Document:

Unassociated Document

     

    PLEDGE
      AND ESCROW AGREEMENT

     

    PLEDGE
      AND ESCROW AGREEMENT
      (the
“Agreement”)
      dated
      as of February 15, 2007 made by each of the undersigned (each a “Pledgor”,
      and
      collectively, the “Pledgors”),
      in
      favor of CORNELL
      CAPITAL PARTNERS, L.P.,
      in its
      capacity as collateral agent (in such capacity, the “Collateral
      Agent”)
      for
      the “Buyers” (as defined below) party to the Securities Purchase Agreement, of
      even date herewith (the "Securities
      Purchase Agreement").

     

    RECITALS:

     

    WHEREAS, IQ
      Micro
      Inc., a Colorado corporation (the “Company”),
      and
      each party listed as a "Buyer" on the Schedule of Buyers attached thereto (each
      a "Buyer",
      and
      collectively, the "Buyers")
      are
      parties to the Securities Purchase Agreement, pursuant to which the Company
      shall issue and sell to the Buyers, as provided in the Securities Purchase
      Agreement and the Buyers shall purchase secured convertible debentures (the
“Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value $0.001
      per share (the “Common
      Stock”)
      (as
      converted, the “Conversion
      Shares”);

     

    WHEREAS,
      it is a
      condition precedent to the Buyers purchasing the Convertible Debentures that
      the
      Pledgors execute and deliver to the Collateral Agent a pledge agreement securing
      repayment of principal and interest obligations of the Company under the
      Convertible Debentures;

     

    WHEREAS,
      each
      Pledgor has determined that the execution, delivery and performance of this
      Agreement directly benefits, and is in the best interest of, such Pledgor;
      and

     

    WHEREAS, the
      parties to this Agreement desire to appoint DAVID
      GONZALEZ,
      ESQ.,
      as escrow agent (“Escrow
      Agent”)
      to
      hold in escrow the Pledged Shares (as defined below) pursuant to the terms
      and
      conditions of this Agreement. 

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants, agreements, warranties, and
      representations herein contained, and for other good and valuable consideration,
      the receipt and sufficiency of which is hereby acknowledged, the parties hereto
      agree as follows:

     

    TERMS
      AND CONDITIONS

     

    1. Obligations
      Secured.  The
      security interest created hereby in the Pledged Shares constitutes continuing
      collateral security for all obligations of the Company now existing or
      hereinafter incurred to the Buyers, whether oral or written and whether arising
      before, on or after the date hereof including, without limitation of the
      following obligations (collectively, the “Obligations”):

     

    (a)
      for
      so long as the Convertible Debentures are outstanding, the payment by the
      Company, as and when due and payable (by scheduled maturity, acceleration,
      demand or otherwise), of all principal and interest amounts from time to time
      owing by it in respect of the Convertible Debentures.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2. Pledge
      and Transfer of Pledged Shares.
      Each
      Pledgor hereby grants to the Collateral Agent an irrevocable, first priority
      security interest in all the securities set forth next to such Pledgor’s name on
      Schedule I attached hereto (the “Pledged
      Shares”)
      as
      security for the Obligations. Within two days of the execution of this
      Agreement, each Pledgor shall deliver to the Escrow Agent, and the Escrow Agent
      shall hold in escrow pursuant to the terms of this Agreement, stock certificates
      made out in favor of the Pledgor representing the Pledged Shares, together
      with
      duly executed stock powers or other appropriate transfer documents with
      medallion bank guarantees and executed in blank by each Pledgor (the
“Transfer
      Documents”
and
      together with the Pledged Shares, the “Pledged
      Materials”),
      and
      such stock certificates and Transfer Documents shall be held by the Escrow
      Agent
      until the satisfaction in full of all the Obligations.

     

    3. Rights
      Relating to Pledged Shares.
      Upon
      the occurrence of an Event of Default (as defined herein), the Collateral Agent
      shall be entitled to vote the Pledged Shares, receive dividends and other
      distributions thereon, and enjoy all other rights and privileges incident to
      the
      ownership of the number of Pledged Shares actually released from escrow in
      accordance with Section 6.1 hereof on behalf of the Buyers. 

     

    4. Release
      of Pledged Shares from Pledge.
      

     

    a. Upon
      the
      satisfaction in full of all the Obligations the parties hereto shall notify
      the
      Escrow Agent to such effect in writing. Promptly upon receipt of such written
      notice, the Escrow Agent shall return to each Pledgor the Transfer Documents
      and
      the certificates representing the remaining Pledged Shares, whereupon any and
      all rights of the Collateral Agent in such Pledged Materials shall be
      terminated.

     

    b. From
      time
      to time a Pledgor may direct the Collateral Agent to authorize the release
      of
      all or a portion of the Pledged Shares to the Pledgor in connection with a
      private sale of such Pledged Shares provided that (i) all the proceeds of such
      sale of Pledged Shares shall be applied towards the repayment of the
      Obligations, and (ii) that no such sale by the Pledgor is for less than 15
      cents
      per share. In the event that sub clause (ii) of the preceding sentence is not
      satisfied, then the Collateral Agent shall not be required to release the shares
      but shall review and respond in good faith to such request. The Collateral
      Agent
      shall promptly effectuate the delivery of Pledged Shares in accordance with
      this
      paragraph. The Escrow Agent shall release Pledged Shares pursuant to this
      section promptly upon receipt of, and in accordance with, a written direction
      duly executed by authorized representatives of the Pledgors, and the Collateral
      Agent. Upon release of Pledged Shares in accordance with this section any and
      all rights of the Collateral Agent in such Pledged Shares released shall
      automatically terminate. 

    

    5. Event
      of Default.
      An
“Event
      of Default”
shall
      be deemed to have occurred under this Agreement upon an Event of Default under
      the Convertible Debentures.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    6. Remedies.
      

     

    a. Upon
      and
      anytime after the occurrence of an Event of Default, the Collateral Agent shall
      have the right acquire the Pledged Shares in accordance with the following
      procedure: (a) the Collateral Agent shall provide written notice of such Event
      of Default (the “Default
      Notice”)
      to the
      Escrow Agent, with a copy to the Pledgors; (b) in a Default Notice the
      Collateral Agent shall specify the number of Pledged Shares to be issued to
      the
      Collateral Agent, provided
      however,
      that
      neither the Collateral Agent, nor any Buyer shall not have the right to acquire
      such number of Pledged Shares which would cause the Collateral Agent or such
      Buyer, together with its affiliates, to beneficially own in excess of 4.99%
      of
      the outstanding capital of the Company (unless the Collateral Agent or such
      Buyer waives such limitation by providing 65 days’ advance written notice); and
      (c) as soon as practicable after receipt of a Default Notice, the Escrow Agent
      shall deliver the specified number of Pledged Shares along with the applicable
      Transfer Documents to the Company’s Transfer Agent with instructions to issue
      such Pledged Shares to the Collateral Agent in accordance with the Irrevocable
      Transfer Agent Instructions of even date herewith. 

     

    b. Upon
      receipt of the Pledged Shares issued to a the Collateral Agent, the Collateral
      Agent shall have the right to (i) sell the Pledged Shares and to apply the
      proceeds of such sales, net of any selling commissions, to the Obligations
      owed
      to the Buyers by the Company under the Transaction Documents, including, without
      limitation, outstanding principal, interest, legal fees, and any other amounts
      owed to the Buyers, and exercise all other rights and (ii) any and all remedies
      of a secured party with respect to such property as may be available under
      the
      Uniform Commercial Code as in effect in the State of New Jersey. To the extent
      that the net proceeds received by the Buyers are insufficient to satisfy the
      Obligations in full, the Buyers shall be entitled to a deficiency judgment
      against each Pledgor for such amount. the Collateral Agent shall have the
      absolute right to sell or dispose of the Pledged Shares in any manner it sees
      fit and shall have no liability to any Pledgor or any other party for selling
      or
      disposing of such Pledged Shares even if other methods of sales or dispositions
      would or allegedly would result in greater proceeds than the method actually
      used. Each Pledgor shall remain liable for shortfalls, if any, that may exist
      after the Collateral Agent has exhausted all remedies hereunder. The Collateral
      Agent shall return any Pledged Shares issued to it and instruct the Escrow
      Agent
      to return any Pledged Shares it is holding in escrow after the full satisfaction
      of the Obligations. 

     

    c. Each
      right, power and remedy of the Collateral Agent provided for in this Agreement
      or any other Transaction Document shall be cumulative and concurrent and shall
      be in addition to every other such right, power or remedy. The
      exercise or beginning of the exercise by the
      Collateral Agent
      of any
      one or more of the rights, powers or remedies provided for in this Agreement
      or
any
      other
      Transaction Document or
      now or
      hereafter existing at law or in equity or by statute or otherwise shall not
      preclude the simultaneous or later exercise by the
      Collateral Agent
      or any
      Buyer of all such other rights, powers or remedies, and no failure or delay
      on
      the part of the
      Collateral Agent
      or any
      Buyer to exercise any such right, power or remedy shall operate as a waiver
      thereof. No notice to or demand on any Pledgor in any case shall entitle any
      Pledgor to any other or further notice or demand in similar or other
      circumstances or constitute a waiver of any of the rights of the
      Collateral Agent
      to any
      other further action in any circumstances without demand or notice. The
      Collateral Agent
      shall
      have the full power to enforce or to assign or contract is rights under this
      Agreement to a third party. 

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    7. Representations,
      Warranties and Covenants.
      

     

    a. Each
      Pledgor represents, warrants and covenants that:

     

    (i) Pledgor
      is the legal, beneficial and record owner of, and has good and valid title
      to,
      all Pledged Shares pledged by it hereunder, subject to no pledge, lien,
      mortgage, hypothecation, security interest, charge, option or other encumbrance
      whatsoever and notwithstanding that the stock certificates delivered on the
      date
      hereof to the Escrow Agent are registered in the name of Avalon Marketing Ltd
      (“Avalon”),
      Avalon has previously assigned the Pledged Shares to the Pledgor;

     

    (ii) Pledgor
      has full power, authority and legal right to pledge all the Pledged Shares
      pledged pursuant to this Agreement; and

     

    (iii) all
      the
      Pledged Shares have been duly and validly issued, are fully paid and
      non-assessable and are subject to no options to purchase or similar
      rights.

     

    b. Each
      Pledgor covenants and agrees to take all reasonable steps to defend the
      Collateral Agent’s right, title and security interest in and to the Pledged
      Shares and the proceeds thereof against the claims and demands of all persons
      whomsoever (other than the Collateral Agent and the Escrow Agent); and each
      Pledgor covenants and agrees that it will have like title to
      and
      right to pledge any other property at any time hereafter pledged to the
      Collateral Agent
      as
      collateral hereunder and will likewise take all reasonable steps to defend
      the
      right thereto and security interest therein of the
      Collateral Agent.

     

    c. Each
      Pledgor covenants and agrees to take no action which would violate or be
      inconsistent with any of the terms of any Transaction Document, or which would
      have the effect of impairing the position or interests of the Collateral Agent
      under any Transaction Document.

     

    d. Each
      Pledgor represents, warrants and covenants that (i) Pledgor has been the
      beneficial owner of the Pledged Shares for a period of not less than two (2)
      years as computed in accordance with Rule 144(d) promulgated under the
      Securities Act of 1933, as amended, (ii) Pledgor it is not an “affiliate” of the
      Company, as such term is defined in Rule 144(a) promulgated under the Securities
      Act of 1933, as amended, and (iii) this Agreement is made with recourse. Upon
      an
      Event of Default, the Collateral Agent shall be deemed to have acquired the
      Pledged Shares on the date they were acquired by the Pledgor. 

     

    e. The
      Collateral Agent and the Buyer agree that the guaranty of the Pledgor set forth
      on the signature page hereof shall be released and any and all reference to
      recourse herein shall be released upon receipt from the Pledgor of a legal
      opinion in a form reasonably satisfactory to the Collateral Agent to the effect
      that the either (a) the Pledgor is not an “affiliate” of the Company and the
      Pledged Shares are not restricted securities for purposes of Rule 144 and may
      be
      freely sold by the Collateral Agent in the event of foreclosure, or (b) whether
      or not the Pledgor is an affiliate, Pledgor’s holding period is in excess of one
      year and the may be tacked by Collateral Agent so that in the event of
      foreclosure the Collateral Agent may sell the Pledged Shares pursuant to Rule
      144. 

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    8. Concerning
      the Escrow Agent.

     

    a. The
      Escrow Agent undertakes to perform only such duties as are expressly set forth
      herein and no implied duties or obligations shall be read into this Agreement
      against the Escrow Agent.

     

    b. The
      Escrow Agent may act in reliance upon any writing or instrument or signature
      which it, in good faith, believes to be genuine, may assume the validity and
      accuracy of any statement or assertion contained in such a writing or
      instrument, and may assume that any person purporting to give any writing,
      notice, advice or instructions in connection with the provisions hereof has
      been
      duly authorized to do so. The Escrow Agent shall not be liable in any manner
      for
      the sufficiency or correctness as to form, manner, and execution, or validity
      of
      any instrument deposited in this escrow, nor as to the identity, authority,
      or
      right of any person executing the same; and its duties hereunder shall be
      limited to the safekeeping of such certificates, monies, instruments, or other
      document received by it as such escrow holder, and for the disposition of the
      same in accordance with the written instruments accepted by it in the
      escrow.

