Document:

f8k082708ex10i_ea3chinavlve.htm

     

    
      Exhibit
10.1

       

      SECURITIES
PURCHASE AGREEMENT

       

      This
Securities Purchase Agreement (this “Agreement”) is dated as of
August 26, 2008, by and among China Valves Technology, Inc. (f/k/a
Intercontinental Resources, Inc.), a Nevada corporation, and all predecessors
thereof (collectively, the “Company”), China Fluid
Equipment Holdings Limited, a company incorporated under the laws of Hong Kong
(“Hong Kong”), Henan
Tonghai Fluid Equipment Co., Ltd., a company organized under the laws of the
People’s Republic of China (“WFOE”), and the investors
listed on the Schedule of Investors attached hereto as Appendix A (each, an
“Investor” and
collectively, the “Investors”).

       

      WHEREAS,
the Company entered into a Share Exchange Agreement, dated December 18, 2007
(the “Exchange
Agreement”), with China Valve Holdings Limited, a company incorporated
under the laws of Samoa (“Samoa”) and certain other
parties named therein, pursuant to which the Company acquired all of the equity
interest of Samoa, in exchange for 99.8% of the Common Stock (as defined below)
on a fully diluted basis as of the time of the closing of the exchange under the
Exchange Agreement (the “Exchange”).

       

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

       

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

       

      ARTICLE
1.

       

      DEFINITIONS

       

      1.1. Definitions

       

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

       

      “Action” as to any Person,
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 such Person, any of such Person’s Subsidiaries
or any of such Person’s or such Subsidiaries’ respective properties, before or
by any Governmental Authority, arbitrator, regulatory authority (federal, state,
county, local or foreign), stock market, stock exchange or trading
facility.

       

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

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      “Available Undersubscription
Amount” has the meaning set forth in Section 4.15.

       

      “Basic Amount” has the meaning
set forth in Section 4.15.

       

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

       

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

       

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

       

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

       

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

       

      “Commission” means the
Securities and Exchange Commission.

       

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

       

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

       

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

       

      “Company Entities” means the
Company, Samoa, Hong Kong, WFOE and all existing Subsidiaries of any such
entities and any other entities which hereafter become Subsidiaries of any such
entities.

       

      “Company U.S. Counsel” means
Thelen Reid Brown Raysman & Steiner LLP.

       

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

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

      “Existing Company Entities”
means the Company, Hong Kong, WFOE and their respective
Subsidiaries.  “Existing Company Entity”
means any of the Company, Hong Kong, WFOE and any of their respective
Subsidiaries.

       

      “Form 8-K Disclosure” has the
meaning set forth in Section 3.1(a).

       

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

       

      “Governmental Body” shall mean
any: (a) nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental or
administrative division, department, agency, commission, instrumentality,
official, organization, unit, body or entity) and any court or other
tribunal.

       

      “Holdback Escrow Agreement”
means the Holdback Escrow Agreement, dated as of the date hereof, by and among the Company, the Investors, and
the Escrow Agent, in the form of Exhibit E
hereto.

       

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

       

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

       

      “Investment Amount” means,
with respect to each Investor, the Investment Amount indicated on such
Investor’s signature page to this Agreement, which is also reflected on the
Schedule of Investors attached hereto as Appendix
A.

       

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

       

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

       

      “Lead Investor Counsel”
means Winston &
Strawn LLP, with an office located at 200 Park Avenue, New York, NY
10166.

       

      "Legal Requirement" shall mean
any federal state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body (or under the authority of any national securities
exchange upon which the Common Stock is then listed or
traded).  

       

       

      
        
          
          

        

        
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        Reference
to any Legal Requirement  means such Legal Requirement as amended,
modified, codified, replaced or reenacted, in whole or in part, and in effect
from time to time, and reference to any section or other provision of any Legal
Requirement means that provision of such Legal Requirement from time to time in
effect and constituting the substantive amendment, modification, codification,
replacement or reenactment of such section or other
provision.

      

       

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

       

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

       

      “Losses” has the meaning set
forth in Section 4.7.

       

      “Make Good Escrow Agreement”
means the Make Good Escrow Agreement, dated as of the date hereof, among
the Company, the escrow agent identified therein (the “Make Good Escrow Agent”), the
Make Good Pledgor and the Investors, in the form of Exhibit D hereto, as
may be amended from time to time pursuant to Section 6.4 of this
Agreement.

