Document:

SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated as of
June 4, 2010, by and among China Gerui Advanced Materials Group Limited, a
British Virgin Islands company (the “Company”), and the investors
identified on the signature pages hereto and listed on Schedule I attached
hereto (each, an “Investor” and collectively,
the “Investors”).

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement and in reliance
upon the applicable exemptions from securities registration under the Securities
Act (as defined below), the Company desires to issue and sell to each Investor,
and each Investor, severally and not jointly, desires to purchase from the
Company certain securities of the Company, as more fully described in this
Agreement; and

     

    WHEREAS,
contemporaneous with the sale and purchase of the certain securities the parties
hereto will execute and deliver a Registration Rights Agreement, in the form
attached hereto as Exhibit A, pursuant
to which the Company will agree to provide to the Investors certain registration
rights under the Securities Act.

     

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

     

    ARTICLE
1.

    DEFINITIONS

     

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

     

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

     

    “Affiliate” means, with
respect to any Person, any other Person that, directly or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such Person.

     

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

     

    “BVI Counsel” means Conyers
Dill & Pearman.

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    “Commission” means the
Securities and Exchange Commission.

     

    “Company Counsel” means
Pillsbury Winthrop Shaw Pittman LLP.

     

    “Company Deliverables” has the
meaning set forth in Section 2.3(a).

     

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

     

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

     

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

     

    “Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

     

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

     

    “Intellectual Property Rights”
means all of the following: (i) patents, patent applications, patent disclosures
and inventions (whether or not patentable and whether or not reduced to
practice); (ii) trademarks, service marks, trade dress, trade names, corporate
names, logos, slogans and Internet domain names, together with all goodwill
associated with each of the foregoing; (iii) copyrights and copyrightable works;
and (iv) registrations, applications and renewals for any of the
foregoing.

     

    “Investor Deliverables” has
the meaning set forth in Section 2.3(b).

     

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

     

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

     

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

     

    “Ordinary Shares” means the
shares of the Company without par value and any securities into which such
shares may hereafter be reclassified.

     

    “Outside Anti-Dilution Date”
means the earlier of (i) the fifteenth (15th)
calendar day following the Effective Date of the registration of the Shares
under the Registration Rights Agreement or (ii) the one hundred twentieth
(120th)
calendar day following the date of this Agreement.

    
      
         

      

      
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    “Outside Date” means the
twentieth (20th)
calendar day following the date of this Agreement; provided, that if
such day should fall on a day that is not a Business Day, the Outside Date shall
be deemed the next day that is a Business Day.

     

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

     

    “Placement Agents” means Maxim
Group LLC and Rodman and Renshaw, LLC.

     

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

     

    “PRC Counsel” means Jingtian
& Gongcheng.

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.

     

    “Shares” means the Ordinary
Shares of the Company issued or issuable to the Investors pursuant to this
Agreement.

    
      
         

      

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

     

    “Subsidiary” means, as to the
Company, any “subsidiary” as defined in Rule 1-02(x) of the Regulation S-X
promulgated by the Commission under the Exchange Act.

     

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

     

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

     

    “Transaction Documents” means
this Agreement, the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.

     

    “Transfer Agent” means
Continental Stock Transfer & Trust Co., or any successor transfer agent for
the Company.

     

    “Transfer Agent Instructions”
means, with respect to the Company, the transfer agent instructions
letter, in the form of Exhibit B, executed
by the Company and delivered to and acknowledged in writing by the Transfer
Agent.

     

    “US Counsel” means Pillsbury
Winthrop Shaw Pittman LLP.

     

    ARTICLE
2.

    PURCHASE
AND SALE

     

    2.1.         Purchase of
Shares.  Subject
to the terms and conditions set forth in this Agreement, at the Closing the
Company shall issue and sell to each Investor, and each Investor shall,
severally and not jointly, purchase from the Company, the Shares in the
respective amounts set forth below the Investors’ names on the signature pages
hereto for the Purchase Price.

     

    2.2.         Closing.  The
Closing shall take place at the offices of Pillsbury Winthrop Shaw Pittman LLP,
2300 N Street, NW, Washington, D.C. 20037 on the Closing Date or at such other
location and on such other date as the parties may mutually
agree.

    
      
         

      

      
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    2.3.         Closing
Deliveries.

     

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

     

    (i)           a
certificate representing the number of Shares set forth below such Investor’s
name on the signature pages hereto, registered in the name of such Investor
against payment of such Investor’s Purchase Price in United States dollars and
in immediately available funds, by wire transfer to an account designated in
writing by the Company;

     

    (ii)          the
agreements specified in Section 5.1(f), duly signed by the Company;

     

    (iii)         a
legal opinion of US Counsel of the Company in the form of Exhibit C, executed
by such counsel and delivered to the Investors;

     

    (iv)        a
legal opinion of BVI Counsel of the Company substantially in the form of Exhibit D, executed
by such counsel and delivered to the Investors;

     

    (v)         a
legal opinion of PRC Counsel of the Company in the form of Exhibit E, executed
by such counsel and delivered to the Investors;

     

    (vi)        approval
by each applicable Trading Market of an additional shares listing application
covering all of the Registrable Securities;

     

    (vii)       a
certificate, executed on behalf of the Company by its chief executive officer or
its chief financial officer, dated as of the Closing Date, certifying the
fulfillment of the condition specified in Section 5.1(b); and

     

    (viii)      a
certificate, executed on behalf of the Company by its director, dated as of the
Closing Date, certifying the resolutions adopted by the Board of Directors of
the Company approving the transactions contemplated by the Transaction
Documents, certifying the current versions of the Memorandum of Association and
Articles of Association of the Company and certifying as to the signatures and
authority of Persons signing the Transaction Documents and related documents on
behalf of the Company.

     

    (b)           By
the Closing, each Investor shall deliver or cause to be delivered to the Company
the following:

     

    (i)           the
Purchase Price for the Shares in United States dollars and in immediately
available funds, by wire transfer to an account designated in writing by the
Company for such purpose; and

     

    (ii)          the
agreements specified in Section 5.2(d), each duly signed by such Investor
(collectively, the “Investor
Deliverables”).

    
      
         

      

      
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    ARTICLE
3.

    REPRESENTATIONS
AND WARRANTIES

     

    3.1.         Representations and
Warranties of the Company.  The
Company hereby makes the following representations and warranties to each of the
Investors and the Placement Agents as of the date hereof and the Closing
Date:

     

    (a)           Subsidiaries.  The
Company has no direct or indirect Subsidiaries other than as specified in the
SEC Reports. The Company owns, directly or indirectly, all of the shares or
comparable equity interests of each Subsidiary free and clear of any and all
Liens, and all the issued and outstanding shares of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights.

     

    (b)           Organization and
Qualification.  The Company and each Subsidiary are duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  The Company and each Subsidiary are duly qualified to
conduct its respective businesses and are in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, could not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect. To the Company’s best knowledge, no
Proceeding has been instituted in any jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail, such power and authority or
qualification.

     

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

    
      
         

      

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

     

    (e)           Filings, Consents and
Approvals.  Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any United States or PRC court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, (ii) filings required by state securities laws,
(iii) the filing of a Notice of Sale of Securities on Form D with the Commission
under Regulation D of the Securities Act, (iv) the filings required in
accordance with Section 4 hereof, (v) if, at the Closing, the Company’s
securities are listed on The NASDAQ Stock Market LLC, the filing with NASDAQ of
an applicable additional shares listing application relating to the Shares
issuable hereunder, and (vi) those that have been made or obtained prior to the
date of this Agreement.

     

    (f)           
Issuance of the
Shares.  The Shares have been duly authorized and, when issued
and paid for in accordance with the Transaction Documents, will be duly and
validly issued, fully paid and non-assessable, free and clear of all Liens and
will not be subject to preemptive or similar rights of shareholders (other than
those imposed by the Investors).  The Company has reserved from its
duly authorized share capital the Ordinary Shares issuable pursuant to this
Agreement in order to issue the Shares.