     

    c. The
      Collateral Agent and the Pledgors hereby agree, to defend and indemnify the
      Escrow Agent and hold it harmless from any and all claims, liabilities, losses,
      actions, suits, or proceedings at law or in equity, or any other expenses,
      fees,
      or charges of any character or nature which it may incur or with which it may
      be
      threatened by reason of its acting as Escrow Agent under this Agreement except
      as arising from the Escrow Agent’s willful misconduct or gross negligence; and
      in connection therewith, to indemnify the Escrow Agent against any and all
      expenses, including attorneys’ fees and costs of defending any action, suit, or
      proceeding or resisting any claim (and any costs incurred by the Escrow Agent
      pursuant to Sections 6.4 or 6.5 hereof) except as arising from the Escrow
      Agent’s willful misconduct or gross negligence. The Escrow Agent shall be vested
      with a lien on all property deposited hereunder, for indemnification of
      attorneys’ fees and court costs regarding any suit, proceeding or otherwise, or
      any other expenses, fees, or charges of any character or nature, which may
      be
      incurred by the Escrow Agent by reason of disputes arising between the makers
      of
      this escrow as to the correct interpretation of this Agreement and instructions
      given to the Escrow Agent hereunder, or otherwise, with the right of the Escrow
      Agent, regardless of the instructions aforesaid, to hold said property until
      and
      unless said additional expenses, fees, and charges shall be fully paid. Any
      fees
      and costs charged by the Escrow Agent for serving hereunder shall be paid by
      the
      Pledgors.

     

    d. If
      any of
      the parties shall be in disagreement about the interpretation of this Agreement,
      or about the rights and obligations, or the propriety of any action contemplated
      by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion
      deposit the Pledged Materials with the Clerk of the United States District
      Court
      of New Jersey, sitting in Newark, New Jersey, and, upon notifying all parties
      concerned of such action, all liability on the part of the Escrow Agent shall
      fully cease and terminate. The Escrow Agent shall be indemnified by the
      Pledgors, the Company and the Collateral Agent for all costs, including
      reasonable attorneys’ fees in connection with the aforesaid proceeding, and
      shall be fully protected in suspending all or a part of its activities under
      this Agreement until a final decision or other settlement in the proceeding
      is
      received.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    e. The
      Escrow Agent may consult with counsel of its own choice (and the costs of such
      counsel shall be paid by the Pledgors, the Company, and Collateral Agent) and
      shall have full and complete authorization and protection for any action taken
      or suffered by it hereunder in good faith and in accordance with the opinion
      of
      such counsel. The Escrow Agent shall not be liable for any mistakes of fact
      or
      error of judgment, or for any actions or omissions of any kind, unless caused
      by
      its willful misconduct or gross negligence.

     

    f. The
      Escrow Agent may resign upon ten (10) days’ written notice to the parties in
      this Agreement. If a successor Escrow Agent is not appointed within this ten
      (10) day period, the Escrow Agent may petition a court of competent jurisdiction
      to name a successor.

     

    9. Conflict
      Waiver.
      The
      Pledgors hereby acknowledges that the Escrow Agent is general counsel to the
      Collateral Agent, a partner in the general partner of the Collateral Agent,
      and
      counsel to the Collateral Agent in connection with the transactions contemplated
      and referred herein. The Pledgors agrees that in the event of any dispute
      arising in connection with this Agreement or otherwise in connection with any
      transaction or agreement contemplated and referred herein, the Escrow Agent
      shall be permitted to continue to represent the Collateral Agent and the
      Pledgors will not seek to disqualify such counsel and waives any objection
      Pledgors might have with respect to the Escrow Agent acting as the Escrow Agent
      pursuant to this Agreement. 

     

    10. Notices.
      Unless
      otherwise provided herein, all demands, notices, consents, service of process,
      requests and other communications hereunder shall be in writing and shall be
      delivered in person or by overnight courier service, or mailed by certified
      mail, return receipt requested, addressed:

     

    
      	
              If
                to the Company, to:

            	
              IQ
                Micro Inc.

            
	 	
              500
                Australian Avenue, Suite 700

            
	 	
              West
                Palm Beach, Florida 33401

            
	 	
              Attention:
                Chief Executive Officer

            
	 	
              Telephone:   (561)
                514-0118

            
	 	
              Facsimile:    
                 (561) 514-0195

            
	 	 
	
              With
                a copy to:

            	
              Gallagher,
                Briody & Butler

            
	 	
              Princeton
                Forrestal Village

            
	 	
              155
                Village Blvd., Suite 201

              Princeton,
                NJ 08540

            
	 	
              Telephone:   (609)
                452-6000

            
	 	
              Facsimile:     
                (609) 452-0090

            
	 	 
	
              If
                to the
                Collateral Agent:

            	
              Cornell
                Capital Partners L.P.

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Attention:
                    Mark A. Angelo

            
	 	
              Telephone:   (201)
                985-8300

            
	 	
              Facsimile:
                     (201) 985-8744

            
	 	 

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    
      	
              With
                copy to:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Attention:
                    Troy Rillo, Esq.

            
	 	
              Telephone:   (201)
                985-8300

            
	 	
              Facsimile:     
                (201) 985-1964

            
	 	 
	
              If
                to the Pledgors, to:

            	
              To
                the addresses provided on the signature pages attached
                hereto

            
	 	 

    

    

    Any
      such
      notice shall be effective (a) when delivered, if delivered by hand delivery
      or overnight courier service, or (b) five (5) days after deposit in the
      United States mail, as applicable.

     

    11. Binding
      Effect.
      All of
      the covenants and obligations contained herein shall be binding upon and shall
      inure to the benefit of the respective parties, their successors and
      assigns.

     

    12. Governing
      Law; Venue; Service of Process.
      The
      validity, interpretation and performance of this Agreement shall be determined
      in accordance with the laws of the State of New Jersey applicable to contracts
      made and to be performed wholly within that state except to the extent that
      Federal law applies. The parties hereto agree that any disputes, claims,
      disagreements, lawsuits, actions or controversies of any type or nature
      whatsoever that, directly or indirectly, arise from or relate to this Agreement,
      including, without limitation, claims relating to the inducement, construction,
      performance or termination of this Agreement, shall be brought in the state
      superior courts located in Hudson County, New Jersey or Federal district courts
      located in Newark, New Jersey, and the parties hereto agree not to challenge
      the
      selection of that venue in any such proceeding for any reason, including,
      without limitation, on the grounds that such venue is an inconvenient forum.
      The
      parties hereto specifically agree that service of process may be made, and
      such
      service of process shall be effective if made, pursuant to Section 8
      hereto.

     

    13. Enforcement
      Costs.
      If any
      legal action or other proceeding is brought for the enforcement of this
      Agreement, or because of an alleged dispute, breach, default or
      misrepresentation in connection with any provisions of this Agreement, the
      successful or prevailing party or parties shall be entitled to recover
      reasonable attorneys’ fees, court costs and all expenses even if not taxable as
      court costs (including, without limitation, all such fees, costs and expenses
      incident to appeals), incurred in that action or proceeding, in addition to
      any
      other relief to which such party or parties may be entitled.

     

    14. Remedies
      Cumulative.
      No
      remedy herein conferred upon any party is intended to be exclusive of any other
      remedy, and each and every such remedy shall be cumulative and shall be in
      addition to every other remedy given hereunder or now or hereafter existing
      at
      law, in equity, by statute, or otherwise. No single or partial exercise by
      any
      party of any right, power or remedy hereunder shall preclude any other or
      further exercise thereof. 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    15. Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute the same
      instrument.

     

    16. No
      Penalties.
      No
      provision of this Agreement is to be interpreted as a penalty upon any party
      to
      this Agreement.

     

    17. JURY
      TRIAL.
      EACH OF
      THE COLATERAL AGENT AND THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND
      INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY
      CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER
      OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN THE COLLATERAL AGENT AND
      PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION
      HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
      ORAL
      OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER
      NOW
      EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
      OTHERWISE. 

     

    [REMAINDER
      OF PAGE INTENTIALLY LEFT BLANK]

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Pledgor has caused this Pledge and Escrow Agreement to be executed by its
      respective duly authorized officer, as of the date first above
      written.

     

    

    
      	 	
              PLEDGOR

            
	 	 
	 	
              D.P.
                MARTIN & ASSOCIATES, INC.

            
	 	 
	 	 
	 	
              By: /s/
                Douglas P.
                Martin                                             
                

              Name:
                Douglas P. Martin

              Title:  
                President

            
	 	 
	 	
              Address:
                

            

    

    

    

     

    FOR
      VALUE RECEIVED,
      the
      Pledgor hereby unconditionally and absolutely guarantees the Company’s
      Obligations (as defined above). This Agreement is made with
      recourse.

    

    D.P.
      MARTIN & ASSOCIATES, INC.

     

    By:
      /s/ Douglas P.
      Martin                                          

    Name:
      Douglas P. Martin

    Title:  
      President

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      the
      undersigned acknowledge and agree to the terms and conditions of this Pledge
      and
      Escrow Agreement as of the date first above written. 

    

    

    
      	 	
              CORNELL
                CAPITAL PARTNERS, L.P.

            
	 	 
	 	
              By:     
                Yorkville Advisors, LLC

            
	 	
              Its:     
                General Partner

            
	 	 
	 	 
	 	
              By:
                /s/ Mark
                Angelo                                             
                

            
	 	
              Name:
                Mark Angelo

            
	 	
              Title:  
                Portfolio Manager

            
	 	 
	 	 
	 	 
	 	
              IQ
                MICRO INC.

            
	 	 
	 	 
	 	 
	 	
              By:
                /s/ Robert V.
                Rudman                                     
                

            
	 	
              Name:
                Robert V. Rudman

            
	 	
              Title:   Chief
                Financial Officer

            
	 	 
	 	 
	 	
              ESCROW
                AGENT

            
	 	 
	 	 
	 	
              By:
                /s/ David Gonzalez,
                Esq.                                 
                

            
	 	
              Name:
                David Gonzalez, Esq. 

            

    

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    SCHEUDLE
      I

    

    PLEDGED
      SHARES

    

    

    D.P.
      Martin & Associates, Inc. 1,000,000
      Shares of IQ Micro Inc. common stock

    

    

    
      
         

      

      
        11NOTES
      PURCHASE AGREEMENT

    

    by
      and
      between

    

    CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.

    as
      the
      Company

    

    CHINA
      SAFETECH HOLDINGS LIMITED

    CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY (HK) LTD.

    GOLDEN
      GROUP CORPORATION (SHENZHEN) LIMITED

    SHANGHAI
      CHENG FENG DIGITAL TECHNOLOGY CO., LTD.

    CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY (PRC), INC.

    as
      the
      Subsidiaries

    

    

    AND

    

    

    CITADEL
      EQUITY FUND LTD.

    as
      the
      Purchaser

    

    

    Dated:
      February 16, 2007

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    This
      Notes Purchase Agreement (this “Agreement”)
      is
      dated as of February 16, 2007, by and between China Security & Surveillance
      Technology, Inc., a Delaware corporation (the “Company”),
      the
      other Group Companies listed on the signature pages hereto, and Citadel Equity
      Fund Ltd. (the “Purchaser”).

     

    WHEREAS,
      the Company proposes to issue, and the Purchaser proposes to purchase,
      US$60,000,000 Guaranteed Senior Unsecured Convertible Notes due 2012 on the
      terms of this Agreement. 

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and promises contained
      herein and for other good and valuable consideration the receipt and adequacy
      of
      which are hereby acknowledged, the parties hereto agree as follows:

     

    1. Definitions

     

    For
      all
      purposes of this Agreement, except as otherwise expressly provided or unless
      the
      context otherwise requires the following terms shall have the meanings set
      forth
      below. Defined terms used but not otherwise defined herein shall have the
      meanings given to such terms in the other Sections of this Agreement or the
      Indenture (as defined below).

     

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

     

    “Affiliate”
of
      any
      specified Person means:

     

    
      	 	
              (a)

            	
              any
                other Person directly or indirectly controlling or controlled by
                or under
                direct or indirect common control with such specified Person, or
                

            

    

     

    
      	 	
              (b)

            	
              any
                other Person who is a director or officer
                of:

            

    

     

    
      	 	
              (1)

            	
              such
                specified Person, 

            

    

     

    
      	 	
              (2)

            	
              any
                Subsidiary of such specified Person,
                or

            

    

     

    
      	 	
              (3)

            	
              any
                Person described in clause (a) above.

            

    

     

    For
      the
      purposes of this definition, “control” when used with respect to any Person,
      means the power to direct the management and policies of such Person, directly
      or indirectly, whether through the ownership of voting securities, by contract
      or otherwise; and the terms “controlling” and “controlled” have meanings
      correlative to the foregoing. 

     

    “Agreement”
has
      the
      meaning given in the recitals.

     

    “Applicable
      Agreements”
has
      the
      meaning given in Section 6(i).

     

    “Applicable
      Law”
has
      the
      meaning given in Section 6(i).

     

    “Bridge
      Notes”
means
      the Company’s US$60,000,000 Senior Notes due February 16, 2007, purchased by the
      Purchaser pursuant to the Bridge Notes Purchase Agreement.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Bridge
      Notes Purchase Agreement”
means
      the notes purchase agreement dated as of February 5, 2007 by and between the
      Company and the Purchaser.

     

    “Business
      Day”
has
      the
      meaning given in the Conditions.

     

    “BVI”
means
      the British Virgin Islands.

     

    “Capital
      Stock”
means,
      with respect to any Person, any shares or other equivalents (however designated)
      of any class of corporate stock or partnership interests or any other
      participations, rights, warrants, options or other interests in the nature
      of an
      equity interest in such Person, including Preferred Stock, but excluding any
      debt security convertible or exchangeable into such equity
      interest.

     

    “Charter
      Documents”
has
      the
      meaning given in Section 6(i).

     

    “Cheng
      Feng”
means
      Shanghai Cheng Feng Digital Technology Co., Ltd., a wholly-owned subsidiary
      of
      CSST HK, incorporated under the laws of PRC.

     

    “Clearing
      Facilities”
means
      Clearstream and Euroclear.

     

    “Clearstream”
means
      Clearstream Banking, société anonyme, and any successor thereto.

     

    “Closing”
has
      the
      meaning given in Section 5.

     

    “Closing
      Date”
means
      the date of the Closing.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      shares of common stock of the Company, par value US$0.0001 per
      share.

     

    “Company”
has
      the
      meaning given in the recitals.

     

    “Conditions”
means
      the terms and conditions of the Notes.

