material to the transaction. In addition,
      upon the Company being notified in writing by a Selling Stockholder that a
      donee
      or pledgee intends to sell more than 500 shares of Common Stock, a supplement
      to
      this prospectus will be filed if then required in accordance with applicable
      securities law.

     

    The
      Selling Stockholders also may transfer the shares of Common Stock in other
      circumstances, in which case the transferees, pledgees or other successors
      in
      interest will be the selling beneficial owners for purposes of this
      prospectus.

     

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the shares may be deemed to be "underwriters" within the meaning of
      the
      Securities Act in connection with such sales. In such event, any commissions
      received by such broker-dealers or agents and any profit on the resale of the
      shares purchased by them may be deemed to be underwriting commissions or
      discounts under the Securities Act. Discounts, concessions, commissions and
      similar selling expenses, if any, that can be attributed to the sale of the
      securities will be paid by the Selling Stockholder and/or the purchasers. Each
      Selling Stockholder has represented and warranted to the Company that it
      acquired the securities subject to this registration statement in the ordinary
      course of such Selling Stockholder’s business and, at the time of its purchase
      of such securities such Selling Stockholder had no agreements or understandings,
      directly or indirectly, with any person to distribute any such securities.
      

     

    The
      Company has advised each Selling Stockholder that it may not use shares
      registered on this Registration Statement to cover short sales of Common Stock
      made prior to the date on which this Registration Statement shall have been
      declared effective by the Commission. If a Selling Stockholder uses this
      prospectus for any sale of the Common Stock, it will be subject to the
      prospectus delivery requirements of the Securities Act. The Selling Stockholders
      will be responsible to comply with the applicable provisions of the Securities
      Act and Exchange Act, and the rules and regulations thereunder promulgated,
      including, without limitation, Regulation M, as applicable to such Selling
      Stockholders in connection with resales of their respective shares under this
      Registration Statement.

     

    The
      Company is required to pay all fees and expenses incident to the registration
      of
      the shares, but the Company will not receive any proceeds from the sale of
      the
      Common Stock. The Company has agreed to indemnify the Selling Stockholders
      against certain losses, claims, damages and liabilities, including liabilities
      under the Securities Act. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    Annex
      B

     

    CHINA
      WATER AND DRINKS INC.

     

    Selling
      Securityholder Notice and Questionnaire

     

    The
      undersigned beneficial owner of common stock (the “Common
      Stock”),
      of
      China Water and Drinks Inc., a Nevada corporation (the “Company”)
      understands that the Company has filed or intends to file with the Securities
      and Exchange Commission (the “Commission”)
      a
      Registration Statement for the registration and resale of the Registrable
      Securities, in accordance with the terms of the Registration Rights Agreement,
      dated as of May 31, 2007 (the “Registration
      Rights Agreement”),
      among
      the Company and the Investors named therein. A copy of the Registration Rights
      Agreement is available from the Company upon request at the address set forth
      below. All capitalized terms used and not otherwise defined herein shall have
      the meanings ascribed thereto in the Registration Rights Agreement.

     

    The
      undersigned hereby provides the following information to the Company and
      represents and warrants that such information is accurate:

     

    QUESTIONNAIRE

     

    1. Name.

    

      
        	 	
                (a)

              	
                Full
                  Legal Name of Selling Securityholder

              
	 	 	 
	 	 	 
	 	
                (b)

              	
                Full
                  Legal Name of Registered Holder (if not the same as (a) above)
                  through
                  which Registrable Securities Listed in Item 3 below are
                  held:

              
	 	 	 
	 	 	 
	 	
                (c)

              	
                Full
                  Legal Name of Natural Control Person (which means a natural person
                  who
                  directly or indirectly alone or with others has power to vote or
                  dispose
                  of the securities covered by the questionnaire):

              
	 	 	 

      

    

     

    2.
      Address for Notices to Selling Securityholder:

    
      	 
	 
	 

    

    
      
        	
                Telephone:

              	 

      

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      
        	
                Fax:

              	 

      

    

    
      
        	
                Contact
                  Person:

              	 

      

    

     

    3.
      Beneficial Ownership of Registrable Securities:

    

      
        	 	
                Type
                  and Principal Amount of Registrable Securities beneficially
                  owned:

              
	 	 
	 	 
	 	 

      

    

     

    4.
      Broker-Dealer Status:

     

    
      	 	
              (a)

            	
              Are
                you a broker-dealer?