     

    (g)           Capitalization.  The
number of shares and type of all authorized, issued and outstanding shares of
the Company, all Ordinary Shares reserved for issuance under the Company’s
various option and incentive plans and all shares of the Company issuable and
reserved for issuance pursuant to securities exercisable for, or convertible
into or exchangeable for any shares of the Company, is specified in the SEC
Reports.  All of the issued and outstanding shares of the Company have
been duly authorized and validly issued and are fully paid, non-assessable.
Except as specified in the SEC Reports, no securities of the Company are
entitled to preemptive or similar rights, and no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents or
with respect to any securities of the Company.  Except as specified in
the SEC Reports, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of the
Company, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
the Company, or securities or rights convertible or exchangeable into shares of
the Company.  Except for customary adjustments as a result of stock
dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) and the
issue and sale of the Shares will not, immediately or with the passage of time,
obligate the Company to issue Ordinary Shares or other securities to any Person
(other than the Investors) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under such securities.

    
      
         

      

      
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    (h)           SEC Reports; Financial
Statements.  The Company has filed all reports required to be
filed by it under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof
(or such shorter period as the Company was required by law to file such reports)
(the foregoing materials being collectively referred to herein as the “SEC Reports” and, together
with the Schedules to this Agreement (if any), the “Disclosure Materials”) on a
timely basis or has timely filed a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made 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 comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing.  Such financial statements
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.  All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or identified in the SEC Reports,
to the extent such agreements are required
to be included or identified pursuant to the rules and regulations of the
SEC.

    
      
         

      

      
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    (i)           
Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) neither the Company nor any Subsidiary has incurred any liabilities
(direct, indirect, contingent, or otherwise) other than those incurred in the
ordinary course of business consistent with past practice, (iii) the Company has
not altered its method of accounting or the identity of its auditors, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its shareholders or purchased, redeemed or made any agreements to
purchase or redeem any of its shares, (v) neither the Company nor any Subsidiary
has waived any material right or material debt owed to it, (vi) neither the
Company nor any Subsidiary has changed or amended its certificate or articles of
incorporation, bylaws or other organizational or charter documents, or change
any material contract or arrangement by which the Company or Subsidiary is bound
or to which its assets or properties is subject, (vii) the Company has not
issued any equity securities to any officer, director or Affiliate of the
Company or any of its Subsidiaries, except pursuant to existing Company stock
option plans or stock option agreements as disclosed in the Company’s SEC
Reports, and (viii) neither the Company nor any Subsidiary has entered into any
transaction other than in the ordinary course of business. The Company does not
have pending before the Commission any request for confidential treatment of
information.  The Company has not taken
any steps to seek protection pursuant to PRC bankruptcy law nor does the Company
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead
a creditor to do so.  The Company is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
applicable Closing, will not be Insolvent (as defined below).  For purposes of this Section 3.1(i),
“Insolvent” means (i) the present fair saleable value of the
Company’s assets is less than the amount required to pay the
Company’s total Indebtedness (as defined in Section 3.1(cc)),
(ii) the Company is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) the Company intends to incur or believes that it will incur debts
that would be beyond its ability to pay as such debts mature or (iv)
the Company has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted. 

     

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

     

    (k)           Labor
Relations.  Neither the Company nor any Subsidiary is a party
to any collective bargaining agreement. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company or any Subsidiary.  To
the knowledge of the Company or any such Subsidiary, no executive officer of the
Company or any of its Subsidiaries is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any such Subsidiary to any liability with respect to any
of the foregoing matters.

    
      
         

      

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

     

    (m)          Regulatory
Permits.  The Company and the Subsidiaries possess all
certificates, approvals, authorizations and permits issued by the appropriate
United States federal, state, local, PRC national, provincial or local, and
other foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, all of which are valid and in full
force and effect, except where the failure to possess such certificates,
approvals, authorizations and permits could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Company and the Subsidiaries have performed in all material respects
all of their obligations with respect to such certificates, approvals,
authorizations and permits and no event has occurred that allows, or after
notice or lapse of time, would allow, revocation or termination thereof, and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificates, approvals,
authorizations and permits.

     

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

     

    (o)           Patents and
Trademarks.  The Company and its Subsidiaries own, or possess
adequate rights or licenses to use, all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (the “Intellectual Property Rights”)
necessary to conduct their respective businesses now
conducted.  Except as set forth in the SEC Reports, all such
Intellectual Property Rights are valid and enforceable, there is no existing
infringement by another Person of any of the Intellectual Property Rights and no
Intellectual Property Rights are involved in any cancellation, dispute or Action
and, to the knowledge of the Company and the Subsidiaries, no such Action is
threatened.  Neither the Company nor any of its Subsidiaries has
received a written or oral notice that the Intellectual Property Rights used by
any of them violates or infringes upon the rights of any
Person.

    
      
         

      

      
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    (p)           Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged.  The Company has no reason to believe that it will not be
able to renew its and the Subsidiaries’ existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business on terms consistent with market for the
Company’s and such Subsidiaries’ respective lines of business.

     

    (q)           Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.

     

    (r)           Internal Accounting
Controls.  The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.  The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s Form 20-F is being
prepared.  The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures in accordance with Item
307 of Regulation S-K under the Exchange Act for the Company’s most recently
ended fiscal quarter or fiscal year-end (such date, the “Evaluation
Date”).  The Company presented in its most recently filed Form
20-F the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.  Since the Evaluation Date, there have been no
significant changes in the Company’s internal controls (as such term is defined
in Item 308(c) of Regulation S-K under the Exchange Act) or, to the Company’s
knowledge, in other factors that could significantly affect the Company’s
internal controls. The books, records and accounts of the Company accurately and
fairly reflect the transactions in, and dispositions of, the assets of, and the
results of operations of, the Company. The Company maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with GAAP and the applicable requirements of the Exchange
Act.

    
      
         

      

      
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    (s)           Certain Fees. No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  The Investors shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by an Investor pursuant to written agreements
executed by such Investor which fees or commissions shall be the sole
responsibility of such Investor) made by or on behalf of other Persons for fees
of a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.  The Company shall pay,
and hold each Investor harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys’ fees and out-of-pocket
expenses) arising in connection with any such claim for fees arising out of the
issuance of the Securities pursuant to this Agreement.

     

    (t)           
Certain Registration
Matters. Assuming the accuracy of the Investors’ representations and
warranties set forth in Section 3.2(b)-(e), the offer and sale of the Shares by
the Company to the Investors under the Transaction Documents is exempt from the
registration requirements of the Securities Act.  The Company is
eligible to register its Ordinary Shares for resale by the Investors under Form
F-1 promulgated under the Securities Act.  Except as set forth in the
SEC Reports, the Company has not granted or agreed to grant to any Person any
rights (including “piggy-back” registration rights) to require the Company to
register any securities of the Company registered under the Securities Act that
have not been satisfied.  Neither the
Company nor any of its Affiliates nor, any Person acting on the Company’s behalf has, directly or indirectly, at any time within
the past six months, made any offer or sale of any security or solicitation of
any offer to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration
under Regulation D under the Securities Act in connection with the offer and
sale by the Company of the Securities as contemplated hereby or (ii) cause the
offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any
applicable law, regulation or shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market.

     

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

    
      
         

      

      
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    (v)           Investment
Company.  The Company is not, and is not an Affiliate of, and
after giving effect to the offer and sale of the Shares will not have become, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

     

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

     

    (x)           Tax Matters. The
Company has timely prepared and filed all tax returns required to have been
filed by the Company with all appropriate governmental agencies and timely paid
all taxes shown thereon or otherwise owed by it, except as would not have a
Material Adverse Effect.  The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company.  All taxes and other assessments and levies that the Company
is required to withhold or to collect for payment have been duly withheld and
collected and paid to the proper governmental entity or third party when
due.  There are no tax liens or claims pending or, to the Company’s
knowledge, threatened against the Company or any of its assets or property,
other than Permitted Liens.  There are no tax audits or investigations
pending, which if adversely determined would result in a Material Adverse
Effect. There are no outstanding tax sharing agreements or other such
arrangements between the Company and any other Person.  The Company
does not have any deferred compensation arrangements and has not paid or is not
required to pay any deferred compensation that would be subject to Section 409A
of the Internal Revenue Code.