     

    “Conversion
      Shares”
means
      shares of Common Stock issuable under the conversion of the Notes.

     

    “CSST
      HK”
means
      China Security & Surveillance Technology (HK) Ltd., a wholly-owned
      subsidiary of Safetech, incorporated under the laws of Hong Kong.

     

    “CSST
      PRC”
means
      China Security & Surveillance Technology (PRC), Inc., a wholly-owned
      subsidiary of the Company, incorporated under the laws of PRC.

     

    “Disclosure
      Schedule”
has
      the
      meaning given in Section 6.

     

    “Environmental
      Laws”
has
      the
      meaning given in Section 6(bb).

     

    “Euroclear”
means
      Euroclear Bank, S.A./N.V. and any successor thereto.

     

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

     

    “FCPA”
has
      the
      meaning given in Section 6(dd).

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Fully-Diluted”
has
      the
      meaning given in Section 6(d)(ii).

     

    “GAAP”
has
      the
      meaning given in Section 6(a)(i).

     

    “Golden”
means
      Golden Group Corporation (Shenzhen) Limited, a wholly-owned subsidiary of
      Safetech, incorporated under the laws of PRC.

     

    “Governmental
      Authority”
has
      the
      meaning given in Section 6(i).

     

    “Group
      Companies”
means
      the Company, Safetech, CSST HK, Golden, Cheng Feng, CSST PRC and the Company’s
      other existing and future, direct and indirect, Subsidiaries. 

     

    “Guarantees”
has
      the
      meaning given in Section 4. 

     

    “Guarantor”
has
      the
      meaning given in Section 4. 

     

    “Indemnified
      Party”
has
      the
      meaning given in Section 10(a).

     

    “Indemnifying
      Party”
has
      the
      meaning given in Section 10(a).

     

    “Indenture”
means
      an indenture dated as of the Closing Date by and among the Company, other Group
      Companies and the Trustee, a form of which is attached hereto as Exhibit
      A.

     

    “Intellectual
      Property”
has
      the
      meaning given in Section 6(q)(i).

     

    “Investor
      Rights Agreement”
means
      the investor rights agreement dated the Closing Date by and among the Company,
      the other Group Companies, the Shareholders and the Purchaser, a form which
      is
      attached hereto as Exhibit
      B.

     

    “Lien”
means
      a
      mortgage, charge, pledge, lien, hypothecation or other security interest
      securing any obligation of any person or any other agreement or arrangement
      having a similar effect.

     

    “Material
      Adverse Change”
has
      the
      meaning given in Section 6(s)(ii).

     

    “Material
      Adverse Effect”
means
      a
      material adverse effect on:

     

    (a) the
      business, operations, property, earnings, assets, liabilities or condition
      (financial or otherwise) of the Group Companies taken as a whole;

     

    (b) the
      ability of the Group Companies or any Shareholder to perform its material
      obligations under the Transaction Documents; or

     

    (c) the
      validity or enforceability of the Transaction Documents or the rights and
      remedies of any holder of the Notes under the Notes.

     

    “Money
      Laundering Laws”
has
      the
      meaning given in Section 6(jj).

     

    “Most
      Recent Balance Sheet”
has
      the
      meaning given in Section 6(s)(iii).

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Non-Competition
      Covenant and Agreement”
means
      a
      non-competition covenant and agreement dated as of the Closing Date between
      Mr.
      Tu Guo Shen and the Purchaser, a form which is attached hereto as Exhibit
      C.

     

    “Notes”
has
      the
      meaning given in Section 3.

     

    “OFAC”
has
      the
      meaning given in Section 6(ii).

     

    “Outside
      Financing”
has
      the
      meaning given in Section 7(l).

     

    “Permits”
has
      the
      meaning given in Section 6(m).

     

    “Person”
means
      any individual, corporation, company (including any limited liability company),
      association, partnership, joint venture, trust, unincorporated organization,
      government or any agency or political subdivision thereof or any other
      entity.

     

    “PFIC”
has
      the
      meaning given in Section 6(hh).

     

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

     

    “Proceedings”
has
      the
      meaning given in Section 6(l).

     

    “Proposal”
has
      the
      meaning given in Section 7(u).

     

    “Purchaser”
has
      the
      meaning given in the recitals.

     

    “Safetech”
means
      China Safetech Holdings Limited, a wholly-owned subsidiary of the Company,
      incorporated under the laws of British Virgin Islands.

     

    “SEC
      Reports”
has
      the
      meaning given in Section 6(a)(i).

     

    “Securities”
means,
      collectively, the Notes, the Conversion Shares and the Guarantees.

     

    “Shareholder”
means
      any of Mr. Tu Guo Shen, Ms. Li Zhi Qun and Whitehorse.

     

    “Subsidiary”
means,
      in respect of any Person, any corporation, company (including any limited
      liability company), association, partnership, joint venture or other business
      entity of which at least a majority of the total voting power of the voting
      stock is at the time owned or controlled, directly or indirectly,
      by:

     

    (a) such
      Person, 

     

    (b) such
      Person and one or more Subsidiaries of such Person, or 

     

    (c) one
      or
      more Subsidiaries of such Person. 

     

    “Superior
      Proposal”
has
      the
      meaning given in Section 7(u).

     

    “Tax”
has
      the
      meaning given in Section 6(p).

     

    “Trading
      Market”
has
      the
      meaning given in Section 5.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Transaction
      Document”
means
      this Agreement, the Indenture, the Notes, the Guarantees, the Investor Rights
      Agreement and the Non-Competition Covenant and Agreement, or any of them as
      the
      context may so require.

     

    “Trustee”
means
      The Bank of New York, a New York banking corporation, acting as trustee under
      the Indenture.

     

    “US$”
means
      the lawful currency of the United States from time to time.

     

    “Whitehorse”
means
      Whitehorse Technology Limited, a British Virgin Islands company wholly owned
      by
      Mr. Tu Guo Shen and the registered owner of Mr. Tu Guo Shen’s equity interest in
      the Company.

     

    2. Rules
      of Construction.

     

    Unless
      the context otherwise requires:

    

    (a) a
      term
      has the meaning assigned to it;

     

    (b) “or”
is
      not exclusive;

     

    (c) words
      in
      the singular include the plural, and in the plural include the
      singular;

     

    (d) all
      references in this Agreement to “Sections”, “Exhibits” and other subdivisions
      are to the designated Sections, Exhibits and subdivisions of this Agreement
      as
      originally executed;

     

    (e) a
      reference to any person is, where relevant, deemed to be a reference to or
      to
      include, as appropriate, that person’s successors and permitted assignees or
      transferees;

     

    (f) a
      reference to (or to any specified provision of) any agreement or document
      (including any Transaction Document) is to be construed as a reference to that
      agreement or document as it may be amended from time to time;

     

    (g) the
      words
“herein,” “hereof” and “hereunder” and other words of similar import refer to
      this Agreement as a whole and not to any particular Section or other
      subdivision.

     

    (h) “including”
      means “including without limitation;”

     

    (i) provisions
      apply to successive events and transactions; and

     

    (j) references
      to a statute or statutory provision is to be construed as a reference to that
      statute or statutory provision as it may be amended from time to
      time.

     

    3. Issuance
      of Notes.
      

     

    Subject
      to the terms and conditions of this Agreement, the Company will, on the Closing
      Date, (i) issue and sell to the Purchaser, and the Purchaser will purchase
      from
      the Company, the Company’s 600 Guaranteed Senior Unsecured Convertible Notes due
      2012 (the “Notes”)
      of
      US$100,000 principal amount each, convertible into shares of Common Stock,
      at an
      initial conversion price of US$18.00 per share, and (ii) cause the Guarantors
      to
      issue the Guarantees. The Notes will be issued pursuant to the provisions of
      the
      Indenture.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    The
      Notes
      will be offered and sold to the Purchaser pursuant to Regulation S or other
      exemption from the registration requirements under the Act. Upon original
      issuance thereof, and until such time as the same is no longer required under
      the applicable requirements of the Act, the Notes and the Conversion Shares
      shall bear the legends relating to the offer and the sale of the Notes and
      the
      Conversion Shares as required by (i) Regulation S under the Act or (ii) any
      other applicable laws or regulations relating to the issuance of the
      Notes.

     

    4. Guarantees.

     

    Pursuant
      to the Indenture and to the fullest extent permitted by Applicable Laws,
      Safetech, CSST HK and
      all
      of the Company’s other existing and future direct and indirect Subsidiaries
      (only to the extent such Subsidiary is permitted under Applicable Laws to do
      so)
      (each, a “Guarantor”)
      shall
      irrevocably and unconditionally guarantee, on a senior basis, to the Purchaser
      and to the Trustee the payment and performance of the Company’s obligations
      under this Agreement, the Notes and the Indenture (collectively, the
“Guarantees”).

     

    5. Purchase,
      Sale and Delivery.

     

    The
      issue
      and sale of the Notes to be purchased by the Purchaser shall occur at the Hong
      Kong office of Simpson Thacher & Bartlett LLP, on or about 9:00 a.m., London
      time, at a closing (the “Closing”)
      on
      February 16, 2007 or on such other time or Business Day thereafter on or prior
      to February 23, 2007 as may be agreed upon by the Company and the Purchaser.
      At
      the Closing, the Company shall deliver to the Purchaser one or more global
      certificates representing the Notes, registered in such names and denominations
      as the Purchaser may request, against payment by the Purchaser of US$60,000,000
      as the purchase price therefor by immediately available federal funds bank
      wire
      transfer to such bank account or accounts as the Company shall have beforehand
      designated to the Purchaser. The Notes to be represented by one or more global
      certificates in book-entry form, will be deposited on the Closing Date, by
      or on
      behalf of the Company, with the Trustee as common depositary for Clearstream
      and
      Euroclear, or its designated custodian, and registered in the name of the
      Trustee. The Common Stock is approved for quotation on the Over The Counter
      Bulletin Board (the “Trading
      Market”).

     

    6. Representations
      and Warranties of the Group Companies.
      Except
      as set forth in the Disclosure Schedule attached hereto as Exhibit
      D
      (“Disclosure
      Schedule”)
      which
      exceptions shall be deemed part of the representations and warranties made
      hereunder, each of the Group Companies, jointly and severally, represents and
      warrants to the Purchaser the following:

     

    
      
        (a)
          SEC
          Reports; Financial Statements.
          

      

    

     

    (i)
       Except
      as
      set forth on Schedule
      6(a)
      of the
      Disclosure Schedule, the Company has filed all reports, schedules, forms,
      statements and other documents required to be filed by it under the Act and
      the
      Exchange Act (the foregoing materials, including the exhibits thereto and
      documents incorporated by reference therein, being collectively referred to
      herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension, and
      to
      the Company’s best knowledge after due inquiry, no disciplinary actions or
      proceedings have been initiated against the Company and no such actions are
      threatened. As of the date of filing, in the case of SEC Reports filed pursuant
      to the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
      for
      the twenty-four months preceding the date hereof (or such shorter period as
      the
      Company was required by law to file such reports, forms or other information)
      (and to the extent any such SEC Report was amended, then as of the date of
      filing of such amendment), and as of the date of effectiveness in the case
      of
      SEC Reports filed pursuant to the Act (and to the extent any such SEC Report
      was
      amended, then as of the date of effectiveness of such amendment), the SEC
      Reports complied in all material respects with the requirements of the Act
      and
      the Exchange Act and the rules and regulations of the Commission promulgated
      thereunder, as applicable, and none of the SEC Reports, as of the date of
      filing, in the case of SEC Reports filed pursuant to the Exchange Act (and
      to
      the extent any such SEC Report was amended, then as to the date of filing of
      such amendment), and as of the date of effectiveness in the case of SEC Reports
      filed pursuant to the Act (and to the extent any such SEC Report was amended,
      then as of the date of effectiveness of such amendment), contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in the
      light of the circumstances under which they were made, not misleading. The
      financial statements of the Company included in the SEC Reports have been
      prepared in accordance with the 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
      United States generally accepted accounting principles applied on a consistent
      basis during the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial condition, results of operations and cash flows 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. All
      other financial, statistical, and market and industry-related data included
      in
      the SEC Reports are based on or derived from sources that the Company reasonably
      believes to be reliable and accurate. For the purposes of this Agreement, the
      term “filed” (or any derivations thereof) includes filing, furnishing or
      otherwise providing any reports, forms or other information provided to the
      Commission.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (ii)
       Except
      as
      set forth on Schedule
      6(a)
      of the
      Disclosure Schedule, the Company has not, in the 12 months preceding the date
      hereof, received notice from the Trading Market to the effect that the Company
      is not in compliance with the requirements of the Trading Market, and to the
      Company’s best knowledge after due inquiry, no disciplinary actions or
      proceedings have been initiated against the Company and no such actions are
      threatened. The Company is, and upon consummation of the transactions
      contemplated hereby expects to be, in compliance with all of the listing
      requirements of the Trading Market. 

     

    
      
        (b)
          Ownership
          of Shares of Subsidiaries; Affiliates.

      

    

     

    (i)
       Schedule
      6(b)(i)
      of the
      Disclosure Schedule contains complete and correct lists of each Person in which
      the Company owns, directly or indirectly, any Capital Stock, showing, as to
      each
      Subsidiary, the correct name thereof, the jurisdiction of its organization,
      and
      the percentage of shares of each class of its Capital Stock outstanding owned
      by
      the Company and each other Subsidiary.

     

    (ii)
       All
      of
      the outstanding shares of Capital Stock of each Subsidiary shown in Schedule
      6(b)(i)
      of the
      Disclosure Schedule as being owned by the Company and its Subsidiaries have
      been
      validly issued, are fully paid and non-assessable and are owned by the Company
      or another Subsidiary free and clear of any Lien, except for the Lien granted
      in
      favor of the Purchaser pursuant to the Bridge Notes.