       

      “Make Good Pledgor” means Bin
Li.

       

      “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, properties, 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, or the Exchange
Agreement.

       

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

       

      “Notice” has the meaning set
forth in Section 4.12.

       

      “Notice of Acceptance” has the
meaning set forth in Section 4.15.

       

      “Offer” has the meaning set
forth in Section 4.15.

       

      “Offer Notice” has the meaning
set forth in Section 4.15.

       

      “Offer Period” has the meaning
set forth in Section 4.15.

       

      “Offered Securities” has the
meaning set forth in Section 4.15.

       

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

       

       

      
        
          
          

        

        
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      “Outside Date” means the
thirtieth calendar day (if such calendar day is a Trading Day and if not, then
the first Trading Day following such thirtieth calendar day) following the date
of this Agreement.

       

      “Per Share Purchase Price”
equals $1.788.

       

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

       

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

       

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

       

      “Refused Securities” has the
meaning set forth in Section 4.15.

       

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

       

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

       

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

       

      “Securities” means the (i)
Shares and (ii) 2008 Make Good Shares, 2009 Make Good Shares and 2010 Make Good
Shares (each as defined in the Make Good Escrow Agreement).

       

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

       

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

       

      “Shares” means the shares of
Common Stock being issued and sold to the Investors by the Company
hereunder.

       

      “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.

       

       

      
        
          
          

        

        
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      “Subsequent Placement” has the
meaning set forth in Section 4.15.

       

      “Subsequent Placement
Agreement” has the meaning set
forth in Section 4.15.

       

      “Subsidiary” of the Company
means any “subsidiary” as defined in Rule 1-02(x) of the Regulation S-X
promulgated by the Commission under the Exchange Act of such
Person.  Notwithstanding anything to the contrary set forth in any
Transaction Document, WFOE and their respective subsidiaries are each considered
a Subsidiary of the Company.

       

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

       

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

       

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

       

      “Transfer Agent” means PacWest
Transfer LLC, the current transfer agent of the Company with a mailing address
of 2510 Pines Road North, Suite 206B, Spokane Valley, WA 99206 and a facsimile
number of 509-926-2513, and any successor transfer agent of the
Company.

      

      “Trigger Date” has the meaning
set forth in Section 4.15.

      

      “Undersubscription Amount” has
the meaning set forth in Section 4.15.

      

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

       

      “WFOE Founder” means
Changsheng Zhou.

       

      ARTICLE
2.

       

      PURCHASE
AND SALE

       

      2.1. Closing

       

      (a) .  Subject
to the terms and conditions set forth in this Agreement, at the Closing the
Company shall issue and sell to each Investor, and each Investor shall,
severally and not jointly, purchase from the Company, the Shares representing
such Investor’s Investment Amount, calculated as the quotient of such Investor’s
Investment Amount divided by the Per Share Purchase
Price.  

       

       

      
        
          
          

        

        
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        The
Closing shall take place at the offices of Lead Investor Counsel, on the Closing
Date or at such other location or time as the parties may
agree.

      

       

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

       

      (i) a single
certificate dated the Closing Date, representing that number of aggregate Shares
to be issued and sold at Closing to each Investor, determined under Section 2.1,
registered in the name of such Investor;

       

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

       

      (iii) the legal
opinion of special PRC counsel to WFOE and the Company, in agreed form,
addressed to the Investors.

       

      (b) By the
Closing, each Investor shall deliver or cause to be delivered the agreements
specified in Section 5.2(d), each duly signed by such Investor (collectively,
the “Investor
Deliverables”).

       

      (c) Within
two Trading Days following the date of this Agreement, each Investor shall
deliver to the Escrow Agent for deposit and disbursement in accordance with the
Closing Escrow Agreement, its Investment Amount, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Company for such purpose.

       

      ARTICLE
3.