     

    (y)           General Solicitation.
Neither the Company nor any Person acting on its behalf has conducted any
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) in connection with the offer or sale of
the Shares.

     

    (z)           Additional PRC
Representations and Warranties.

     

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

     

    (ii)          The
Company and the Subsidiaries have conducted their respective business activities
within their permitted scope of business or have otherwise operated their
respective businesses in compliance with all relevant legal requirements and
with all requisite licenses and approvals granted by competent PRC governmental
authorities other than such non-compliance that do not, and would not,
individually or in the aggregate, have a Material Adverse Effect.  As
to licenses, approvals and government grants and concessions requisite or
material for the conduct of any part of the Company or any Subsidiaries’
business which is subject to periodic renewal, neither the Company nor such
Subsidiary has any knowledge of any grounds on which such requisite renewals
will not be granted by the relevant PRC governmental
authorities.

    
      
         

      

      
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    (aa)         Disclosure.  Except for any information provided to an
Investor pursuant to a specific due diligence request by such Investor to
receive material nonpublic information, the Company confirms that neither it nor
any officers, directors or Affiliates, has
provided any of the Investors (other than Excluded Investors) or their agents or
counsel with any information that constitutes or might constitute material,
nonpublic information (other than the existence and terms of the issuance
of Securities, as contemplated by this Agreement).  The Company
understands and confirms that each of the Investors will rely on the foregoing
representations in effecting transactions in securities of the Company (other
than Excluded Investors).  All disclosure provided by the
Company to the Investors regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on the behalf of the Company are true and correct in
all
material respects 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 the light of the circumstances under which they were made, not
misleading.  To the Company’s knowledge,
except for the transactions contemplated by this Agreement, no event or
circumstance has occurred or information exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, operations or
financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.  The Company
acknowledges and agrees that no Investor (other than Excluded Investors) makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those set forth in the Transaction Documents.

     

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

    
      
         

      

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

     

    (dd)        PRC Environmental
Laws.  Except as set forth on Schedule III hereto, the
Company and its Subsidiaries (i) are in compliance in all material respects with
any and all PRC Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals
required of them under applicable PRC
Environmental Laws to conduct their
respective businesses and (iii) are in compliance in all material respects with
all terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and
(iii), the failure to so comply would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.  The term
“PRC Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.

     

    3.2.         Representations and
Warranties of the Investors.  Each
Investor hereby, severally and not jointly, represents and warrants to the
Company as of the date hereof and the Closing Date:

    
      
         

      

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

     

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

     

    (c)           Investor
Status.  At the time such Investor was offered the Shares, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule
501(a) under the Securities Act.  Such Investor is not a registered
broker-dealer under Section 15 of the Exchange Act.  Such Investor has
such experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Shares.  Such
Investor acknowledges that an investment in the Shares is speculative and
involves a high degree of risk.  Such Investor has completed and
executed the U.S. Accredited Investor Certificate attached as Schedule II to this
Agreement.

     

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

     

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

    
      
         

      

      
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    (f)           
Independent Investment
Decision.  Such Investor has independently evaluated the merits
of its decision to purchase Shares pursuant to the Transaction Documents, and
such Investor confirms that it has not relied on the advice of any other
Investor’s business and/or legal counsel in making such decision.

     

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

     

    (h)           Completion of
Transaction.  Each of the Investors hereby confirms and
acknowledges that: (i) such Investor is irrevocably bound under this
Agreement to purchase the Shares at the Purchase Price; (ii) at the time of
the Closing, such Investor shall have fully completed its investment
decision in respect of the purchase of the Shares and transactions
contemplated by this Agreement; (iii) other than the items set forth
in Section 2.3(b), no conditions, facts or circumstances exist or are within
such Investor’s control which such Investor can cause not to be
satisfied with respect to such Investor's
purchase of Shares or which prevent such
Investor's investment decision or this transaction from being complete; and
(iv) such Investor expects to be fully subject to market risk in
respect of such Investor's purchase of the Shares from and after the
Closing, including on the date when the Registration Statement is filed and
becomes effective.

     

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

     

    ARTICLE
4.

    OTHER
COVENANTS AND AGREEMENTS

     

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

    
      
         

      

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

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THESE SECURITIES MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH
SECURITIES.

     

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

     

    (c)           Certificates
evidencing Shares shall not contain any legend (including the legend set forth
in Section 4.1(b)): (i) while a registration statement (including the
Registration Statement) covering such Shares is then effective, or (ii)
following a sale or transfer of such Shares pursuant to Rule 144 (assuming the
transferee is not an Affiliate of the Company), or (iii) while such Shares are
eligible for sale by the selling Investor without volume restrictions under Rule
144.  The Company agrees that following the Effective Date or such
other time as legends are no longer required to be set forth on certificates
representing Shares under this Section 4.1(c), it will, no longer than three
Trading Days following the delivery by an Investor to the Company or the
Transfer Agent of a certificate representing such Shares containing a
restrictive legend, deliver or instruct the Transfer Agent to deliver to such
investor Shares which are free of all restrictive and other
legends.

    
      
         

      

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

     

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

     

    4.4.         Securities Laws Disclosure;
Publicity.  By
9:30 a.m. (New York City time) on the Trading Day following the execution of
this Agreement, and by 9:30 a.m. (New York City time) on the Trading Day
following the Closing Date, the Company shall issue press releases disclosing
the transactions contemplated hereby and the Closing.  On the Trading
Day following the execution of this Agreement the Company will file a Report on
Form 6-K disclosing the material terms of the Transaction Documents (and attach
as exhibits thereto the Transaction Documents), and on the Trading Day following
the Closing Date the Company will file an additional Report on Form 6-K to
disclose the Closing.  In addition, the Company will make such other
filings and notices and comply with any other obligations in the manner and time
required by the Commission and the Trading Market on which the Ordinary Shares
are listed.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor, or include the name of any Investor
in any filing with the Commission (other than a Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or Trading Market
regulations.

     

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

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    4.6.         Non-Public
Information.  The
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Investor or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Investor shall have executed a written agreement regarding
the confidentiality and use of such information.  The Company
understands and confirms that each Investor shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.

     

    4.7.         Listing of
Shares.  The
Company agrees that (i) to the extent not already included, it will include the
Shares in its application to list the Ordinary Shares for trading on The NASDAQ
Stock Market LLC, and will take such other action as is necessary or desirable
to cause the Shares to be listed on The NASDAQ Stock Market LLC as promptly as
possible, and (ii) it will take all action reasonably necessary to continue the
listing and trading of its Ordinary Shares on a Trading Market and will comply
in all material respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of all applicable Trading
Markets.

     

    4.8.         Use of
Proceeds.  The
Company will use the net proceeds from the sale of the Shares hereunder for
working capital purposes and not for the satisfaction of any portion of the
Company’s debt (other than payment of trade payables and accrued expenses in the
ordinary course of the Company’s business and consistent with prior practices),
or to redeem any Ordinary Shares or any securities of the Company or any
Subsidiary which entitle the holder thereof to acquire Ordinary Shares at any
time, including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary
Shares or other securities that entitle the holder to receive, directly or
indirectly, Ordinary Shares.

     

    4.9.         Form D. The Company
will file a Form D with the Commission within 15 days of the Closing Date with
respect to the Shares as required under Regulation D under the Securities Act,
and will provide a copy thereof to the Investors.