     

    (iii)
       No
      Subsidiary is a party to, or otherwise subject to any legal or regulatory
      restriction or any agreement (other than this Agreement) restricting the ability
      of such Subsidiary to pay dividends out of profits or make any other similar
      distributions of profits to the Company or any of its Subsidiaries that owns
      outstanding shares of Capital Stock of such Subsidiary.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (c) Organization.
      Each of
      the Group Companies (i) has been duly organized, is validly existing and is
      in
      good standing under the laws of its jurisdiction of organization, (ii) has
      all
      requisite power and authority to carry on its business and to own, lease and
      operate its properties and assets, and (iii) is duly qualified or licensed
      to do
      business and is in good standing as a domestic or foreign corporation or limited
      liability company, as the case may be, authorized to do business in each
      jurisdiction in which the nature of such business or the ownership or leasing
      of
      such properties requires such qualification, except where, for the purposes
      of
      (ii) or (iii) only, the failure to have all such requisite power and authority
      or to be so duly qualified or licensed does not, and would not, individually
      or
      in the aggregate, have a Material Adverse Effect.
      The
      constitutional documents and certificates of each of Golden, Cheng Feng and
      CSST
      PRC are valid and have been duly approved or registered (as applicable) by
      competent PRC Governmental Authorities.

     

    (d) Capitalization
      and Voting Rights.
      

     

    (i) Capital
      Stock.
      All of
      the outstanding shares of Capital Stock of the Company have been validly issued,
      are fully paid and non-assessable, and are free and clear of any
      Lien.

     

    (ii) Issued
      and Issuable Shares.
      Except
      as set forth on Schedule
      6(d)(ii)
      of the
      Disclosure Schedule, as at the date hereof and immediately prior to the Closing,
      there is no Capital Stock issued or issuable pursuant to any exercise,
      conversion, exchange, subscription or otherwise in connection with any warrants,
      options (including pursuant to the Company’s stock option plan), convertible
      securities or any agreement to sell or issue Capital Stock or securities which
      may be exercised, converted or exchanged for Capital Stock (collectively,
“Fully-Diluted”).
      The
      Conversion Shares issuable upon conversion of the Notes have been duly reserved
      for issuance, and will constitute 8.36% of the Company’s Capital Stock on a
      Fully-Diluted basis. All of the issued and outstanding shares of each of the
      Group Company’s Capital Stock as of the Closing are duly authorized, validly
      issued, fully paid and non-assessable, were issued in accordance with the
      registration or qualification provisions of the Act, if applicable, and any
      relevant “blue sky” laws of the United States, if applicable, or pursuant to
      valid exemptions therefrom and were issued in compliance with other applicable
      laws (including, without limitation, applicable PRC or BVI laws, rules and
      regulations) and are not subject to any rescission right or put right on the
      part of the holder thereof nor does any holder thereof have the right to require
      the Company to repurchase such Capital Stock.

     

    (iii) Voting
      and Other Agreements.
      There
      are no outstanding (A) options, warrants or other rights to purchase from any
      Group Company, (B) agreements, contracts, arrangements or other obligations
      of
      any Group Company to issue, or (C) other rights to convert any obligation into
      or exchange any securities for, in the case of each of clauses (A) through
      (C),
      shares of Capital Stock of, or other ownership or equity interests in, any
      Group
      Company. The Company is not a party or subject to any agreement or understanding
      and there is no agreement or understanding with any Person that affects or
      relates to (x) the voting or giving of written consents with respect to any
      security of the Company (including, without limitation, any voting agreements,
      voting trust agreements, shareholder agreements or similar agreements) or the
      voting by a director of the Company or (y) the sale, transfer or other
      disposition with respect to any security of the Company.

     

    (e) No
      Registration Rights.
      Except
      as set forth on Schedule 6(e) of the Disclosure Schedule, no holder of
      securities of any of the Group Companies is or will be entitled to have any
      registration rights with respect to such securities.

     

    (f) Authorization.
      (i)
      Each of the Group Companies has all requisite corporate power and authority
      to
      execute, deliver and perform its obligations under each of the Transaction
      Documents to which it is a party and to consummate the transactions contemplated
      thereby, (ii) this Agreement has been duly authorized, executed and delivered
      by
      the Group Companies. and (iii) each of the Transaction Document has been duly
      authorized and when executed and delivered by the Group Companies (to the extent
      they are parties thereto) shall constitute a legal, valid and binding obligation
      of each of the Group Companies (to the extent they are parties thereto)
      enforceable against the Group Companies (to the extent they are parties thereto)
      in accordance with its terms, except as limited by applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (g) Valid
      Issuance of Notes and the Guarantees.
      The
      Notes, when issued, sold and delivered in accordance with the terms thereof
      and
      for the consideration set forth herein, will be free of restrictions on
      transfer, other than restrictions on transfer under applicable state and federal
      securities laws. Assuming the accuracy of the Purchaser’s representations in
      Section 8 below, the Notes will be issued in compliance with applicable state
      and federal securities laws. The Notes have been duly authorized by the Company
      and, when executed and delivered by the Company, authenticated by the Trustee,
      and delivered to the Purchaser, in accordance with the terms of this Agreement,
      the Notes will have been duly executed, issued and delivered by the Company and
      will constitute legal, valid and binding obligations of the Company, enforceable
      against the Company in accordance with their terms, except as limited by
      applicable bankruptcy, insolvency, reorganization, moratorium and other laws
      of
      general application affecting enforcement of creditors’ rights generally. The
      Guarantees have been duly authorized, and, when the Notes have been duly
      executed, authenticated and issued in accordance with the provisions of the
      Indenture and delivered to and paid for by the Purchaser with the Guarantees
      endorsed thereon by the Guarantors, will constitute the legal, valid and binding
      obligations of each Guarantor entitled to the benefits of the
      Indenture.

     

    (h) Valid
      Issuance of Conversion Shares.
      The
      conversion rights attached to the Notes, when the Notes are issued on the
      Closing Date, will provide for the right to convert the Notes into up to
      3,333,333 shares of Common Stock of the Company (subject to subdivision or
      consolidation thereof) as of the Closing Date (as calculated immediately
      following the Closing and assuming the conversion of all the Notes). The
      Conversion Shares have been duly and validly authorized for issuance by the
      Company, and when issued pursuant to the terms of the Notes and the Indenture,
      will be validly issued, fully paid and non-assessable, not subject to any
      preemptive or similar rights, free from all taxes, Liens, charges and security
      interests with respect to the issuance thereof and free of restrictions on
      transfer other than as expressly contemplated by the Transaction
      Documents.

     

    (i) Compliance
      with Instruments.
      None of
      the Group Companies is in violation of its respective articles of incorporation,
      certificate of incorporation, by-laws or other organizational documents (the
      “Charter
      Documents”).
      None
      of the Group Companies is, nor does any condition exist (with the passage of
      time or otherwise) that could reasonably be expected to cause any of the Group
      Companies to be, (i) in violation of any statute, rule, regulation, law or
      ordinance, or any judgment, decree or order applicable to any of the Group
      Companies or any of their properties (collectively, “Applicable
      Law”)
      of any
      federal, state, national, provincial, local or other governmental authority,
      governmental or regulatory agency or body, court, arbitrator or self-regulatory
      organization of applicable jurisdictions (each, a “Governmental
      Authority”),
      or
      (ii) in breach of or in default under any bond, debenture, note or other
      evidence of indebtedness, indenture, mortgage, deed of trust, lease or any
      other
      agreement or instrument to which any of them is a party or by which any of
      them
      or their respective property is bound (collectively, “Applicable
      Agreements”),
      other
      than in each of clause (i) and (ii) such violations, breaches or defaults that
      do not, and would not, individually or in the aggregate, have a Material Adverse
      Effect.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (j) No
      Conflicts.
      Neither
      the execution, delivery or performance of this Agreement or any other
      Transaction Document nor the consummation of any of the transactions
      contemplated herein or therein will conflict with, violate, constitute a breach
      of or a default (with the passage of time or otherwise) under, require the
      consent of any Person or a Governmental Authority (other than consents already
      obtained) or result in the imposition of a Lien on any assets of any of the
      Group Companies under or pursuant to (i) the Charter Documents, (ii) any
      Applicable Agreement, or (iii) any Applicable Law, other than in each of clause
      (ii) and (iii) such violations, breaches or defaults that do not, and would
      not,
      individually or in the aggregate, have a Material Adverse Effect. Immediately
      following consummation of the transactions contemplated in the Transaction
      Documents, no default will exist under the Indenture.

     

    (k) Governmental
      Filings.
      No
      filing with, consent, approval, authorization or order of, any Governmental
      Authority is required to be made by any of the Group Companies for the
      consummation of the transactions contemplated by the Transaction Documents,
      except (i) as have been made or obtained prior to the date of this Agreement
      or
      obtained after the Closing in accordance with the terms of the Transaction
      Documents, and (ii) as may be required under the Act or state securities or
      “blue sky” laws. 

     

    (l) Proceedings.
      There
      is no action, claim, suit, demand, hearing, notice of violation or deficiency,
      or proceeding, domestic or foreign (collectively, “Proceedings”),
      pending or, to the knowledge of the Company, threatened, that seeks to restrain,
      enjoin, prevent the consummation of, or otherwise challenges any of the
      Transaction Documents or any of the transactions contemplated
      therein.

     

    (m) Permits.
      Each of
      the Group Companies possesses all material licenses, permits, certificates,
      consents, orders, approvals and other authorizations from, and has made all
      declarations and filings with, all Governmental Authorities, presently required
      or necessary to own or lease, as the case may be, and to operate their
      respective properties and to carry on their respective businesses as now
      conducted (“Permits”),
      except where the failure to possess such Permits could not, individually or
      in
      the aggregate, have a Material Adverse Effect. All of the Permits are valid
      and
      in full force and effect. Each of the Group Companies has fulfilled and
      performed all of its respective obligations with respect to such Permits and
      no
      event has occurred which allows, or after notice or lapse of time could allow,
      revocation or termination thereof or result in any other material impairment
      of
      the rights of the holder of any such Permit. None of the Group Companies has
      received actual notice of any Proceeding relating to revocation or modification
      of any such Permit.

     

    (n) Title
      to Property.
      Each of
      the Group Companies has good and marketable title to all real property and
      personal property owned by it that is material to their respective businesses,
      in each case free and clear of any Liens as of the Closing Date. For real
      property not owned by any of the Group Companies and currently used or planned
      to be used for the business operations of the Group Companies, each of such
      Group Companies has good and marketable title to all leasehold estates in real
      and personal property being leased by it that is material to their respective
      businesses and, in each case free and clear of all Liens as of the Closing
      Date.

     

    (o) Insurance.
      Each of
      the Group Companies maintains reasonably adequate insurance covering its
      material properties, operations, personnel and business, and is 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
      it
      is engaged. All policies of insurance insuring the Group Companies and their
      respective businesses, assets, employees, officers and directors are in full
      force and effect. Each of the Group Companies is in compliance with the terms
      of
      such policies and instruments in all material respects, and there are no claims
      by any of the Group Companies under any such policy or instrument as to which,
      to the Company’s knowledge, any insurance company is denying liability or
      defending under a reservation of rights clause. None of the Group Companies
      has
      been refused any insurance coverage sought or applied for, and none of the
      Group
      Companies has any reason to believe that it will not be able to renew its
      existing insurance coverage as and when such coverage expires or to obtain
      similar coverage from similar insurers as may be necessary to continue its
      business at a cost that does not, and would not, individually or in the
      aggregate, have a Material Adverse Effect.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (p) Taxes.
      All Tax
      returns required to be filed by each of the Group Companies have been filed
      (taking into account all extensions of due dates), and all such returns are
      true, complete and correct in all material respects. All material Taxes that
      are
      due from each of the Group Companies have been paid other than those (i)
      currently payable without penalty or interest or (ii) being diligently contested
      in good faith and by appropriate proceedings and for which adequate reserves
      have been established in accordance with GAAP. To the knowledge of the Company,
      there are no proposed Tax assessments against any of the Group Companies. The
      accruals and reserves on the books and records of each of Group Companies in
      respect of any Tax liability for any Taxable period not finally determined
      are
      adequate to meet any assessments of Tax for any such period. For purposes of
      this Agreement, the term “Tax”
and
      “Taxes”
shall
      mean all federal, state, national, provincial, local and foreign taxes, and
      other assessments of a similar nature (whether imposed directly or through
      withholding), including any interest, additions to tax, or penalties applicable
      thereto.

     

    (q) Intellectual
      Property.
      

     

    (i) Each
      of
      the Group Companies owns, or is validly licensed under, or has the right to
      use,
all
      patents, patent rights, licenses, inventions, copyrights, know-how (including
      trade secrets and other unpatented and/or unpatentable proprietary or
      confidential information, systems, software or procedures), trademarks, service
      marks, trade names or master works, whether or not
      registered, filed, or issued under the authority of any governmental
      authority,
      (collectively, “Intellectual
      Property”)
      necessary
      for the conduct of its business and all Intellectual Properties owned by the
      Group Companies necessary for the conduct of their businesses are valid and
      in
      full force and effect. As of the Closing Date, such Intellectual Property is
      or
      will be free and clear of all Liens, except where the failure to own, possess,
      or have the right to use such Intellectual Property does not, and would not,
      individually or in the aggregate, have a Material Adverse Effect. To the
      Company’s knowledge, no Proceedings have been asserted by any Person challenging
      the use of any such Intellectual Property by any of the Group Companies or
      questioning the validity or effectiveness of the Intellectual Property or any
      license or agreement related thereto, and, to the Company’s knowledge, there are
      no facts which would form a valid basis for any such Proceeding. To the
      Company’s knowledge, the use of such Intellectual Property any of the Group
      Companies will not infringe on the Intellectual Property rights of any other
      Person. 