       

      REPRESENTATIONS
AND WARRANTIES

       

      3.1. Representations and
Warranties of the Company.  The
Company, Hong Kong and WFOE hereby jointly and severally make the following
representations and warranties to each Investor:

       

      (a) Subsidiaries.  None
of the Existing Company Entities have any direct or indirect Subsidiaries other
than as disclosed in the Company's Current Report on Form 8-K, filed with the
Commission on August 6, 2008, as supplemented by and other SEC Report filed
since the filing of the 8-K Disclosure (the "Form 8-K Disclosure"), as
supplemented by any other SEC report filed since the filing of the 8-K
Disclosure.  Except as disclosed in the Form 8-K Disclosure, (i) the
Company owns, directly or indirectly, all of the capital stock of each other
Existing Company Entity, and each other Existing Company Entity alone or
together with other Existing Company Entities owns, directly or indirectly, all
of the capital stock of its respective Subsidiaries, in each case free and clear
of any and all Liens, and (ii) all the issued and outstanding shares of capital
stock of each Existing Company Entity and each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar
rights.

       

       

      
        
          
          

        

        
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      (b) Organization and
Qualification.  Each of the Existing Company Entities is 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
respective properties and assets and to carry on its respective business as
currently conducted and as to be conducted as specified in the SEC
Reports.  No Existing Company Entity is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents.  Each Existing Company
Entity is duly qualified to conduct its respective businesses and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.

       

      (c) Authorization;
Enforcement.  Each Existing Company Entity which is or is to
become party to any Transaction Document has the requisite corporate and other
power and authority to enter into and to consummate the transactions
contemplated by each such Transaction Document to which it is a party and
otherwise to carry out its obligations thereunder.  The execution and
delivery of the Transaction Documents, by each of the Existing Company Entities
to be party thereto and the consummation by each of them of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of such Existing Company Entity, and no further action is required by any
of them in connection with such authorization.  Each Transaction
Document has been (or upon delivery will have been) duly executed by the
Company, each other Existing Company Entity required to execute the same and
each Subsidiary (to the extent any of them is a party thereto) and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company, such Existing Company Entity and such
Subsidiary, enforceable against the Company, the Existing Company Entity and the
Subsidiary, as the case may be, each 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.

       

      (d) No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, and each other Existing Company Entity (to
the extent a party thereto) and the consummation by the Company and such other
Existing Company Entities of the transactions contemplated thereby do not and
will not (i) conflict with or violate any provision of the Company’s, or such
Existing Company Entity’s certificate or articles of incorporation, bylaws or
other organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing any of the
debt of any Existing Company Entity's debt or otherwise) or other understanding
to which any of the Existing Company Entities is a party or by which any
property or asset of any of the Existing Company Entities is bound or affected,
or (iii) result in a violation of any Legal Requirement, order, judgment,
injunction, decree or other restriction of any United States, Hong Kong or PRC
court or Governmental Body to which any of the Existing Company Entities are
subject (including federal and state securities laws and regulations), or by
which any property or asset of any of the Existing Company Entities are 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.

       

       

      
        
          
          

        

        
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      (e) Filings, Consents and
Approvals.  None of the Existing Company Entities 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, Hong Kong or PRC court
or federal, state, local or other Governmental Body or other Person in
connection with the execution, delivery and performance by the Company and each
of the other Existing Company Entities to the extent it is a party thereto of
the Transaction Documents, other than (i) the filing with the Commission of one
or more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, (ii) filings required by state securities laws,
(iii) the filing of a Notice of Sale of Securities on Form D with the Commission
under Regulation D of the Securities Act, (iv) the filings required in
accordance with Section 4.5, (v) filings, consents and approvals required by the
rules and regulations of the applicable Trading Market, (vi) those that have
been made or obtained prior to the date of this Agreement, (vii) registrations,
notices or filings required to be made in order to comply with the currency and
exchange control requirements imposed by any Governmental Body or Legal
Requirement in Hong Kong or the PRC, if any, and (vii) other post closing
securities filings or notifications required to be made under federal or state
securities laws.

       

      (f) Issuance of the
Securities.  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 nonassessable, free and clear of all
Liens.  The Company has reserved from its duly authorized capital
stock the shares of Common Stock 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 capital
stock of the Company, and all shares of Common Stock reserved for issuance under
the Company’s various option and incentive plans, is specified in Schedule
3.1(g).  Except as specified in Schedule 3.1(g), no
securities of any of the Existing Company Entities are entitled to preemptive or
similar rights, and no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.  Except as specified in
Schedule
3.1(g), there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any of the Existing Company Entities is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.  The issue and sale of the
Shares hereunder will not, immediately or with the passage of time, obligate the
Company or any of the other Existing Company Entities to issue shares of Common
Stock or other securities to any Person (other than the Investors) and will not
result in a right of any holder of Company or of the other Existing Company
Entities securities to adjust the exercise, conversion, exchange or reset price
under such securities.  Except as set forth in Schedule 3.1(g), no
Existing Company Entity has issued any capital stock in a private placement
transaction, including, without limitation, in a transaction commonly referred
to in the PRC as a “1 1⁄2 transaction.”