     

    4.10.       No Conflicting
Agreements.  The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.

     

    4.11.       Anti-Dilution
Adjustments.

     

    (a)           In the event that prior to the
Outside Anti-Dilution Date the Company
shall complete one or more Subsequent Placements (as defined below) at an effective price per share
less than the Purchase Price (such lower price, the “Anti-Dilution Adjustment” and such
issuances collectively, a “Dilutive Issuance”), as adjusted
hereunder (if the holder of the equity securities so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which is issued in connection with such issuance, be entitled to
receive Ordinary Shares at an effective
price per share which is less than the Purchase Price, such issuance shall be
deemed to have occurred for less than the Purchase Price on such date of the
Dilutive Issuance), then the Purchase Price shall be deemed to be equal to the Anti-Dilution Adjustment and the Company shall issue to Investor without receipt
of additional consideration from Investor an additional number of Ordinary Shares equal to (i) such number of shares determined by
dividing the aggregate Purchase Price paid
by Investor by the Anti-Dilution
Adjustment, less (ii) the number of Shares
previously issued to Investor.  Notwithstanding the foregoing, no
adjustments shall be made, paid or issued under this Section 4.11 in respect of
Exempt Issuances (as defined
below).  

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    (b)           Notwithstanding anything to the contrary in Section
4.11(a), if the Company has not obtained
Shareholder Approval (as defined below), then the Company may not
issue as a result of the adjustment of the Purchase Price in connection with a
Dilutive Issuance a number of Ordinary
Shares, which, when aggregated with any
Ordinary Shares issued in
the Offering pursuant to the Securities
Purchase Agreement, would exceed 19.99% of
the number of Ordinary Shares outstanding on the Trading Day immediately preceding
the Closing Date (such number of shares, the “Issuable Maximum”).  If
on any adjustment of the Purchase Price in
connection with a Dilutive Issuance, the number of Ordinary Shares
issuable to Investor would exceed the Issuable Maximum and the Company shall not
have previously obtained the vote of shareholders to
approve the issuance of Ordinary Shares in
excess of the Issuable Maximum (the “Shareholder Approval”), then the
Company shall issue to Investor such number of Ordinary Shares
equal to such Investor’s proportion of the Issuable Maximum and, with respect
to the remainder of the aggregate number of
Ordinary Shares issuable upon the adjustment of the Purchase Price in
connection with a Dilutive Issuance, the Company shall not be obligated to issue such remaining Ordinary
Shares.    

     

    (c)           “Exempt
Issuance” means (i) any equity
securities issued or issuable pursuant to
options, warrants or other rights issued or issuable to employees, officers or
directors of, or consultants or advisors to the Company or any subsidiary,
pursuant to equity incentive plans or other employee benefit arrangements; (ii)
any equity securities issued or issuable pursuant to any rights or agreements,
options, warrants or convertible securities outstanding as of the Closing Date;
(iii) any equity securities issued or issuable for consideration other than
cash
pursuant to a merger, consolidation, acquisition or similar business
combination; (iv) any equity securities issued or issuable in connection with
any stock split, stock dividend or recapitalization by the Company; or (v) any
equity securities issued or issuable pursuant to any equipment loan or leasing
arrangement, real property leasing arrangement, or debt financing from a bank or
similar financial or lending institution.  Any direct or indirect
offer, sell, grant of any option to purchase, or other disposal of any of its
equity securities is a “Subsequent
Placement.”

     

    ARTICLE
5.

    CONDITIONS
PRECEDENT TO CLOSING

     

    5.1.         Conditions Precedent to the
Obligations of the Investors to Purchase Shares.  The
obligation of each Investor to acquire Shares at the Closing is subject to the
satisfaction, at or before the Closing, of each of the following conditions, any
of which may be waived by such Investor (as to itself only):

     

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

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

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

     

    (c)           No
Injunction.  No judgment, writ, order, injunction, award or
decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any statute, rule, regulation, order of or by any
governmental authority, shall have been enacted, promulgated or issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated by the
Transaction Documents;

     

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

     

    (e)           No Suspensions of Trading in
Ordinary Shares; Listing.  Trading in the Ordinary Shares shall
not have been suspended by the Commission, any Trading Market or any
governmental or regulatory body (except for any suspensions of trading of not
more than one Trading Day solely to permit dissemination of material information
regarding the Company) at any time since the date of execution of this
Agreement, the Ordinary Shares shall have been at all times since such date
listed for trading on a Trading Market, and the Company shall not have received
notice of any delisting or removal from trading on any Trading Market or that it
is in violation of any rule, regulation or interpretation of any Trading Market
that could lead to delisting or removal from trading;

     

    (f)           Agreements.  The
Company shall have delivered the Registration Rights Agreement, duly executed by
the Company;

     

    (g)           Company
Deliverables.  The Company shall have delivered the Company
Deliverables in accordance with Section 2.3(a);

     

    (h)           Permits.  The
Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Shares and the consummation of the other transactions
contemplated by the Transaction Documents to be consummated on or prior to the
Closing Date, all of which shall be in full force and effect;

     

    (i)           Minimum Aggregate Purchase
Price.  The aggregate Purchase Price for all Investors shall be
at least $17,000,000 USD.

     

    (j)           Termination.  This
Agreement shall not have been terminated as to such Investor in accordance with
Section 6.6.

     

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

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

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

     

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

     

    (c)           No
Injunction.  No judgment, writ, order, injunction, award or
decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any statute, rule, regulation, order of or by any
governmental authority, shall have been enacted, promulgated or issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated by the
Transaction Documents;

     

    (d)           Investor
Deliverables.  Each Investor shall have delivered its Purchase
Price in accordance with Section 2.3(b) and the Registration Rights Agreement,
duly executed by such Investor.  Each Investor shall have delivered a
duly completed certificate in the form attached as Schedule II;
and

     

    (e)           Termination.  This
Agreement shall not have been terminated as to such Investor in accordance with
Section 6.6.

     

    ARTICLE
6.

    MISCELLANEOUS

     

    6.1.         Post-Closing
Deliverable.  Within ten (10) Business Days after the filing of
the Registration Statement, the Company shall deliver to the Transfer Agent the
Transfer Agent Instructions.

     

    6.2.         Fees and
Expenses.  Each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of the
Transaction Documents; provided, however, that the Company
shall, at Closing, reimburse the reasonable attorneys’ fees (in an amount not to
exceed $30,000) of DLA Piper LLP, counsel to Zivar Investments
Ltd.  The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of the Shares.

     

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

    
      
         

      

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

     

    
      	
               
      

            	
              If
      to the Company:

            	
              China
      Gerui Advanced Materials Group
Limited

            

    

    
      	
               
      

            	
              No.
      69 Huaibei Street

            

    

    
      	
               
      

            	
              Longhai
      Middle Road

            

    

    
      	
               
      

            	
              Zhengzhou
      451191, China

            

    

    
      	
               
      

            	
              Attn:
      Edward Meng, Chief Financial
Officer

            

    

    

    
      	
               
      

            	
              With
      a copy to:

            	
              Pillsbury
      Winthrop Shaw Pittman LLP

            

    

    
      	
               
      

            	
              2300
      N Street, NW

            

    

    
      	
               
      

            	
              Washington,
      D.C. 20037

            

    

    
      	
               
      

            	
              Facsimile:
      (202) 663-8007

            

    

    
      	
               
      

            	
              Attn.:
      Joseph R. Tiano, Jr., Esq.

            

    

    

    
      	
               
      

            	
              If
      to an Investor:

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

            

    

     

    
      	
               
      

            	
              With
      a copy to:

            	
              DLA
      Piper LLP (US)

            

    

    
      	
               
      

            	
              4365
      Executive Drive, Suite 1100

            

    

    
      	
               
      

            	
              San
      Diego, California 92121-2133

            

    

    
      	
               
      

            	
              Attn:
      Martin Nichols, Esq.

            

    

     

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

     

    6.5.    
    Amendments; Waivers; No
Additional Consideration.  No
provision of this Agreement may be waived or amended except in a written
instrument signed by the Company and the Investors holding a majority of the
Shares purchased hereunder. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.  No consideration shall be
offered or paid to any Investor to amend or consent to a waiver or modification
of any provision of any Transaction Document unless the same consideration is
also offered to all Investors who then hold Shares.