     

    (ii) Each
      of
      the Group Companies has taken reasonable steps and measures to establish and
      preserve ownership of or right to use all Intellectual Property material to
      the
      operation of its business, including any Intellectual Property that was jointly
      developed with any third-parties, or any Intellectual Property for which
      improper or unauthorized disclosure would impair its value or validity, and
      has
      had executed appropriate nondisclosure and confidentiality agreements and made
      all appropriate filings, registrations and payments of fees in connection with
      the foregoing. To the Company’s knowledge, there is no infringement or
      misappropriation by any other Person of any Intellectual Property of any of
      the
      Group Companies. No Proceedings in which any of the Group Companies alleges
      that
      any Person is infringing upon, or otherwise violating, any Intellectual Property
      of any of the Group Companies are pending, and none has been served, instituted
      or asserted by any of the Group Companies.

     

    (iii) No
      former
      or current employee, no former or current consultant, and no third-party joint
      developer of any of the Group Companies has any rights in any Intellectual
      Property made, developed, conceived, created or written by the aforesaid
      employee or consultant during the period of his or her retention by the Group
      Companies which can be asserted against any Group Company.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (iv) No
      Intellectual Property owned by any Group Company is the subject of any Lien,
      license or other contract granting rights or security interest therein to any
      other Person, except for Liens, licenses or other contracts granting rights
      or
      security interest that do not materially interfere with the use made and
      proposed to be made of such Intellectual Property by any Group Company. Each
      of
      the Group Companies has not (A) transferred or assigned, (B) granted an
      exclusive license to or (C) provided or licensed, any Intellectual Property
      owned by the Group Companies and necessary for the conduct of their business
      to
      any Person.

     

    (r) Internal
      Controls.
      Each of
      the Group Companies maintains a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorization, (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 material differences.

     

    (s) Financial
      Statements; No Undisclosed Liabilities.
      

     

    (i) The
      audited consolidated financial statements and related notes of the Company
      contained in the Form 20-F for the three years ended December 31, 2005 present
      fairly in all material respects the financial position, results of operations
      and cash flows of the Company and its Subsidiaries, as of the respective dates
      and for the respective periods to which they apply and have been prepared in
      accordance with GAAP and comply as to form with the applicable requirements
      of
      Regulation S-X of the Act. 

     

    (ii) Subsequent
      to the date of the Company’s audited financial statements filed for the year
      ended December 31, 2005, except as disclosed therein or in any subsequent SEC
      Report, (A) none of the Group Companies has incurred any liabilities, direct
      or
      contingent, that are material, individually or in the aggregate, to the Company,
      or has entered into any material transactions not in the ordinary course of
      business, (B) there has not been any material decrease in the Capital Stock
      or
      any material increase in long-term indebtedness or any material increase in
      short-term indebtedness of the Group Companies, or any payment of or declaration
      to pay any dividends or any other distribution with respect to the Group
      Companies, and (C) there has not been any material adverse change in the
      properties, business, operations, earnings, assets, liabilities or condition
      (financial or otherwise) of the Group Companies taken as a whole; excluding
      any
      changes caused by (x) the condition of the industry of the Company that do
      not
      disproportionately affect the Company, (y) the failure of the Company to meet
      its financial projections or (z) the execution and delivery of this Agreement
      and consummation of the transactions contemplated hereby (each of clauses (A),
      (B) and (C), a “Material
      Adverse Change”).
      To
      the knowledge of the Company, there is no event that is reasonably likely to
      occur in the foreseeable future, which if it were to occur, could, individually
      or in the aggregate, have a Material Adverse Change.

     

    (iii) Without
      limiting the generality of the foregoing paragraph (ii), except as disclosed
      in
      the SEC Reports, the Company has no liabilities or obligations (whether actual,
      accrued, absolute, fixed, contingent, liquidated, unliquidated or otherwise,
      and
      whether due or to become due), except for (i) liabilities or obligations shown
      on the balance sheet as of December 31, 2005 (the “Most
      Recent Balance Sheet”),
      (ii)
      liabilities under any agreements, contracts, commitments, licenses or leases
      which have arisen prior to the date of the Most Recent Balance Sheet and which
      are not required to be reflected in a balance sheet, or the notes thereto,
      prepared in accordance with GAAP (none of which relates to a breach of contract,
      breach of warranty, tort, infringement, environmental, health or safety matter,
      violation of Applicable Laws or proceeding brought by Governmental Authorities),
      (iii) liabilities incurred in the ordinary course of business since December
      31,
      2005 (none of which relates to a breach of contract, breach of warranty, tort,
      infringement, environmental, health or safety matter, violation of Law or
      proceeding brought by Governmental Authorities) and/or (iv) other liabilities
      that are, individually and in the aggregate, immaterial.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (t) Indebtedness.
      All
      Indebtedness represented by the Notes and the Guarantees is being incurred
      for
      proper purposes and in good faith. Based on the financial condition of the
      Company as of the Closing Date after giving effect to the receipt by the Company
      of the proceeds from the sale of the Securities hereunder, (i) the fair saleable
      value of the Group Companies’ assets exceeds the amount that will be required to
      be paid on or in respect of the Group Companies’ existing debts and other
      liabilities (including contingent liabilities) as they mature; (ii) the present
      fair saleable value of the assets of the Group Companies is greater than the
      amount that will be required to pay the probable liabilities of the Group
      Companies on their respective debt as they become absolute and mature; (iii)
      the
      Group Companies are able to realize upon their assets and pay their debt and
      other liabilities (including contingent obligations) as they mature; (iv) the
      Group Companies’ assets do not constitute unreasonably small capital to carry on
      their respective businesses as now conducted and as proposed to be conducted
      including their respective capital needs taking into account the particular
      capital requirements of the business conducted by the Group Companies, and
      projected capital requirements and capital availability thereof; and (v) the
      current cash flow of each of the Group Companies, 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 liabilities when such amounts are required to be paid.
      None of the Group Companies intends 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). The Company has no knowledge of any
      facts or circumstances which lead it to believe that it or any other Group
      Companies will file for reorganization or liquidation under the bankruptcy
      or
      reorganization laws of any jurisdiction within one year from the Closing Date.
      None of the Group Companies is, or has reason to believe it is likely to be,
      in
      default with respect to any indebtedness and no waiver of default is currently
      in effect. None of the Group Companies has agreed or consented to cause or
      permit in the future (upon the happening of a contingency or otherwise) any
      of
      its property, whether now owned or hereafter acquired, to be subject to a Lien.
      None of the Group Companies is a party to, or otherwise subject to any provision
      contained in, any instrument evidencing indebtedness of any of the Group
      Companies, any agreement relating thereto or any other agreement (including,
      but
      not limited to, its charter or other organizational document) which limits
      the
      amount of, or otherwise imposes restrictions on the incurring of, indebtedness
      of the Company. 

     

    (u) No
      Stabilization.
      None of
      the Group Companies has and, to each of its knowledge after due inquiry, no
      one
      acting on its behalf has, (i) taken, directly or indirectly, any action designed
      to cause or to result in, or that has constituted or which might reasonably
      be
      expected to constitute, the stabilization or manipulation of the price of any
      security of any of the Group Companies to facilitate the sale or resale of
      any
      of the Securities, (ii) sold, bid for, purchased, or paid anyone any
      compensation for soliciting purchases of, the Notes, or (iii) paid or agreed
      to
      pay to any person any compensation for soliciting another to purchase any other
      securities of the Group Companies.

     

    (v) No
      Sale to the U.S.
      None of
      the Group Companies, their respective Affiliates, or any person acting on its
      or
      their behalf has, directly or indirectly, made offers or sales of any security,
      or solicited offers to buy, sell or offer to sell or otherwise negotiate in
      respect of, in the United States or to any United States citizen or resident,
      any security which is or would be integrated with the sale of the Securities
      in
      a manner or under circumstances that would require the registration of the
      Securities under the Act.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (w) No
      Directed Selling Efforts.
      None of
      the Group Companies, their respective Affiliates, or any person acting on its
      or
      their behalf (other than the Purchaser, its Affiliates or persons acting on
      its
      behalf, as to whom the Company makes no representation) has engaged in any
      directed selling efforts (within the meaning of Regulation S) with respect
      to
      the Securities; and each of the Company, its Subsidiaries, their respective
      Affiliates and each person acting on its or their behalf has complied with
      the
      offering restrictions requirement of Regulation S. 

     

    (x) No
      Registration.
      Assuming the accuracy of the Purchaser’s representations and warranties set
      forth in Section 8, no registration under the Act of the Securities is required
      for the offer and sale of the Securities in the manner contemplated herein
      or to
      qualify the Indenture under the Trust Indenture Act of 1939, as
      amended.

     

    (y) Eligibility.
      The
      Notes satisfy the eligibility requirements of Rule 144A(d)(3) under the
      Act.

     

    (z) Labor
      Matters.
      There
      is no strike or other labor dispute involving any of the Group
      Companies pending
      or threatened, which could, individually or in the aggregate, have a Material
      Adverse Effect. There is no employment related charge, complaint, grievance,
      investigation, unfair labor practice claim or inquiry of any kind, pending
      against any of the Group
      Companies that
      could, individually or in the aggregate, have a Material Adverse Effect.

     

    (aa) Brokers
      and Finders.
      The
      Company has not engaged any broker, finder, commission agent or other similar
      person in connection with the transactions contemplated under the Transaction
      Documents, and the Company is not under any obligation to pay any broker’s fee
      or commission in connection with such transactions.

     

    (bb) Environmental
      Matters.
      Each of
      the Group Companies (i) is in compliance with any and all currently applicable
      foreign, federal, state, national, provincial, and local laws and regulations
      relating to the protection of the environment or hazardous or toxic substances
      or wastes, pollutants or contaminants (“Environmental
      Laws”),
      (ii) has received and is in compliance with all permits, licenses or other
      approvals required of it under applicable Environmental Laws to conduct its
      business, (iii) has not received actual notice of any actual or potential
      liability for the investigation or remediation of any disposal or release of
      hazardous or toxic substances or wastes, pollutants or contaminants, (iv) none
      of the Group Companies has knowledge of any facts which would give rise to
      any
      Proceedings, public or private, against it of violation of Environmental Laws
      arising out of the operations of the Group Companies, except, in each case,
      such
      as would not reasonably be expected to result in a Material Adverse Effect;
      and
      (v) none of the Group Companies has stored any hazardous materials on real
      properties now or formerly owned, leased or operated by any of them, and has
      not
      disposed of any hazardous materials, in a manner contrary to any Environmental
      Laws; except as to each of the foregoing where such non-compliance with
      Environmental Laws, failure to receive required permits, licenses or other
      approvals, or liability would not, individually or in the aggregate, have a
      Material Adverse Effect.

     

    In
      the
      ordinary course of its business, the Company periodically reviews the effect
      of
      Environmental Laws on the business, operations and properties of the Group
      Companies, in the course of which it identifies, estimates and evaluates
      associated costs and liabilities (including, without limitation, any capital
      or
      operating expenditures required for clean-up, closure of properties or
      compliance with Environmental Laws, or any permit, license or approval, any
      related constraints on operating activities and any potential liabilities to
      third parties). On the basis of such review, the Company has reasonably
      concluded that such associated costs would not, individually or in the
      aggregate, have a Material Adverse Effect.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (cc) Encumbrances.
      As of
      the Closing Date, except for any such restrictions provided under the laws
      of
      the jurisdiction of incorporation of any of the Group Companies, as applicable,
      there will be no encumbrances or restrictions on the ability of any of the
      Group
      Companies (i) to pay dividends or make other distributions on such parties’
Capital Stock or to make loans or advances or pay any indebtedness to, or
      investments in, any of the Group Companies, or (ii) to transfer any of its
      property or assets to any of the Group Companies, except for such restrictions
      set forth in the Transaction Documents.

     

    (dd) Foreign
      Corrupt Practices Act.
      None of
      the Group Companies, nor to the knowledge of the Company, any agent or other
      person acting on behalf of any of the Group Companies, has, directly or
      indirectly, (i) has used any funds, or will use any proceeds from the sale
      of
      the Notes, for unlawful contributions, gifts, entertainment or other unlawful
      expenses related to foreign or domestic political activity, (ii) has 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) has failed to disclose fully any contribution made by the Group Companies
      (or made by any person acting on its 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 (the “FCPA”).

     

    (ee) Ranking
      of Obligations.
      The
      payment obligations of the Company under this Agreement will rank at least
      pari
      passu,
      without
      preference or priority, with all other senior unsecured and unsubordinated
      indebtedness of the Company. 

     

    (ff) Related
      Party Transactions.
      Other
      than as set forth in the SEC Reports, no material relationship, direct or
      indirect, exists between or among any of the Group Companies or any Affiliate
      of
      the Group Companies, on the one hand, and any former or current director,
      officer, stockholder, customer or supplier of any of them (including any member
      of their immediate family), on the other hand.

     

    (gg) Investment
      Company.
      None of
      the Group Companies is, and as a result of the offer and sale of the Securities
      contemplated herein will not be, required to register as an “investment company”
under, and as such term is defined in, the U.S. Investment Company Act of 1940,
      as amended in connection with or as a result of the offer and sale of the
      Securities.

     

    (hh) PFIC. None
      of
      the Group Companies is or intends to become a “passive foreign investment
      company” within the meaning of Section 1297 of the Code (“PFIC”). 

     

    (ii) OFAC.
      Neither
      the Company nor, to the knowledge of the Company, any director, officer, agent,
      employee, Affiliate or Person acting on behalf of the Company 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
      Notes, 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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (jj) Money
      Laundering Laws.
      The
      operations of each of the Group Companies 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 any of the Group Companies with
      respect to the Money Laundering Laws is pending or, to the best knowledge of
      the
      Company, threatened.

     

    (kk) Other
      Representations and Warranties Relating to Golden, Cheng Feng and CSST
      PRC.
      

     

    (i) All
      material consents, approvals, authorizations or licenses requisite under PRC
      law
      for the due and proper establishment and operation of each of Golden, Cheng
      Feng
      and CSST PRC has 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 Golden, Cheng Feng and CSST PRC and its operations including,
      without limitation, the registrations 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
      Golden, Cheng Feng and CSST PRC 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
      Government Authorities. There are no outstanding rights of, or commitments
      made
      by the Company or any Subsidiary to sell any equity interest in Golden, Cheng
      Feng and CSST PRC.