            

    

     

    Yes
o No
o

     

    
      	 	
              Note:

            	
              If
                yes, the Commission’s staff has indicated that you should be identified as
                an underwriter in the Registration
                Statement.

            

    

     

    
      	 	
              (b)

            	
              Are
                you an affiliate of a
                broker-dealer?

            

    

     

    Yes
o No
o

     

    
      	 	
              (c)

            	
              If
                you are an affiliate of a broker-dealer, do you certify that you
                bought
                the Registrable Securities in the ordinary course of business, and
                at the
                time of the purchase of the Registrable Securities to be resold,
                you had
                no agreements or understandings, directly or indirectly, with any
                person
                to distribute the Registrable
                Securities?

            

    

     

    Yes
o No
o

     

    
      	 	
              Note:

            	
              If
                no, the Commission’s staff has indicated that you should be identified as
                an underwriter in the Registration
                Statement.

            

    

     

    5.
      Beneficial Ownership of Other Securities of the Company Owned by the Selling
      Securityholder.

     

    Except
      as set forth below in this Item 5, the undersigned is not the beneficial or
      registered owner of any securities of the Company other than the Registrable
      Securities listed above in Item 3.

    

      
        	 	
                Type
                  and Amount of Other Securities beneficially owned by the Selling
                  Securityholder:

              
	 	 
	 	 
	 	 

      

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    6.
      Relationships with the Company:

     

    Except
      as set forth below, neither the undersigned nor any of its affiliates, officers,
      directors or principal equity holders (owners of 5% of more of the equity
      securities of the undersigned) has held any position or office or has had any
      other material relationship with the Company (or its predecessors or affiliates)
      during the past three years.

     

    
      	 	
              State
                any exceptions here:

            
	
            	 
	 	 

    

     

    7.
      The
      Company has advised each Selling Stockholder that it may not use shares
      registered on the Registration Statement to cover short sales of Common Stock
      made prior to the date on which the Registration Statement is declared effective
      by the Commission, in accordance with 1997 Securities and Exchange Commission
      Manual of Publicly Available Telephone Interpretations Section A.65. If a
      Selling Stockholder uses the prospectus for any sale of the Common Stock, it
      will be subject to the prospectus delivery requirements of the Securities Act.
      The Selling Stockholders will be responsible to comply with the applicable
      provisions of the Securities Act and Exchange Act, and the rules and regulations
      thereunder promulgated, including, without limitation, Regulation M, as
      applicable to such Selling Stockholders in connection with resales of their
      respective shares under the Registration Statement.

     

    The
      undersigned agrees to promptly notify the Company of any inaccuracies or changes
      in the information provided herein that may occur subsequent to the date hereof
      and prior to the Effective Date for the Registration Statement.

     

    By
      signing below, the undersigned consents to the disclosure of the information
      contained herein in its answers to Items 1 through 6 and the inclusion of such
      information in the Registration Statement and the related prospectus. The
      undersigned understands that such information will be relied upon by the Company
      in connection with the preparation or amendment of the Registration Statement
      and the related prospectus. 

     

    IN
      WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
      and Questionnaire to be executed and delivered either in person or by its duly
      authorized agent.

    
      	 	 	 
	Dated:
              _______________________	
              Beneficial
                Owner: ___________________________ 

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:

              Title: 

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
 

    PLEASE
      FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
      THE ORIGINAL BY OVERNIGHT MAIL, TO:

    

    Loeb
      & Loeb LLP

    345
      Park
      Avenue

    New
      York,
      NY 10154

    Facsimile:
      646-607-0682

    Attn:
      Susie L. Kim, Esq.

     

    
      
        
        

      

      
        4

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