     

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

     

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

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    (b)           by
the Company if any of the conditions set forth in Section 5.2 shall have become
incapable of fulfillment, and shall not have been waived by the
Company;

     

    (c)           by
an Investor (with respect to itself only) if any of the conditions set forth in
Section 5.1 shall have become incapable of fulfillment, and shall not have been
waived by such Investor; or

     

    (d)           by
either the Company or an Investor (with respect to itself only) upon written
notice to the other parties, if the Closing shall not have taken place by 6:30
p.m. Eastern time on the Outside Date;

     

    provided, however, that, except
in the case of clause (a) above, the right to terminate this Agreement under
this Section 6.6(b) shall not be available to any Person whose failure to
comply with its obligations under this Agreement has been the cause of or
resulted in the failure of the Closing to occur on or before such
time.

     

    In the event of a termination pursuant
to this Section, the Company shall promptly notify all non-terminating
Investors. Upon a termination in accordance with this Section 6.6, the Company
and the terminating Investor(s) shall not have any further obligation or
liability (including as arising from such termination) to the other and no
Investor will have any liability to any other Investor under the Transaction
Documents as a result therefrom.

     

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

     

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

     

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

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

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

     

    EACH
PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION
DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR
THEREOF.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS.  THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF
THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY
EXCEPTIONS.  EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS
THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH
PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.  THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER WILL
APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO (OR
ASSIGNMENTS OF) THIS AGREEMENT.  IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE
COURT.

     

    6.11.       Survival.  The
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Shares, until the second anniversary
of the date hereof.

     

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

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

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

     

    6.19.       Further
Assurances.  The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

     

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

     

    
      
        
          
            
              
                	 
      	
                        CHINA
      GERUI ADVANCED MATERIALS

                        GROUP
      LIMITED

                      
	 	 
	 
      	
                        By:

                      	 
      
	 
      	
                        Name:

                      	 
      
	 
      	
                        Title:

                      	 
      

              

            

          

        

      

    

     

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OF PAGE INTENTIONALLY LEFT BLANK

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PAGES FOR INVESTORS FOLLOW]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    
                                                                                      
                                                                                        
                                                                                          
                                                                                            
                                                                                              
                                                                                                
                                                                                                  
                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                          
                                                                                                            
                                                                                                              
                                                                                                                
                                                                                                                  
                                                                                                                    
                                                                                                                      
                                                                                                                        
                                                                                                                          
                                                                                                                            
                                                                                                                              	 
      	
                                                                                                                                      INVESTORS:

                                                                                                                                    
	 
      	 
      
	 
      	
                                                                                                                                      [NAME
      OF INVESTOR]

                                                                                                                                    
	 
      	 
      
	 
      	
                                                                                                                                      By:

                                                                                                                                    	 	 	 
      
	 
      	
                                                                                                                                      Name:

                                                                                                                                    	 	 	 
      
	 
      	
                                                                                                                                      Title:

                                                                                                                                    	 	  	 
      
	 
      	 
      
	 
      	
                                                                                                                                      Purchase
      Price:

                                                                                                                                    	 
      
	 
      	 
      
	 
      	
                                                                                                                                      Number
      of Shares:

                                                                                                                                    	 
      
	 
      	 
      
	 
      	
                                                                                                                                      Tax
      ID No.:

                                                                                                                                    	 	 
      
	 
      	 
      
	 
      	
                                                                                                                                      ADDRESS
      FOR NOTICE

                                                                                                                                    
	 
      	 
      
	 
      	
                                                                                                                                      Address:

                                                                                                                                    	 	 	 
      
	 
      	 	 	 
      	 
      
	 
      	 
      
	 
      	
                                                                                                                                      Attention:

                                                                                                                                    	 	 
      
	 
      	 
      	 
      
	 
      	
                                                                                                                                      Tel:

                                                                                                                                    	 	 	 
      
	 
      	 
      	 
      
	 
      	
                                                                                                                                      Fax:

                                                                                                                                    	 	 	 
      
	 
      	 
      
	 
      	
                                                                                                                                      DELIVERY
      INSTRUCTIONS

                                                                                                                                    
	 
      	
                                                                                                                                      (if
      different from above)

                                                                                                                                    
	 
      	 
      	 
      
	 
      	c/o:	 	 	 
      
	 
      	 
      	 
      
	 
      	Street:	 	 	 
      
	 
      	 
      	 
      
	 
      	
                                                                                                                                      City/State/Zip:

                                                                                                                                    	 
      
	 
      	 
      	 
      
	 
      	Attention:	 	 
      
	 
      	 
      	 
      
	 
      	
                                                                                                                                      Tel:

                                                                                                                                    	 	 	 
      

                                                                                                                            

                                                                                                                          

                                                                                                                        

                                                                                                                      

                                                                                                                    

                                                                                                                  

                                                                                                                

                                                                                                              

                                                                                                            

                                                                                                          

                                                                                                        

                                                                                                      

                                                                                                    

                                                                                                  

                                                                                                

                                                                                              

                                                                                            

                                                                                          

                                                                                        

                                                                                      

                                                                                    

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      
        
          	 
      	
                  [NAME
      OF INVESTOR]

                
	 
      	 
      
	 
      	
                  By:

                	 	 	 
      
	 
      	
                  Name:

                	 	 	 
      
	 
      	
                  Title:

                	 	  	 
      
	 
      	 
      
	 
      	
                  Purchase
      Price:

                	 
      
	 
      	 
      
	 
      	
                  Number
      of Shares:

                	 
      
	 
      	 
      
	 
      	
                  Tax
      ID No.:

                	 	 
      
	 
      	 
      
	 
      	
                  ADDRESS
      FOR NOTICE

                
	 
      	 
      
	 
      	
                  Address:

                	 	 	 
      
	 
      	 	 	 
      	 
      
	 
      	 
      
	 
      	
                  Attention:

                	 	 
      
	 
      	 
      	 
      
	 
      	
                  Tel:

                	 	 	 
      
	 
      	 
      	 
      
	 
      	
                  Fax:

                	 	 	 
      
	 
      	 
      
	 
      	
                  DELIVERY
      INSTRUCTIONS

                
	 
      	
                  (if
      different from above)

                
	 
      	 
      	 
      
	 
      	c/o:	 	 	 
      
	 
      	 
      	 
      
	 
      	Street:	 	 	 
      
	 
      	 
      	 
      
	 
      	
                  City/State/Zip:

                	 
      
	 
      	 
      	 
      
	 
      	Attention:	 	 
      
	 
      	 
      	 
      
	 
      	
                  Tel:

                	 	 	 
      

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      
        
          	 
      	
                  [NAME
      OF INVESTOR]

                
	 
      	 
      
	 
      	
                  By:

                	 	 	 
      
	 
      	
                  Name:

                	 	 	 
      
	 
      	
                  Title:

                	 	  	 
      
	 
      	 
      
	 
      	
                  Purchase
      Price:

                	 
      
	 
      	 
      
	 
      	
                  Number
      of Shares:

                	 
      
	 
      	 
      
	 
      	
                  Tax
      ID No.:

                	 	 
      
	 
      	 
      
	 
      	
                  ADDRESS
      FOR NOTICE

                
	 
      	 
      
	 
      	
                  Address:

                	 	 	 
      
	 
      	 	 	 
      	 
      
	 
      	 
      
	 
      	
                  Attention:

                	 	 
      
	 
      	 
      	 
      
	 
      	
                  Tel:

                	 	 	 
      
	 
      	 
      	 
      
	 
      	
                  Fax:

                	 	 	 
      
	 
      	 
      
	 
      	
                  DELIVERY
      INSTRUCTIONS

                
	 
      	
                  (if
      different from above)

                
	 
      	 
      	 
      
	 
      	c/o:	 	 	 
      
	 
      	 
      	 
      
	 
      	Street:	 	 	 
      
	 
      	 
      	 
      
	 
      	
                  City/State/Zip:

                	 
      
	 
      	 
      	 
      
	 
      	Attention:	 	 
      
	 
      	 
      	 
      
	 
      	
                  Tel:

                	 	 	 
      

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
A

     

    Registration Rights
Agreement

     

    (See
attached.)