     

    (iv) None
      of
      Golden, Cheng Feng and CSST PRC 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 Golden, Cheng Feng or CSST PRC, except such
      revocation does not, and would not, individually or in the aggregate, have
      a
      Material Adverse Effect.

     

    (v) Each
      of
      Golden, Cheng Feng and CSST PRC has conducted its business activities within
      the
      permitted scope of business or has otherwise operated its 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 Golden’s,
      Cheng Feng’s or CSST PRC’s business which are 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 Golden,
      Cheng Feng
      and CSST
      PRC 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.

     

    
      
        
        

      

      
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    (ll) Full
      Disclosure.
      All
      disclosure furnished by or on behalf of the Company to the Purchaser regarding
      any of the Group Companies, their respective businesses and the transactions
      contemplated under the Transaction Documents (to the extent they are parties
      thereto), including the SEC Reports and the Disclosure Schedules to this
      Agreement, with respect to the representations and warranties made herein are
      true and correct with respect to such representations and warranties 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. The Company
      acknowledges and agrees that the Purchaser does not make any representations
      or
      warranties with respect to the transactions contemplated hereby other than
      those
      specifically set forth in Section 8 hereof.

     

    The
      Company does not make any representations or warranties with respect to the
      transactions contemplated in this Agreement other than those specifically set
      forth in this Section 6.

     

    7. Covenants
      of the Group Companies.

     

    Each
      of
      the Group Companies, jointly and severally, hereby agrees: 

     

    (a) To
      (i)
      advise the Purchaser promptly after obtaining knowledge (and, if requested
      by
      the Purchaser, confirm such advice in writing) of the issuance by any state
      securities commission of any stop order suspending the qualification or
      exemption from qualification of the Securities for offer or sale in any
      jurisdiction, or the initiation of any proceeding for such purpose by any state
      securities commission or other regulatory authority, (ii) use its commercially
      reasonable efforts to prevent the issuance of any stop order or order suspending
      the qualification or exemption from qualification of the Securities under any
      state securities or “blue
      sky”
laws,
      and (iii) if at any time any state securities commission or other regulatory
      authority shall issue an order suspending the qualification or exemption from
      qualification of the Securities under any such laws, use its commercially
      reasonable efforts to obtain the withdrawal or lifting of such order at the
      earliest possible time.

     

    (b) So
      long
      as any of the Securities are “restricted securities” within the meaning of Rule
      144(a)(3) or Rule 905 under the Act, to, during any period in which the Company
      is not subject to and in compliance with Section 13 or 15(d) of the Exchange
      Act, provide to each holder of such restricted securities and to each
      prospective purchaser (as designated by such holder) of such restricted
      securities, upon the request of such holder or prospective purchaser, any
      information required to be provided by Rule 144A(d)(4) under the
      Act.

     

    (c) Whether
      or not any of the transactions contemplated under the Transaction Documents
      are
      consummated or this Agreement is terminated, to pay (i) all costs, expenses,
      fees and taxes incident to and in connection with the preparation, issuance
      and
      delivery of the Securities, (ii) all fees and expenses of counsels, accountants
      and any other advisors, if any, retained by the Company, (iii) all expenses
      in
      connection with qualifying the Notes for settlement in the Clearing Facilities,
      (iv) all fees and expenses of the Company in connection with approval of the
      Notes for “book entry” transfer, and (v) all fees and expenses of the Trustee,
      the Conversion Agent, the Paying Agent, the Registrar and any other agents
      contemplated in the Transaction Documents.

     

    (d) To
      do and
      perform all things required to be done and performed under the Transaction
      Documents prior to and after the Closing Date.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (e) Prior
      to
      making any public disclosure or filings as may be required by Applicable Laws
      with respect to any of the Transaction Documents and the transactions
      contemplated hereby and thereby, to provide the Purchaser and its counsels
      with
      the reasonable opportunity to review and comment on such public disclosure
      documents and consider in good faith any comments received by the Purchaser
      or
      its counsels.

     

    (f) To
      maintain the listing and trading of the Common Stock on the Trading Market
      or on
      an alternative trading market reasonably acceptable to the
      Purchaser.

     

    (g) For
      so
      long as the Purchaser owns any of the Securities, the Company will furnish
      to
      the Purchaser copies of all reports and other communications (financial or
      otherwise) furnished by the Company to the Trustee or to the holders of its
      Securities and, as soon as available, copies of any reports or financial
      statements furnished to or filed by the Company with the Commission or any
      national securities exchange on which any class of securities of the Company
      may
      be listed; provided,
      however,
      that
      any such report or financial statements filed on the Commission’s EDGAR database
      need not be separately furnished.

     

    (h) During
      the two year period after the Closing Date (or such shorter period as may be
      provided for in Rule 144(k) under the Act, as the same may be in effect from
      time to time), not to, and not to permit any current or future Subsidiaries
      of
      the Company or any other affiliates (as defined in Rule 144(a) under the Act)
      controlled by the Company to, resell any of the Securities which constitute
      “restricted securities” under Rule 144 that have been reacquired by the Company,
      any current or future Subsidiaries of the Company or any other affiliates (as
      defined in Rule 144(a) under the Act) controlled by the Company, except pursuant
      to an effective registration statement under the Act.

     

    (i) To
      pay
      all stamp, documentary and transfer taxes and other duties, if any, which may
      be
      imposed by any Governmental Authorities or any political subdivision thereof
      or
      taxing authority thereof or therein with respect to the issuance of the Notes
      or
      the sale thereof to the Purchaser.

     

    (j) The
      Company will use its commercially reasonable efforts not to become, and cause
      its Subsidiaries not to become, a PFIC. If the Company determines that it or
      any
      of its Subsidiaries has become a PFIC, the Company will promptly notify the
      Purchaser and provide all information requested by the Purchaser that is
      necessary for it to make a qualified electing fund (QEF) election.

     

    (k) Not
      register any transfer of the Notes that is not (i) made in accordance with
      the
      provisions of Regulation S under the Act, (ii) made pursuant to registration
      under the Act, or (iii) made pursuant to an available exemption under the
      Act.

     

    (l) Prior
      to
      the Closing Date, the Company shall not, without the express prior written
      consent of the Purchaser (which consent shall be at the Purchaser’s sole
      discretion), pursue or discuss any capital raising transaction or transactions
      with any Person other than the Purchaser or its Affiliates (“Outside
      Financing”).
      

     

    (m) The
      Company shall procure that the proceeds from the sale and purchase of the Notes
      are used by it to repay the Bridge Notes; provided
      that the
      use of proceeds from the Bridge Notes shall remain in effect in accordance
      with
      Sections 7(f) and 7(g) of the Bridge Notes Purchase Agreement.

     

    (n) The
      Company shall not, and shall procure that its Subsidiaries shall not, do
      anything or take any step, action or measure (or omit to take the same), that
      has or could be reasonably expected to have, individually or in the aggregate,
      a
      Material Adverse Effect.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (o) The
      Company shall not, and shall procure that its Subsidiaries shall not, directly
      or indirectly, incur, grant or suffer to exist any Lien, other than Liens
      arising by operation of law, any Lien or retention of title arrangement arising
      by agreement to substantially the same effect and in the ordinary course of
      business and not as a result of any default or omission, or Permitted Lien
      as
      defined in the Indenture.

     

    (p) The
      Company shall at all times keep reserved for issuance and delivery upon
      conversion of the Notes such number of Conversion Shares or other shares of
      the
      Company as are from time to time issuable upon conversion of any Notes and
      will,
      from time to time, take all necessary steps to amend its articles of
      incorporation to provide a sufficient reserve of Conversion Shares for issuance
      upon conversion of the Notes.

     

    (q) In
      connection with the conversion of the Notes into Conversion Shares, neither
      the
      Company nor any Person acting on its behalf will take any action which would
      result in the Conversion Shares being delivered by the Company other than to
      the
      then existing holders of the Notes exclusively where no commission or other
      remuneration is paid or given directly or indirectly for soliciting the exchange
      in compliance with Section 3(a)(9) of the Act.

     

    (r) Each
      of
      the Group Companies undertakes that (i) they will comply with the FCPA,
      including, without limitation, not making use of the mails or any means or
      instrumentality of interstate commerce corruptly in furtherance of an offer,
      payment, promise to pay or authorization of the payment of any money, or other
      property, gift, promise to give, or authorization of the giving of value to
      any
“foreign official” (as the term is defined in the FCPA) or any foreign political
      party or official thereof or any candidate for foreign political office, in
      contravention of the FCPA, (ii) they will conduct its business in compliance
      with the FCPA, and (iii) they will institute and maintain policies and
      procedures designed to ensure, and which are reasonably expected to continue
      to
      ensure, continued compliance therewith.

     

    (s) The
      Company shall, by no later than the day following the Closing Date, file a
      Form
      8-K announcing the Closing of the transactions contemplated hereby and the
      material terms thereof, which must be reviewed and consented to by the Purchaser
      prior to the filing, which consent shall not be unreasonably withheld or
      delayed; and to provide the draft of such Form 8-K to the Purchaser reasonably
      in advance for review. The Company and the Purchaser shall consult with each
      other in issuing any other press releases with respect to the transactions
      contemplated hereby, and neither the Company nor the Purchaser shall issue
      any
      such press release or otherwise make any such public statement (i) without
      the
      prior consent of the Company, with respect to any press release of the
      Purchaser, or (ii) without the prior consent of the Purchaser, with respect
      to
      any press release of the Company, in either case of (i) and (ii), which consent
      shall not unreasonably be withheld or delayed, except if such disclosure is
      required by law, in which case the disclosing party shall promptly provide
      the
      other party with prior notice of such public statement or communication.

     

    (t) Until
      all
      amounts outstanding under the Notes have been repaid in full, the Company shall
      not, and shall procure that its Subsidiaries shall not, declare, make or pay,
      or
      pay interest on any unpaid amount of, any dividend, charge, fee or other
      distribution (whether in cash or in-kind) on or in respect of its Capital Stock
      (or any class of its share capital) where this would result in any amounts
      being
      paid to any Person other than the Company.

     

    (u) From
      the
      date of this Agreement to the Closing Date, each of the Group Companies and
      their respective officers and directors will not, and the Company will cause
      its
      other representatives not to, directly or indirectly, (i) solicit, or
      initiate any proposal (a “Proposal”)
      relating to (A) direct or indirect acquisition or purchase of any equity
      securities (any and all shares of Capital Stock of the Group Companies,
      securities of the Group Companies convertible into, or exchangeable or
      exercisable for, such shares, and options, warrants or other rights to acquire
      such shares and any securities that represent the right to receive such equity
      securities) or any tender offer or exchange offer or (B) a merger, amalgamation,
      share exchange or consolidation or (C) a sale of all or substantially all of
      the
      assets of the Group Companies, (ii) participate in any discussions or
      negotiations regarding or furnish to any Person any information or otherwise
      facilitate any inquiries or the making of any proposal that constitutes, or
      may
      reasonably be expected to lead to, any Proposal (other than a modified Proposal
      of the Purchaser, if any), or (iii) authorize, engage in, or enter into any
      agreement or understanding with respect to, any Proposal;
      provided
      that, in
      the event the board of directors of the Company receives a bona
      fide
      Proposal
      and concludes in good faith that such Proposal would, if consummated, result
      in
      a Superior Proposal (as defined below), the board of directors of the Company
      may take actions described above to the extent that the board of directors
      of
      the Company concludes in good faith (based on the advice of its outside counsel)
      that failure to take such actions would result in a violation of its fiduciary
      duties under applicable law; provided,
      further that
      the
      Company shall also furnish to the Purchaser a copy of any confidential data
      or
      information that it is furnishing to any third party pursuant to this Section
      7(u) to the extent not previously furnished to the Purchaser. “Superior
      Proposal”
means
      any bona
      fide
      written
      Proposal which the Company’s board of directors concludes in good faith to be
      more favorable from a financial point of view to its stockholders than the
      transaction contemplated hereby, (i) after receiving the advice of its financial
      advisors (who shall be nationally recognized investment banking firms), (ii)
      after taking into account the likelihood of consummation of such transaction
      on
      the terms set forth therein (as compared to, and with due regard for, the terms
      herein) and (iii) after taking into account all appropriate legal (with the
      advice of outside counsel), financial (including the financing terms of any
      such
      proposal), regulatory and other aspects of such proposal and any other relevant
      factors permitted under applicable law. Each
      of
      the Group Companies and their respective officers and directors will, and each
      of the Group Companies will cause its other representatives to, terminate any
      existing activities or discussions in relation to any Proposal with any other
      party other than the Purchaser and its representatives.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    The
      Company will immediately (within one Business Day) advise the Purchaser of,
      and
      inform the Purchaser of the terms of, and the identity of the Person making
      any
      Proposal that any of the Group
      Companies
      or any
      of their representatives or Affiliates may receive from
      the
      date of this Agreement to the Closing Date.

     

    8. Purchaser’s
      Representations, Warranties and Agreements.
      The
      Purchaser represents and warrants to the Company that:

     

    (a) The
      Purchaser is not a “U.S. Person” (as defined in Rule 902 of Regulation S under
      the Act) and it understands that no action has been or will be taken in any
      jurisdiction by the Company that would permit a public offering of the Notes
      or
      the Conversion Shares in any country or jurisdiction where action for that
      purpose is required. The Purchaser is not acquiring the Notes or the Conversion
      Shares for the account or benefit of any U.S. persons except in accordance
      with
      exemption from registration requirements of the Act below or in a transaction
      not subject thereto.

     

    (b) The
      Purchaser is not acquiring the Notes or the Conversion Shares with a view to
      any
      distribution thereof that would violate the Act or the securities laws of any
      state of the United States or any other applicable jurisdiction.