       

       

      
        
          
          

        

        
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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), including, for this purpose, the Form 8-K Disclosure and all reports
required to be filed by the Company since the filing of the 8-K Disclosure (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 therein, in light of
the circumstances under which they were made, not misleading.  The
financial statements of the Company and each Subsidiary included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing.  Such financial statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

       

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

       

      (j) Material
Changes.  Except as specifically disclosed in the SEC Reports,
since the date of the Exchange (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) none of the Existing Company Entities has incurred
any liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s or its Subsidiaries’ financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) none of the
Existing Company Entities has altered its method of accounting or the identity
of its auditors, (iv) none of the Existing Company Entities has declared or made
any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, and (v) none of the Existing Company Entities has issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans.  The Company does not have
pending before the Commission any request for confidential treatment of
information.

       

       

      
        
          
          

        

        
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      (k) Litigation.  There
is no Action which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
except as specifically disclosed in the SEC Reports, could, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.  None of the Existing
Company Entities, 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 any of the
Existing Company Entities or any of their respective current or former directors
or officers (in his or her capacity as such).  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

       

      (l) Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
any of the Existing Company Entities.  Except as specified in Schedule 3.1(l), and
except for employment agreements required by PRC law while such employee is in
the active employ of the Company, none of the Existing Company Entities has any
employment or labor contracts, agreements or other understandings with any
Person.

       

      (m) Indebtedness;
Compliance.  Except as specified on Schedule 3.1(m), none
of the Existing Company Entities is a party to any indenture, debt, capital
lease obligations, mortgage, loan or credit agreement by which it or any of its
properties is bound.  None of the Existing Company Entities (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
such Existing Company Entity under), nor has any of the Existing Company
Entities received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.  The Exchange
Agreement complies with all Legal Requirements, rules and regulations of the
United States and the PRC, except where such noncompliance could not 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 reasonably be expected
to result in a Material Adverse Effect.

       

      (n) Regulatory
Permits.  The Existing Company Entities possess all
certificates, authorizations and permits issued by the appropriate Governmental
Bodies necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, and none of the Existing Company Entities has received
any notice of proceedings relating to the revocation or modification of any such
permits.

       

       

      
        
          
          

        

        
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      (o) Title to
Assets.  The Existing Company Entities 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 such Existing Company Entity. Any real property and facilities
held under lease by any of the Existing Company Entities are held by them under
valid, subsisting and enforceable leases of which such Existing Company Entity
is in compliance, except as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.

       

      (p) Patents and
Trademarks.  The SEC Reports disclose all of the patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that the Existing Company
Entities own or have the rights to use (collectively, the “Intellectual Property
Rights”).  The
Intellectual Property Rights constitute all of the patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary and material to the
business of the Existing Company Entities in connection with their respective
businesses as described in the SEC Reports. None of the Existing Company
Entities has received a written notice that the Intellectual Property Rights
used by any of them violates or infringes upon the rights of any
Person.  Except as otherwise disclosed in the SEC Reports, to the
knowledge of the Existing Company Entities, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.  To the knowledge of the
Existing Company Entities, no former or current employee, no former or current
consultant, and no third-party joint developer of any of the Existing Company
Entities has any Intellectual Property Rights that are necessary and material to
the business of the Existing Company Entities made, developed, conceived,
created or written by the aforesaid employee, consultant or third-party joint
developer during the period of his or her retention by, or joint venture with,
such Existing Company Entity which has been asserted against any of the Existing
Company Entities. The Intellectual Property Rights and the owner thereof or
agreement through which they are licensed to any of the Existing Company
Entities are set forth in the SEC Reports.  The WFOE has entered into
agreements by which it is granted irrevocable, exclusive, licenses on all
Intellectual Property Rights that are necessary and material to its business if
such Intellectual Property Rights were registered to or owned by any Person
other than the WFOE or its predecessor.  Such agreements together with
the licensing agreements disclosed in the SEC Reports are collectively the
“Intellectual Property Rights
Licensing Agreements.”  The Existing Company Entities will take
such action as may be required, including making and maintaining the
filings set forth in the SEC Reports and shall cause any such transfers of
Intellectual Property Rights to the WFOE to be granted as is required in
order for the WFOE to become and remain the registered owner (in its current
name) of all such Intellectual Property Rights (including, without limitation,
the entering into of any Intellectual Property Right Licensing Agreements as may
be necessary and the filing and maintaining of any information with the relevant
PRC Governmental Body which relate to the change of name for those Intellectual
Property Rights currently in the name of the WFOE’s
predecessor).    