     

    Exhibit A

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
B

     

    Transfer Agent
Instructions

     

    (See
attached.)

     

    Exhibit B

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
C

     

    Legal Opinion of US
Counsel

     

    (See
attached.)

     

    Exhibit C

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
D

     

    Legal Opinion of BVI
Counsel

     

    (See
attached.)

     

    Exhibit D

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
E

     

    Legal Opinion of PRC
Counsel

     

    (See
attached.)

     

    Exhibit EExecution
Copy

    

    BRIDGE
NOTE AND WARRANT PURCHASE AGREEMENT

     

    THIS BRIDGE NOTE AND WARRANT PURCHASE
AGREEMENT (this “Agreement”) is made
as of June 3, 2010 by and between CNS Response, Inc., a Delaware corporation
(the “Company”), and
Mr. John Pappajohn (the “Investor”).

     

    Agreement

     

    In consideration for the mutual
promises and covenants herein, the parties agree as follows:

     

    Section
1 – Purchase and Sale of Notes and Warrant

    

    1.1         Agreement to Purchase and
Sell Notes and Warrant.

    

    a)           Purchase and
Sale.  Subject to the terms and conditions of this Agreement,
the Investor agrees to purchase, and the Company agrees to sell and issue to the
Investor, two Secured Promissory Notes in the aggregate principal amount of
$500,000, with each in the individual principal amount of $250,000, each
substantially in the form attached hereto as Exhibit
A (the “Note(s)”), at the
closing and second closing (the “Closing” and the
“Second
Closing”,
respectively).  In addition, in order to induce the Investor to
purchase the Notes, the Company shall issue to the Investor at the Second
Closing a warrant in the form attached hereto as Exhibit
B (the “Warrant”)
that will permit the Investor to purchase up to 250,000 shares of common stock
of the Company (“Common
Stock”) at a purchase price equal to the fair market value per share at
the time of the issuance of such Warrant, it being understood and agreed by the
parties that the Company’s obligation to issue the Warrant is subject to and
conditioned upon the occurrence of the Second Closing.

    

    b)           Repayment of
Notes.  All unpaid principal, together with the accrued
interest and other amounts payable under the Notes purchased and sold under this
Agreement shall be due and payable, on the earliest of (i) the maturity
date of December 2, 2010, (ii) upon prepayment of the Notes in accordance with
the terms of the Notes, (iii) the closing of a financing in which the aggregate
proceeds to the Company are not less than $3,000,000 (which, for the purposes of
clarity, shall include a financing transaction that involves multiple closings),
or (iv) when, upon or after the occurrence of an Event of Default (as
defined in the Notes).

    

    c)           Securities.  The
Notes and Warrant issued pursuant to this Agreement, and any securities issuable
upon exercise of such Warrant, are referred to herein as the “Securities.”

    

    1.2         Closing.

     

    a)           The
Closing shall take place at the offices of the Company at 10:00 a.m., California
time, on the date hereof, or at such other location, date and time as may be
agreed upon by the Investor and the Company (the “Closing
Date”).  At
the Closing, the Company shall issue and deliver to the Investor the Note, in
the principal amount of $250,000, which shall be acknowledged and agreed to by
the Investor.  As payment in full for such Note, the Investor shall
deliver to the Company a check payable to the order of the Company in the amount
of $250,000, or transfer such sum to the account of the Company by wire
transfer.  The obligation of the Investor to purchase and pay for the
Note at the Closing is, unless waived by the Investor, subject to the condition
that the Company’s representations and warranties contained in Section 2 are
true, complete and correct on and as of the Closing Date.  The
obligation of the Company to sell and issue the Note at the Closing is, unless
waived by the Company, subject to the condition that the Investor’s
representations and warranties contained in Section 3 are true, complete and
correct on and as of the Closing Date.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.3         Second
Closing.

     

    b)           The
Second Closing shall take place at the offices of the Company at 10:00 a.m.,
California time, on the date mutually agreed to by the Investor and Company, or
at such other location, date and time as may be agreed upon by the Investor and
the Company (the “Second
Closing Date”).  At
the Second Closing, the Company shall issue and deliver to the Investor the
Note, in the principal amount of $250,000, and Warrant described in Section
1.1(a), both of which shall be acknowledged and agreed to by the
Investor.  As payment in full for such Note, the Investor shall
deliver to the Company a check payable to the order of the Company in the amount
of $250,000, or transfer such sum to the account of the Company by wire
transfer.  As payment in full for such Warrant, the Investor shall
deliver to the Company a check payable to the order of the Company in the amount
of $20, or transfer such sum to the account of the Company by wire transfer,
which the parties agree is the fair market value of the Warrant being so
issued.  The obligation of the Investor to purchase and pay for the
Note and Warrant at the Second Closing is, unless waived by the Investor,
subject to the condition that the Company’s representations and warranties
contained in Section 2 are true, complete and correct on and as of the Second
Closing Date.  The obligation of the Company to sell and issue the
Note and Warrant at the Second Closing is, unless waived by the Company, subject
to the condition that the Investor’s representations and warranties contained in
Section 3 are true, complete and correct on and as of the Second Closing
Date.

     

    Section
2 - Representations and Warranties

    of
the Company

     

    The
Company represents and warrants to the Investor as follows:

     

    2.1          Existence of
Company.  The Company is a duly organized Delaware
corporation.  The Company is validly existing in all jurisdictions
where it conducts its business.

     

    2.2          Authority to
Execute.  The execution, delivery and performance by the
Company of (i) this Agreement, (ii) the  Notes and the Warrant to be
issued pursuant to the terms of this Agreement, and (iii) any financing
statements thereunder (collectively, the “Loan
Documents”) are
within the Company’s corporate powers, have been duly authorized by all
necessary corporate action, do not and will not conflict with any provision of
law or organizational document of the Company (including its Certificate of
Incorporation or Bylaws) or of any agreement or contractual restrictions binding
upon or affecting the Company or any of its property and need no further
stockholder or creditor consent.

     

    2.3          No Stockholder Approval
Required.  No approval of the Company’s stockholders is
required for (i) the entry by the Company into this Agreement, (ii) the issuance
of the Notes and Warrant contemplated by this Agreement, (iii) the granting of
the security interest under the terms of such Note or (iv) the issuance of any
shares of stock upon exercise of such Warrant.

     

    2.4          Valid
Issuance.  The shares of stock to be issued upon exercise of
the Warrant contemplated by this Agreement will be, upon payment of the exercise
price therefor in accordance with the terms of such Warrant, validly issued,
fully paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under the Loan Documents, the documents entered into by
the investors and other parties in the financing giving rise to repayment of the
Notes, applicable state and federal securities laws and liens or encumbrances
created by or imposed by the Investor.  Assuming the accuracy of the
representations of the Investor in Section 3 of this Agreement, such Notes and
Warrant and the shares of stock to be issued upon exercise of such Warrant will
be issued in compliance with all applicable federal and state securities
laws.  The issuance of such Notes, Warrant and shares will not trigger
any anti-dilution protections.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    2.5          Binding
Obligation.  This Agreement is, and the other Loan Documents
when delivered hereunder will be, legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors’
rights generally and to general equitable principles.

     

    2.6          Litigation.  Other
than the litigation disclosed in the Company’s most recent SEC Reports, no
litigation or governmental proceeding is pending or threatened against the
Company which may have a materially adverse effect on the financial
condition,  operations or prospects of the Company, and to the
knowledge of the Company, no basis therefore exists.

     

    2.7          Intellectual
Property.  To the best of the Company’s knowledge, the Company
owns or possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted and
as presently proposed to be conducted, without any known infringement of the
rights of others.  There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase of “off the shelf” or standard products.