     

    (c) The
      Purchaser (A) agrees on its own behalf and on behalf of any investor account
      for
      which it has purchased the Notes and/or the Conversion Shares that it will
      not
      offer, sell or otherwise transfer any of the Notes and/or the Conversion Shares
      prior to (x) the date which is 1 year after the later of the date of the
      commencement of the offering and the date of original issuance (or of any
      predecessor of any Security proposed to be transferred by the Purchaser) and
      (y)
      such later date, if any, as may be required by applicable law, except (a) to
      the
      Company, (b) pursuant to a registration statement that has been declared
      effective under the Act, (c) for so long as any Security is eligible for resale
      pursuant to Rule 144A under the Act, to a person it reasonably believes is
      a
“qualified institutional buyer” as defined in Rule 144A that purchases for its
      own account or for the account of another qualified institutional buyer to
      whom
      notice is given that the transfer is being made in reliance on Rule 144A, (d)
      pursuant to offers and sales to Persons who are not “U.S. Persons” (within the
      meaning of Regulation S) that occur outside the United States within the meaning
      of Regulation S or (e) pursuant to any other available exemption from the
      registration requirements of the Act, and (B) agrees that it will give to each
      person to whom such Security is transferred a notice substantially to the effect
      of this paragraph. 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (d) The
      Purchaser acknowledges that the Notes and the Conversion Shares are “restricted
      securities” as defined in Rule 144 under the Act.

     

    (e) No
      form
      of “directed selling efforts” (as defined in Rule 902 of Regulation S under the
      Act), general solicitation or general advertising in violation of the Act has
      been or will be used nor will any offers by means of any directed selling
      efforts in the United States be made by the Purchaser or any of its
      representatives in connection with the offer and sale of any of the Notes and/or
      the Conversion Shares.

     

    (f) The
      Notes
      and/or the Conversion Shares to be acquired by the Purchaser will be acquired
      for investment for the Purchaser’s own account, not as a nominee or agent, and
      not with a view to the resale or distribution of any part thereof, and that
      the
      Purchaser has no present intention of selling, granting any participation in,
      or
      otherwise distributing the same. The Purchaser does not presently have any
      contract, undertaking, agreement or arrangement with any Person to sell,
      transfer or grant participations to such Person or to any third Person, with
      respect to any of the Notes or the Conversion Shares. 

     

    (g) Immediately
      upon Closing, the Purchaser shall return the Bridge Notes marked as
“cancelled”.

     

    9. Conditions
      to Purchase Notes at Closing.

     

    9.1
      Conditions Precedent to the Obligations of the Purchaser to Purchase the
      Notes:
      The
      Purchaser’s obligation to purchase the Notes under this Agreement is subject to
      the satisfaction or waiver of each of the following conditions:

     

    (a) All
      the
      representations and warranties of each of the Group Companies and the
      Shareholders contained in each Transaction Document shall be true and correct
      as
      of the date hereof and at the Closing Date. Each of the Group Companies and
      the
      Shareholders shall have performed, satisfied and complied with all covenants,
      agreements and conditions required by the Transaction Documents, to which it
      is
      a party, to be performed, satisfied or complied with by them at or prior to
      the
      Closing. 

     

    (b) No
      injunction, restraining order or order of any nature by a Governmental Authority
      shall have been issued as of the Closing Date that could prevent or materially
      interfere with the consummation of the transactions contemplated under the
      Transaction Documents; and no stop order suspending the qualification or
      exemption from qualification of any of the Securities in any jurisdiction shall
      have been issued and no Proceeding for that purpose shall have been commenced
      or, to the knowledge of the Company after due inquiry, be pending or threatened
      as of the Closing Date.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (c) No
      action
      shall have been taken and no Applicable Law shall have been enacted, adopted
      or
      issued that could, as of the Closing Date, reasonably be expected to prevent
      the
      consummation of the transactions contemplated under the Transaction Documents.
      No Proceeding shall be pending or, to the knowledge of the Company after due
      inquiry, threatened other than Proceedings that if adversely determined could
      not, individually or in the aggregate, adversely affect the issuance or
      marketability of the Notes, or could not, individually or in the aggregate,
      have
      a Material Adverse Effect.

     

    (d) The
      Company shall have obtained any and all approvals, consents and waivers
      necessary for consummation of the transactions contemplated by this Agreement,
      including, but not limited to, all Permits, authorizations, approvals or
      consents of any Governmental Authority.

     

    (e) The
      Purchaser shall have received on the Closing Date:

     

    (i) a
      certificate dated the Closing Date, signed by the Chief Executive Officer of
      the
      Company on behalf of the Company to the effect that (a) the representations
      and
      warranties set forth in Section 6 are true and correct with the same force
      and
      effect as though expressly made at and as of the Closing Date, (b) the Company
      has complied with all agreements and satisfied all conditions on its part to
      be
      performed or satisfied hereunder at or prior to the Closing Date, (c) at the
      Closing Date, since the date hereof or since the date of the most recent
      financial statements in the SEC Reports, no event or events have occurred,
      no
      information has become known nor does any condition exist that could,
      individually or in the aggregate, have a Material Adverse Effect, and (d) the
      sale of any of the Notes has not been enjoined (temporarily or
      permanently);

     

    (ii) a
      certificate dated the Closing Date, signed by each of the Shareholders (or
      an
      authorized director of such Shareholder in the case of Whitehorse), to the
      effect that (a) the representations and warranties set forth in the Transaction
      Documents which are given by the Shareholders are true and correct with the
      same
      force and effect as though expressly made at and as of the Closing Date, and
      (b)
      each of the Shareholders has complied with all agreements and satisfied all
      conditions on its part to be performed or satisfied under the Transaction
      Documents at or prior to the Closing Date,

     

    (iii) certificates
      dated the Closing Date, signed by each of the Group Companies other than the
      Company, to the effect that (a) the representations and warranties set forth
      in
      the Transaction Documents which are given by such Group Company are true and
      correct with the same force and effect as though expressly made at and as of
      the
      Closing Date, and (b) such Group Company has complied with all agreements and
      satisfied all conditions on its part to be performed or satisfied under the
      Transaction Documents at or prior to the Closing Date,

     

    (iv) a
      certificate dated the Closing Date, signed by the Secretary of the Company,
      including specimen signatures of those officers of the Company authorized to
      sign the Transaction Documents, to which the Company is a party, on behalf
      of
      the Company, attaching true, complete and up to date copies of the certificate
      of incorporation and by-laws of the Company, attaching the certificate of good
      standing of the Company and certifying as to such other maters as the Purchaser
      may reasonably require;

     

    (v) a
      certificate dated the Closing Date, signed by the Secretary of each of the
      Group
      Companies other than the Company, including specimen signatures of those
      officers of such Group Company authorized to sign the Transaction Documents,
      to
      which such Group Company is a party, on behalf of such Group Company, attaching
      true, complete and up to date copies of the certificate of incorporation and
      by-laws of such Group Company, attaching the certificate of good standing of
      such Guarantor and certifying as to such other maters as the Purchaser may
      reasonably require;

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (vi) a
      certificate dated the Closing Date, executed by the authorized director of
      Whitehorse, including specimen signatures of the directors of Whitehorse
      authorized to sign the Transaction Documents, to which Whitehorse is a party,
      on
      behalf of Whitehorse, attaching true, complete and up to date copies of the
      certificate of incorporation and by-laws of Whitehorse, attaching the
      certificate of good standing of the Whitehorse and certifying as to such other
      maters as the Purchaser may reasonably require;

     

    (vii) the
      opinions of Thelen Reid Brown Raysman & Steiner LLP, U.S. counsel to the
      Company, dated the Closing Date, in the form and substance satisfactory to
      the
      Purchaser;

     

    (viii) the
      opinions of Harney Westwood & Riegels, British Virgin Islands counsel to
      Safetech and Whitehorse, dated the Closing Date, in the form and substance
      satisfactory to the Purchaser; 

     

    (ix) the
      opinions of Arculli Fong & Ng, Hong Kong counsel to CSST HK, dated the
      Closing Date, in the form and substance satisfactory to the Purchaser;
      and

     

    (x) the
      opinions of Guangdong Guanghe Law Firm, PRC counsel to the Company and the
      Shareholders, dated the Closing Date, in the form and substance satisfactory
      to
      the Purchaser.

     

    (f) Each
      of
      the Transaction Documents shall have been executed and delivered by all parties
      thereto, and the Purchaser shall have received a fully executed original (or
      clearly legible facsimile copy) of each Transaction Document.

     

    (g) The
      Purchaser shall have received copies of all documents delivered under or in
      connection with the transactions contemplated in the Transaction Documents
      that
      are required to be delivered at or prior to the Closing Date.

     

    (h) None
      of
      the other parties to any of the Transaction Documents shall be in breach or
      default under their respective obligations thereunder.

     

    (i) Contemporaneously
      with the Closing, all amounts outstanding under the Bridge Notes shall have
      been
      repaid in full, unless otherwise agreed to by the Company and the
      Purchaser.

     

    (j) The
      respective board of directors of each of the Group Companies and the
      Shareholders, as the case may be, shall have approved and authorized by all
      necessary corporate or other action (i) the execution and delivery of the
      Transaction Documents, (ii) all actions to be performed or satisfied under
      the
      Transaction Documents (including, without limitation, the reserve for issuance
      of the Conversion Shares issuable upon exercise of the Notes), (iii) the
      consummation of the transactions contemplated by the Transaction Documents,
      (iv)
      the pricing terms of the Notes, and (v) all other actions necessary in
      connection with the transactions contemplated by the Transaction Documents
      and
      the offering of the Notes, and shall have provided the Purchaser with a copy
      of
      such authorizations. 

     

    (k) The
      Purchaser shall have completed and be satisfied with the results of all
      business, legal and financial due diligence, and any items requiring correction
      identified by the Purchaser shall have been corrected to the Purchaser’s
      satisfaction.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    (l) The
      Purchaser shall have received all necessary internal approval for the
      transactions contemplated hereunder or under the Transaction
      Documents.

     

    9.2
      Conditions Precedent to the Obligations of the Company to Sell the
      Notes:
      The
      Company’s obligation to sell the Notes under this Agreement is subject to the
      satisfaction or waiver of each of the following conditions:

     

    (a) All
      the
      representations and warranties of the Purchaser contained in each Transaction
      Document shall be true and correct as of the date hereof and at the Closing
      Date. 

     

    (b) No
      injunction, restraining order or order of any nature by a Governmental Authority
      shall have been issued as of the Closing Date that could prevent or materially
      interfere with the consummation of the transactions contemplated under the
      Transaction Documents; and no stop order suspending the qualification or
      exemption from qualification of any of the Securities in any jurisdiction shall
      have been issued and no Proceeding for that purpose shall have been commenced
      or, to the knowledge of the Company after due inquiry, be pending or threatened
      as of the Closing Date.

     

    (c) No
      action
      shall have been taken and no Applicable Law shall have been enacted, adopted
      or
      issued that could, as of the Closing Date, reasonably be expected to prevent
      the
      consummation of the transactions contemplated under the Transaction Documents.
      No Proceeding shall be pending or, to the knowledge of the Company after due
      inquiry, threatened other than Proceedings that if adversely determined could
      not, individually or in the aggregate, adversely affect the issuance or
      marketability of the Securities, or could not, individually or in the aggregate,
      have a Material Adverse Effect.

     

    (d) Each
      of
      the Transaction Documents shall have been executed and delivered by all parties
      thereto, and the Company shall have received a fully executed original (or
      clearly legible facsimile copy) of each Transaction Document to which the
      Purchaser is a party.

     

    10. Indemnification.

     

    (a) Each
      of
      the Group Companies (each such Person being referred to as an “Indemnifying
      Party”),
      jointly and severally, agrees to indemnify and hold harmless the Purchaser,
      each
      of its Affiliates and their respective officers, directors, partners,
      shareholders, counsel, employees and agents (the Purchaser and each such other
      person being referred to as an “Indemnified
      Party”),
      to
      the fullest extent lawful, from and against any losses, claims, damages,
      liabilities and reasonable expenses (or actions in respect thereof), as
      incurred, related to or arising out of or in connection with:

     

    (i) actions
      taken or omitted to be taken by any of the Group Companies or their respective
      Affiliates, officers, directors, employees or agents; or

     

    (ii) any
      breach by any of the Group Companies or their respective Affiliates of any
      of
      the representations, warranties, covenants and agreements set forth in any
      Transaction Document,