       

      (q) Insurance.  Each
of the Existing Company Entities is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses it is engaged and in the country in which the
Existing Company Entities operate.  

       

       

      
        
          
          

        

        
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        The
Company has no reason to believe that it or any of the Existing Company Entities
will not be able to renew its existing respective 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 other Existing Company Entity’s respective lines of
business.

      

       

      (r) Transactions With Affiliates
and Employees; Customers.  Except as set forth in the SEC
Reports, none of the officers, directors or 5% or more shareholders of any of
the Existing Company Entities, and, to the knowledge of the Company, none of the
employees of any of the Existing Company Entities, is presently a party to any
transaction with any of the Existing Company Entities (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 such Person or, to the knowledge of the Company, any
entity in which any officer, director, or such employee or 5% or more
shareholder has a substantial interest or is an officer, director, trustee or
partner.  None of the Existing Company Entities owes any money or
other compensation to any of their respective officers or directors or
shareholders, except to extent of ordinary course compensation arrangements
specified in Schedule
3.1(r).  No material customer of any of the Existing Company
Entities has indicated their intention to diminish their relationship with such
Existing Company Entity and none of the Existing Company Entities has any
knowledge from which it could reasonably conclude that any such customer
relationship may be adversely affected.

       

      (s) Internal Accounting
Controls.  The Existing Company Entities 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 is establishing disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and the Subsidiaries and designed such disclosure controls and
procedures to ensure that material information relating to the Company and the
Subsidiaries is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Form 10-K or
10-Q, as the case may be, is being prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures in accordance with Item 307 of Regulation S-B under the Exchange Act
for the Company’s most recently ended fiscal quarter or fiscal year-end (such
date, the “Evaluation
Date”).  The Company presented in its most recently filed Form
10-K or Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date.

       

      (t) Solvency.  Based
on the financial condition of the Company, including the Existing Company
Entities, as of the Closing Date (and assuming that the Closing shall have
occurred), (i) each Existing Company Entity’s fair saleable value of their
respective assets exceeds the amount that will be required to be paid on or in
respect of such Existing Company Entity’s existing debts and other liabilities
(including known contingent liabilities) as they mature, 

       

       

      
        
          
          

        

        
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        (ii) each
Existing Company Entity’s assets do not constitute unreasonably small capital to
carry on their respective business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by such Existing
Company Entity, and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of such Existing Company Entity,
together with the proceeds such Existing Company Entities would receive, were
they to liquidate all of their respective assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid.  The
Existing Company Entities do not intend to incur debts beyond their respective
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).

      

       

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

       

      (v) Certain Registration
Matters.  Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no registration
under the Securities Act is required for the offer and sale of the Shares by the
Company to the Investors under the Transaction Documents.  The Company
is eligible to register its Common Stock for resale by the Investors under Form
S-1 promulgated under the Securities Act.  Except as specified in
Schedule
3.1(v), none of the Existing Company Entities has granted or agreed to
grant to any Person other than the Investors pursuant to the Registration Rights
Agreement any rights (including “piggy-back” registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.

       

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

       

       

      
        
          
          

        

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

       

      (y) Application of Takeover
Protections.  The Company has taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Investors as a result of
the Investors and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including, without limitation, the
Company’s issuance of the Shares and the Investors’ ownership of the Shares and
the Make Good Pledgors pledge, and any delivery to the Investors, of 2008 Make
Good Shares and 2009 Make Good Shares.