     

    2.8          SEC
Reports.      The Company has timely filed
all forms, reports, schedules, proxy statements, registration statements and
other documents (including all exhibits thereto) required to be filed by it with
the Securities and Exchange Commission (the “SEC”)
pursuant to the federal securities laws and the SEC rules and regulations
thereunder, together with all certifications required pursuant to the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”) (as they have been amended since the time of their filing,
including all exhibits thereto, the “SEC
Reports”).  Each of the SEC Reports complied in all material
respects with the applicable requirements of the Securities Act of 1933, as
amended (the "Securities
Act") and the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Sarbanes-Oxley Act and the rules and regulations of the SEC
under all of the foregoing. None of the SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

     

    Section
3 - Representations and Warranties

    of
the Investor

     

    The
Investor represents and warrants to the Company as follows:

     

    3.1         Authorization; Binding
Obligations.  The Investor has full power and authority to
enter into this Agreement and each of the other Loan Documents to which he is a
party, and this Agreement and each other Loan Document constitutes a valid and
legally binding obligation of the Investor, enforceable against the Investor in
accordance with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
creditors’ rights generally and to general equitable
principles.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    3.2         Accredited
Investor.  The Investor is an “accredited investor” within the
meaning of SEC Rule 501 of Regulation D promulgated under the Securities
Act.

     

    3.3         Investment for Own
Account.  The Notes and Warrant issued pursuant to this
Agreement and the shares of stock to be issued upon exercise of such Warrant are
being acquired for his own account, for investment and not with a view to, or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act.

     

    Section
4 - Covenants of the Company

     

    4.1         Registration Rights
Agreement.  Notwithstanding any provision in the Loan Documents
to the contrary, the Company agrees that all securities issued upon exercise of
the Warrant contemplated by this Agreement will be subject to a Registration
Rights Agreement between the Company and Investor.  In the event that
the terms of such Notes and Warrant do not provide for such a Registration
Rights Agreement, the Company agrees to work with Investor in good faith to
prepare and execute such a Registration Rights Agreement on terms reasonably
satisfactory to Investor at the time such Warrant is exercised.

     

    4.2         Restrictive
Covenants.  Without the consent of Investor, the Company shall
not:

     

    a)           effect
a merger, reorganization, or sell, exclusively license or lease, or otherwise
dispose of any assets of the Company with a value in excess of $20,000, other
than in the ordinary course of business;

     

    b)           borrow,
guaranty or otherwise incur indebtedness in excess of $100,000;

     

    c)           acquire
all or substantially all of the properties, assets or stock of any other
corporation or entity or assets with a value greater than $50,000;
or

     

    d)           form,
contribute capital or assets to, or make a loan or advance in excess of $50,000
to (i) any partially-owned or wholly-owned subsidiary formed or acquired after
the date of this Agreement, (ii) a joint venture or (iii) a similar business
entity;

     

    provided, however, that the rights of
the Investor under this Section 4.2 shall not apply (1) after the repayment in
full of the Notes or (2) in connection with a transaction that provides for the
repayment in full of the Notes upon the closing of such
transaction.

     

    Section
5 - Security Agreement

     

    5.1      Grant of Security
Interest.

     

    a)            The
Company, in consideration of the indebtedness evidenced by the Notes, hereby
grants and conveys to the Investor a security interest in and to all of the
Company’s existing and future right, title and interest in, to and under the
Collateral as defined in Section 5.2 below.

     

    b)            The
Investor and Company agree that the indebtedness evidenced by the Notes is and
shall be senior in right of payment to all presently existing and hereafter
arising indebtedness for borrowed money of the Company, and any other
indebtedness of the Company.  The Investor and Company further agree
that all liens and security interests at any time granted by the Company to
secure the Notes, including the Collateral, are and shall be senior to all
other, including hereafter arising, liens and security interests in the assets
of the Collateral which secure any and all other indebtedness.  The
Company has taken, and will take, all actions necessary to make the statements
in this Section 5.1(b) true.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    5.2      Property.  The
property subject to the security interest (the “Collateral”) is as
follows:

     

    a)            Equipment and
Fixtures.  All equipment of every type and description owned by
the Company, including (without limitation) all present and future machinery,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies and other goods (except
inventory) used or bought for use by the Company for any business or enterprise
and including all goods that are or may be attached or affixed to or otherwise
become fixtures upon any real property.

     

    b)            Accounts Receivable and Other
Intangibles.  All of the Company’s accounts, chattel paper,
contract rights, commissions, warehouse receipts, bills of lading, delivery
orders, drafts, acceptances, notes, securities and other instruments; documents;
general intangibles, patents and trademarks, applications for patents and
trademarks including, but  not limited to, the patent application
entitled “Method for Classifying and Treating Physiologic Brain Imbalances Using
Quantitative EEG,” know-how, proprietary information, all software source and
object code whether created or licensed by the Company, all data that comprises
the QEEG patient database, all forms of receivables, and all guaranties and
securities therefore.

     

    c)            Inventory and Other Tangible
Personal Property.  All of the Company’s inventory, including
all goods, merchandise, materials, raw materials, work in progress, finished
goods, now owned or hereinafter acquired and held for sale or lease or furnished
or to be furnished under contracts or service agreements or to be used or
consumed in the Company’s business and all other tangible personal property of
the Company.

     

    d)            After-Acquired
Property.  All property of the types described in Sections
5.2(a)-(c), or similar thereto, that at any time hereafter may be acquired by
Company including, but not limited to, all accessions, parts, additions and
replacements.

     

    e)            Products and
Proceeds.  All products and proceeds of the Collateral from the
sale or other disposition of any of the Collateral described or referred to in
Sections 5.2(a)-(d), including (without limitation) all accounts, instruments,
chattel paper or other rights to payment, money, insurance proceeds and all
refunds of insurance premiums due or to become due under all insurance policies
covering the forgoing property.

     

    Notwithstanding the foregoing, the
security interest granted herein shall not extend to and the term “Collateral”
shall not include any contract right or licenses to the extent that any such
contract or license prohibits the granting of a security interest therein, and
the granting of a security interest in such contract or license would cause the
Company to be in breach thereof or otherwise lose its rights
thereunder.

     

    5.3          Removal of Collateral
Prohibited.  The Company shall not permanently remove the
Collateral from its premises without the written consent of the Investor, except
that the Company may dispose of Collateral in the ordinary course of
business.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    5.4          Protection of Security
Interest.  If an Event of Default has occurred under the Notes
and is continuing, or if any action or proceeding is commenced which materially
adversely affects the Collateral or title under the Notes or the senior right of
payment or other interest of the Investor, then the Investor may make such
appearance, disburse such sums and take such action as he deems necessary to
protect his interest, including but not limited to: (a) disbursement of
reasonable attorney’s fees; (b) entry upon the Company’s property to make
repairs to the Collateral; and (c) procurement of satisfactory insurance that is
reasonable under the circumstances; provided, however, the Investor may
undertake the foregoing only if he has first provided written notice of the
Event of Default to the Company, and the Company has failed to cure such Event
of Default within ten (10) days of receipt of such notice.  Any
amounts disbursed by the Investor pursuant to this Section 5.4, with interest
thereon, shall become additional indebtedness of the Company secured by this
Section 5.  Unless the Company and the Investor agree to other terms
of payment, such amounts shall be immediately due and payable, and if the
Investor notifies the Company within five (5) days of such disbursement, all
such amounts shall bear interest from the date which is ten (10) days following
the date of disbursement at the rate stated in the Notes.

     

    5.5          Forbearance by Investor Not
a Waiver.  Any forbearance by the Investor in exercising any
right or remedy hereunder, or otherwise afforded by applicable law, shall not be
a waiver of or preclude the exercise of, any right or remedy.  The
acceptance by the Investor of payment of any sum secured by the Notes after the
due date of such payment shall not be a waiver of the right of the Investor to
either require prompt payment when due of all other sums so secured or to
declare a default for failure to make prompt payment.  No action taken
by the Investor shall waive the right of the Investor to accelerate the
indebtedness secured by this Section 5 and seek such other remedies as are
provided by the Notes and/or applicable law.