     

    and
      will
      reimburse the Indemnified Parties for all reasonable expenses (including,
      without limitation, fees and expenses of counsel) as they are incurred in
      connection with investigating, preparing, defending or settling any such action
      or claim, whether or not in connection with litigation in which any Indemnified
      Party is a named party. If any of the Indemnified Parties’ personnel appears as
      witnesses, are deposed or are otherwise involved in the defense of any action
      against an Indemnified Party, the Indemnifying Parties will reimburse the
      Purchaser for all reasonable expenses incurred by the Purchaser by reason of
      any
      of the Indemnified Parties being involved in any such action. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (b) As
      promptly as reasonably practical after receipt by an Indemnified Party under
      this Section 10 of notice of the commencement of any action for which such
      Indemnified Party is entitled to indemnification under this Section 10, such
      Indemnified Party will, if a claim in respect thereof is to be made against
      the
      Indemnified Party under this Section 10, notify the Indemnifying Party of the
      commencement thereof in writing; but the omission to so notify the Indemnifying
      Party (i) will not relieve such Indemnifying Party from any liability under
      paragraph (a) above unless and only to the extent it is materially prejudiced
      as
      a result thereof and (ii) will not, in any event, relieve the Indemnifying
      Party
      from any obligations to any Indemnified Party otherwise than the indemnification
      obligation provided in paragraph (a) above. In case any such action is brought
      against any Indemnified Party, and it notifies the Indemnifying Party of the
      commencement thereof, the Indemnifying Party will be entitled to participate
      therein and, to the extent that it may determine, jointly with any other
      Indemnifying Party similarly notified, to assume the defense thereof, with
      counsel satisfactory to such Indemnified Party (who shall not, except with
      the
      consent of the Indemnified Party, be counsel to the Indemnifying Party) at
      the
      expense of the Indemnifying Party; provided, however, that if (i) the use of
      counsel chosen by the Indemnifying Party to represent the Indemnified Party
      would present such counsel with a conflict of interest, (ii) the actual or
      potential defendants in, or targets of, any such action include both the
      Indemnified Party and the Indemnifying Party and the Indemnified Party shall
      have been advised by counsel that there may be one or more legal defenses
      available to it and/or other Indemnified Party that are different from or
      additional to those available to the Indemnifying Party, (iii) the Indemnifying
      Party shall not have employed counsel satisfactory to the Indemnified Party
      to
      represent the Indemnified Party within a reasonable time after notice of the
      institution of such action or (iv) the Indemnifying Party shall authorize the
      Indemnified Party to employ separate counsel at the expense of the Indemnifying
      Party, then, in each such case, the Indemnifying Party shall not have the right
      to direct the defense of such action on behalf of such Indemnified Party or
      parties and such Indemnified Party or parties shall have the right to select
      separate counsel (including local counsel) to defend such action on behalf
      of
      such Indemnified Party or parties at the expense of the Indemnifying Party.
      After notice from the Indemnifying Party to such Indemnified Party of its
      election so to assume the defense thereof and approval by such Indemnified
      Party
      of counsel appointed to defend such action, the Indemnifying Party will not
      be
      liable to such Indemnified Party under this Section 10 for any legal or other
      expenses, other than reasonable costs of investigation, subsequently incurred
      by
      such Indemnified Party in connection with the defense thereof, unless the
      Indemnified Party shall have employed separate counsel in accordance with the
      proviso to the immediately preceding sentence (it being understood, however,
      that in connection with such action the Indemnifying Party shall not be liable
      for the expenses of more than one separate counsel (in addition to local
      counsel) in any one action or separate but substantially similar actions in
      the
      same jurisdiction arising out of the same general allegations or circumstances,
      representing the Indemnified Party who are parties to such action or actions).
      The Indemnifying Party shall not, without the prior written consent of the
      Indemnified Party, effect the settlement or compromise of, or consent to the
      entry of any judgment with respect to, any pending or threatened action or
      claim
      in respect of which indemnification or contribution may be sought hereunder
      (whether or not the Indemnified Party is an actual or potential party to such
      action or claim) unless such settlement, compromise or judgment (i) includes
      an
      unconditional release of the Indemnified Party from all liability arising out
      of
      such action or claim and (ii) does not include a statement as to or an admission
      of fault, culpability or a failure to act, by or on behalf of any Indemnified
      Party.

     

    (c) The
      indemnity and expense reimbursement obligations set forth herein (i) shall
      be in
      addition to any liability any of the Group Companies may otherwise have to
      any
      Indemnified Party, (ii) shall remain operative and in full force and effect
      regardless of any investigation made by or on behalf of the Purchaser or any
      other Indemnified Party and (iii) shall be binding on any successor or assign
      of
      the Group Companies or their respective business and assets. 

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    (d) Without
      limiting the generality of the foregoing paragraphs in this Section 10, each
      of
      the Group Companies and Mr. Tu Guo Shen will, jointly and severally, agree
      to
      indemnify, defend and hold harmless the Indemnified Parties from and against
      (i)
      any and all losses (including without limitation, losses arising from or as
      a
      result of a decrease in the value of the Company or the value of the Common
      Stock or the Notes) incurred by any member of the Indemnifies Parties and (ii)
      any and all claims, actions or causes of action, assessments, demands, damages,
      judgments, settlements, liabilities, costs and expenses (including, without
      limitation, interest, penalties and attorneys’ and accounting fees and expenses)
      of any nature whatsoever, asserted against or imposed upon any member of the
      Indemnified Parties, in each case, by reason of or resulting from any breach
      or
      violation (whether such breach or violation was due to actions taken or failure
      to take actions, in whole or in part, prior to or after the date hereof) of
      laws, rules, regulations or orders of any Governmental Authority by any of
      the
      Group Companies,
      Shareholders or Subsidiaries.

     

    11. Termination.
      

     

    (a) The
      Purchaser may terminate this Agreement at any time prior to the Closing Date
      by
      written notice to the Company if any of the following has occurred:

     

    (i) since
      the
      date hereof, any Material Adverse Effect or development involving or reasonably
      expected to result in a prospective Material Adverse Effect that could, in
      the
      Purchaser’s reasonable judgment, be expected to (A) make it impracticable or
      inadvisable to proceed with the offering or delivery of the Notes on the terms
      and in the manner contemplated in this Agreement and the Indenture or (B)
      materially impair the investment quality of any of the Securities;

     

    (ii) the
      failure of any of the Group Companies or the Shareholders to satisfy the
      conditions contained in Section 9 on or prior to the Closing Date;

     

    (iii) any
      outbreak or escalation of hostilities or other national or international
      calamity or crisis, including acts of terrorism, or material adverse change
      or
      disruption in economic conditions in, or in the financial markets of, the United
      States, the European Union, the Peoples’ Republic of China or Hong Kong (it
      being understood that any such change or disruption shall be relative to such
      conditions and markets as in effect on the date hereof), if the effect of such
      outbreak, escalation, calamity, crisis, act or material adverse change in the
      economic conditions in, or in the financial markets of, the United States,
      the
      European Union, the Peoples’ Republic of China or Hong Kong could be reasonably
      expected to make it, in the Purchaser’s sole judgment, impracticable or
      inadvisable to proceed with the consummation of the transactions on the terms
      and in the manner contemplated in this Agreement or the Indenture;

     

    (iv) trading
      in the Common Stock shall have been suspended by the Trading Market or the
      suspension or limitation of trading generally in securities on the New York
      Stock Exchange, the American Stock Exchange, the London Stock Exchange, the
      Hong
      Kong Stock Exchange, the NASDAQ Capital Market or the NASDAQ Global Market
      or
      any setting of limitations on prices for securities on any such exchange or
      the
      NASDAQ Capital Market or the NASDAQ Global Market;

     

    (v) the
      enactment, publication, decree or other promulgation after the date hereof
      of
      any Applicable Law that could be reasonably expected to have a Material Adverse
      Effect; or

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    (vi) the
      declaration of a banking moratorium by any federal or New York state
      Governmental Authority; or the taking of any action by any Governmental
      Authority after the date hereof in respect of its monetary or fiscal affairs
      that could reasonably be expected to have a material adverse effect on the
      financial markets in the United States, European Union, the Peoples’ Republic of
      China, Hong Kong or elsewhere.

     

    (b) The
      Company may terminate this Agreement at any time prior to the Closing Date
      by
      written notice to the Purchaser based upon the Purchaser’s intentional breach of
      its representations, warranties, covenants and obligations under this
      Agreement.

     

    12. Survival
      of Representations and Indemnities.
      The
      representations and warranties, covenants, indemnities and contribution and
      expense reimbursement provisions and other agreements of any of the Group
      Companies and the Shareholder set forth in this Agreement shall remain operative
      and in full force and effect, and will survive, regardless of (i) any
      investigation, or statement as to the results thereof, made by or on behalf
      of
      the parties hereto, and (ii) acceptance of the Notes, and payment for them
      hereunder.

     

    13. Substitution
      of Purchaser.
      The
      Purchaser shall have the right to substitute any one of its Affiliates as the
      purchaser of the Notes, by written notice to the Company, which notice shall
      be
      signed by both the Purchaser and such Affiliate, shall contain such Affiliate’s
      agreement to be bound by this Agreement and shall contain a confirmation by
      such
      Affiliate of the accuracy with respect to it of the representations and
      warranties set forth in Section 8. Upon receipt of such notice, wherever the
      word “Purchaser” is used in this Agreement (other than in this Section 13), such
      word shall be deemed to refer to such Affiliate in lieu of the original
      Purchaser. In the event that such Affiliate is so substituted as a purchaser
      hereunder and such Affiliate thereafter transfers to the original Purchaser
      all
      of the Notes then held by such Affiliate, upon receipt by the Company of notice
      of such transfer, wherever the word “Purchaser” is used in this Agreement (other
      than in this Section 13), such word shall no longer be deemed to refer to such
      Affiliate, but shall refer to the original Purchaser, and the original Purchaser
      shall have all the rights of an original holder of the Notes under this
      Agreement.

     

    14. Miscellaneous.
      

     

    (a) Notices
      given pursuant to any provision of this Agreement shall be addressed as follows:
      (i) if to any of the Group Companies, to: 13/F, Shenzhen Special Zone Press
      Tower, Shennan Road, Futian, Shenzhen, China, Fax: (86) 755-83510815, Attention:
      Mr. Tu Guo Shen, with a copy to Thelen Reid Brown Raysman & Steiner LLP, 701
      8th
      Street,
      N.W., Washington, DC 20001, Fax: (1-202) 654-1804, Attention: Mr. Lou
      Bevilacqua, Esq., (ii) if to the Purchaser, to: c/o
      131
      South Dearborn Street, Chicago, Illinois 60609, USA,
      Fax:
(1-312)
      267 7300,
      Attention: Mr.
      Adam
      C. Cooper,
      with a
      copy to 18/F
      Chater House, 8 Connaught Road, Central, Hong Kong, Fax: (852) 3667 5511,
      Attention: Mr. Andrew Fong and Mr. Max Liu,
      and with
      a copy to Simpson Thacher & Bartlett LLP, ICBC Tower 35th Floor, 3 Garden
      Road, Central, Hong Kong SAR, China, Fax: (852) 2869 7694, Attention: Mr.
      Youngjin Sohn, Esq.

     

    (b) Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      neither it nor any other person acting on its behalf will provide the Purchaser
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto the Purchaser
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information. The Company understands and confirms that the Purchaser shall
      be relying on the foregoing representations in effecting transactions
      contemplated hereunder.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    (c) This
      Agreement has been and is made solely for the benefit of and shall be binding
      upon the parties hereto and, to the extent provided in Section 10 hereof, the
      controlling persons and their respective agents, employees, officers, directors,
      partners, counsel, and shareholders referred to in Section 10, and their
      respective heirs, executors, administrators, successors and assigns, all as
      and
      to the extent provided in this Agreement, and no other person shall acquire
      or
      have any right under or by virtue of this Agreement.

     

    (d) THIS
      AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
      OF
      THE STATE OF NEW YORK.

     

    (e) The
      parties hereto agree that any suit, action or proceeding arising out of or
      based
      upon this Agreement or the transactions contemplated hereby may be instituted
      in
      any State or U.S. federal court in The City of New York and County of New York,
      and waives any objection which it may now or hereafter have to the laying of
      venue of any such proceeding, and irrevocably submits to the non-exclusive
      jurisdiction of such courts in any suit, action or proceeding.

     

    (f) The
      parties hereto each hereby waive any right to trial by jury in any action,
      proceeding or counterclaim arising out of or relating to this
      Agreement.

     

    (g) No
      failure to exercise, and no course of dealing with respect to, and no delay
      in
      exercising, any right, power or remedy hereunder shall operate as a waiver
      thereof; nor shall any single or partial exercise of any right, power or remedy
      hereunder preclude any other or further exercise thereof or the exercise of
      any
      other right, power or remedy.

     

    (h) This
      Agreement may be signed in various counterparts which together shall constitute
      one and the same instrument. 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.

     

    (i) The
      headings in this Agreement are for convenience of reference only and shall
      not
      constitute part of this Agreement nor limit or otherwise affect the meaning
      of
      any provision of this Agreement.

     

    (j) 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, in each case to the extent permitted by applicable law, and
      the
      parties hereto shall use their best 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,
      to
      the extent permitted by applicable law.

     

    (k) This
      Agreement may be amended, modified or supplemented, and waivers or consents
      to
      departures from the provisions hereof may be given; provided
      that the
      same are in writing and signed by all of the signatories hereto.

     

    [Signature
      page(s) to follow.]

     

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    
 

    For
      and
      on behalf of:

    CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.

     

    By:
      /s/ Tu Guo
      Shen                                                
  

    Name: Tu
      Guo
      Shen

    Title: Chief
      Executive Officer

    

     

    For
      and
      on behalf of:

    CHINA
      SAFETECH HOLDINGS LIMITED

     

    By:
      /s/ Tu Guo
      Shen                                                  

    Name: Tu
      Guo
      Shen

    Title: Chief
      Executive Officer

    

     

    For
      and
      on behalf of:

    CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY (HK) LTD.

     

    By:
      /s/ Tu Guo
      Shen                                                  

    Name: Tu
      Guo
      Shen

    Title: Chief
      Executive Officer

    

     

    For
      and
      on behalf of:

    GOLDEN
      GROUP CORPORATION (SHENZHEN) LIMITED

     

    By:
      /s/ Tu Guo
      Shen                                                  

    Name: Tu
      Guo
      Shen

    Title: Chief
      Executive Officer

    

     

    For
      and
      on behalf of:

    SHANGHAI
      CHENG FENG DIGITAL TECHNOLOGY CO., LTD.

     

    By:
      /s/ Tu Guo
      Shen                                                  

    Name: Tu
      Guo
      Shen

    Title: Chief
      Executive Officer

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    For
      and
      on behalf of:

    CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY (PRC), INC.

     

    By:
      /s/ Tu Guo
      Shen                                                  

    Name: Tu
      Guo
      Shen 

    Title: Chief
      Executive Officer

    

     

    FOR
      THE
      PURPOSE OF SECTION 10(d) ONLY 

     

    

     

    /s/
      Tu
      Guo
      Shen                                           
             

    Name: Tu
      Guo
      Shen

    

     

    

     

    For
      and
      on behalf of:

    CITADEL
      EQUITY FUND LTD.

     

    By:
      Citadel Limited Partnership, its Portfolio Manager

    By:
      Citadel Investment Group, L.L.C., its General Partner

    

    

    By:
      /s/ Andrew
      Fong                                                

    Name: Andrew
      Fong

    Title: Authorized
      Signatory

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