     

    5.6          Uniform Commercial Code
Security Agreement.  This Section 5 is intended to be a
security agreement pursuant to the Uniform Commercial Code (the “UCC”)
for any of the items specified in the Notes as part of the Collateral which,
under applicable law, may be subject to a security interest pursuant to the UCC,
and the Company hereby grants the Investor a security interest in said
items.  The Company agrees that any previously filed document in any
jurisdiction intended to perfect a previously granted security interest, also
perfects the security interest granted herein, and that the Investor may file
any appropriate document in the appropriate jurisdiction as a financing
statement for any of the Collateral, if deemed necessary by
Investor.  In addition, the Company agrees to execute and deliver to
the Investor, upon his request, any financing statements, as well as extensions,
renewals and amendments thereof, and reproductions of the Notes in such form as
the Investor may require to perfect a security interest with respect to the
Collateral.  The Company shall pay all costs of filing such financing
statements and any extensions, renewal, amendments and releases thereof, and
shall pay all reasonable costs and expenses of any record searches for financing
statements the Investor may reasonably require.  Upon the occurrence
and during the continuance of an Event of Default under the Notes, the Investor
shall have the remedies of a secured party under the UCC and may exercise all
rights and remedies available under the UCC and the Notes.

     

    5.7         
Rights of
Investor.

     

    a)            Upon
the occurrence of an Event of Default under the Notes, the Investor may require
the Company to assemble the Collateral and make it available to the Investor at
the place to be designated by the Investor which is reasonable convenient to
both parties.  The Investor may sell all or any part of the Collateral
as a whole or in parcels either by public auction, private sale, or other method
of disposition pursuant to UCC.  The Investor may bid at any public
sale on all or any portion of the public sale or of the
Collateral.  The Investor shall give the Company reasonable notice of
the time and place of any public sale or of the time after which any private
sale or other disposition of the Collateral is to be made, and notice given at
least ten (10) days before the time of the sale or other disposition shall be
conclusively presumed to be reasonable.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    b)            Notwithstanding
any provision of the Notes, the Investor shall be under no obligation to offer
to sell the Collateral.  In the event the Investor offers to sell the
Collateral, the Investor will be under no obligation to consummate a sale of the
Collateral if, in his reasonable business judgment, none of the offers received
by him reasonably approximates the fair value of the Collateral.

     

    c)            In
the event the Investor elects not to sell the Collateral, the Investor may elect
to follow the procedures set forth in the UCC for retaining the Collateral in
satisfaction of the Company’s obligation, subject to the Company’s rights under
such procedures.

     

    5.8          Remedies
Cumulative.  Each remedy provided herein or in the Notes is
distinct and cumulative to all other rights or remedies provided herein or in
the Notes or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.

     

    Section
6 - Miscellaneous

     

    6.1          No Waiver; Cumulative
Remedies.  No failure or delay on the part of any party to any
Loan Document in exercising any right or remedy under, or pursuant to, any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, remedy or power preclude other or further exercise
thereof, or the exercise of any other right, remedy or power.  The
remedies in the Loan Documents are cumulative and are not exclusive of any
remedies provided by law.

     

    6.2          Amendments and
Waivers.  No amendment or waiver of any provisions of this
Agreement or the Notes and Warrant that may be issued pursuant to this Agreement
shall be effective unless such amendment or waiver is in writing signed by the
Company and the Investor.  Any such amendment, waiver or modification
effected in accordance with this paragraph shall be binding upon both the
Company and the Investor.

     

    6.3          Notices,
Etc.   All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person, sent by facsimile
transmission to the number set forth on the signature page hereof only if a hard
copy is sent by U.S. mail to the recipient within 24 hours of facsimile
transmission, or such other number as may hereinafter be designated in writing
by the recipient to the sender, or duly sent by first class registered or
certified mail, return receipt requested, postage prepaid, or overnight delivery
service (e.g., Federal
Express) addressed to such party at the address set forth on the signature page
hereof or such other address as may hereafter be designated in writing by the
addressee to the sender.  All such notices, advises and communications
shall be deemed to have been received: (a) in the case of personal delivery, on
the date of such delivery; (b) in the case of facsimile transmission, on the
date of transmission; and (c) in the case of mailing or delivery by service, on
the date of delivery as shown on the return receipt or delivery service
statement.

     

    6.4          Costs and
Expenses.  The Company agrees to be responsible for its costs
and expenses incurred in connection with the preparation of the Loan Documents
and to reimburse Investor for all of its costs and expenses incurred in
connection with the preparation of the Loan Documents, including legal fees of
the Investor’s outside counsel.  If any litigation, contest, dispute,
suit, proceeding or action is instituted between or among any of the parties
hereto regarding the enforcement or interpretation of this Agreement or any of
the Exhibits hereto, the prevailing party shall be entitled to reimbursement
from the other party or parties for all reasonable expenses, costs, charges and
other fees (including legal fees) incurred in connection with or related to such
dispute.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    6.5          Governing
Law.  The Loan Documents shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law provisions of the State of California or of any other state;
provided, however, that the perfection of the security interests in the
Collateral shall be governed and controlled by the laws of the relevant
jurisdiction or jurisdictions under the UCC.  The Company and Investor
consent to personal jurisdiction in Orange County, California.

     

    6.6          Severability.  If
any term in this Agreement is held to be illegal or unenforceable, the remaining
portions of this Agreement shall not be affected, and this Agreement shall be
construed and enforced as if this Agreement did not contain the term held to be
illegal or unenforceable.

     

    6.7          Binding Effect;
Assignment.  The Loan Documents shall be binding upon and inure
to the benefit of the Company and the Investor and their respective successors
and assigns.  The Company may not assign its rights or interest under
the Loan Documents without the prior written consent of Investor.

     

    6.8          Transfer of
Securities.  Notwithstanding the legend required to be placed
on the Securities by applicable law, no registration statement or opinion of
counsel shall be necessary: (a) for a transfer of Securities to the estate of
the Investor or for a transfer of Securities by gift, will or intestate
succession of the Investor to his spouse or to the siblings, lineal descendants
or ancestors of Investor or his spouse, if the transferee agrees in writing to
be subject to the terms hereof to the same extent as if he or she were the
original Investor hereunder; or (b) for a transfer of Securities pursuant to SEC
Rule 144 or any successor rule, or for a transfer of Securities pursuant to a
registration statement declared effective by the SEC under the Securities Act
relating to the Securities.

     

    6.9          Survival of Representations,
Warranties and Covenants.  The representations and warranties
of the parties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement indefinitely, and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the other parties. The covenants of the parties contained in or made pursuant
to this Agreement shall survive the execution and delivery of this Agreement
until such time as the Notes have been paid in full.

     

    6.10        California Commissioner of
Corporations.  THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT
OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATIONS BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE.  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.

    

    [Remainder
of Page Intentionally Left Blank]

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    SIGNATURE
PAGE TO

    BRIDGE
NOTE AND WARRANT PURCHASE AGREEMENT

    

    
      
        
          	
                  THE
      COMPANY:

                	 	
                  INVESTOR:

                
	 
      	 	 
      
	
                  CNS
      Response, Inc.

                	 	 
      
	 
      	 	 
      
	
                  By:

                	
                  /s/ George Carpenter

                	 	
                  By:

                	
                  /s/ John Pappajohn

                
	
                  Name:  

                	
                  George
      Carpenter

                	 	 
      	
                  Mr.
      John Pappajohn

                
	
                  Its:

                	
                  Chief
      Executive Officer

                	 	 
      
	 
      	 	 
      
	
                  85
      Enterprise, Suite 410

                	 	
                  666
      Walnut Street

                
	
                  Aliso
      Vejo, CA 92656

                	 	
                  Suite
      2116

                
	 
      	 	
                  Des
      Moines, IA 50309

                
	
                  Phone:
      (714) 545-3288

                	 	 
      
	
                  Fax:
      (866) 294-2611

                	 	
                  Phone:
      (515) 244-5746

                
	 
      	 	
                  Fax:
      (515) 244-2346

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