       

      (z) No Additional
Agreements.  None of the Existing Company Entities has any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

       

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

       

      (bb) Make Good
Shares.  Make Good Pledgor is the sole record and beneficial
owner of the 2008 Make Good Shares, 2009 Make Good Shares and 2010 Make Good
Shares, and to the best of the Existing Company Entities' knowledge, holds such
2008 Make Good Shares, 2009 Make Good Shares and 2010 Make Good Shares free and
clear of all Liens.

       

      (cc) Foreign Corrupt Practices
Act.  None of the Existing Company Entities nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Existing Company Entities, has, directly or indirectly, (i) used any funds, or
will use any proceeds from the sale of the Shares, for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company, or any such Existing Company Entity (or made
by any Person acting on their behalf of which the Company is aware) or any
members of their respective management which is in violation of any Legal
Requirement, or (iv) has violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder which was applicable to the Existing Company Entities.

       

      (dd) PFIC.  None
of the Existing Company Entities is or intends to become a “passive foreign
investment company” within the meaning of Section 1297 of the U.S. Internal
Revenue Code of 1986, as amended.

       

       

      
        
          
          

        

        
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      (ee) OFAC. None of the
Existing Company Entities nor, to the knowledge of the Company, any director,
officer, agent, employee, Affiliate or Person acting on behalf of any of the
Existing Company Entities, is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”); and
the Company will not directly or indirectly use the proceeds of the sale of the
Shares, or lend, contribute or otherwise make available such proceeds to any
Subsidiary, joint venture partner or other Person or entity, towards any sales
or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country
sanctioned by OFAC or for the purpose of financing the activities of any Person
currently subject to any U.S. sanctions administered by OFAC.

       

      (ff) Money Laundering
Laws. The operations of each of the Existing Company Entities are and
have been conducted at all times in compliance with the money laundering Legal
Requirements of all applicable Governmental Bodies and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
Governmental Body (collectively, the “Money Laundering Laws”) and no
action, suit or proceeding by or before any court or Governmental Body or any
arbitrator involving any Existing Company Entities with respect to the Money
Laundering Laws is pending or, to the best knowledge of the Company,
threatened.

       

      (gg) Other Representations and
Warranties Relating to WFOE.

       

      (i) All
material consents, approvals, authorizations or licenses requisite under PRC
Legal Requirements for the due and proper establishment and operation of WFOE
have been duly obtained from the relevant PRC Governmental Bodies and are in
full force and effect.

       

      (ii) All
filings and registrations with the PRC Governmental Bodies required in respect
of WFOE and its capital structure and operations including, without limitation,
the registration with the Ministry of Commerce, the China Securities Regulatory
Commission, the State Administration of Industry and Commerce and or their
respective local divisions, the State Administration of Foreign Exchange, tax
bureau and customs authorities have been duly completed in accordance with the
relevant PRC Legal Requirements, except where, the failure to complete such
filings and registrations does not, and would not, individually or in the
aggregate, have a Material Adverse Effect.

       

      (iii) WFOE has
complied with all relevant PRC Legal Requirements regarding the contribution and
payment of its registered capital, the payment schedule of which has been
approved by the relevant PRC Governmental Bodies.  There are no
outstanding commitments made by the Company or any Subsidiary (or any of their
shareholders) to sell any equity interest in WFOE.

       

      (iv) WFOE has
not received any letter or notice from any relevant PRC Governmental Body
notifying it of revocation of any licenses or qualifications issued to it or any
subsidy granted to it by any PRC Governmental Body for non-compliance with the
terms thereof or with applicable PRC Legal Requirements, or the lack of
compliance or remedial actions in respect of the activities carried out by WFOE,
except such revocation as does not, and would not, individually or in the
aggregate, have a Material Adverse Effect.

       

       

      
        
          
          

        

        
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      (v) WFOE has
conducted its business activities within the permitted scope of business or has
otherwise operated its business in compliance with all relevant Legal
Requirements and with all requisite licenses and approvals granted by competent
PRC Governmental Bodies 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 material part of WFOE’s
business which is subject to periodic renewal, the Company has no knowledge of
any reasons related to the WFOE for which such requisite renewals will not be
granted by the relevant PRC Governmental Bodies. WFOE does not need to be duly
qualified as a foreign corporation for the transaction of business under the
laws of any jurisdiction in which it is not now so qualified.

       

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

       

      (hh) Accountants.  There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants formerly or presently employed
by the Company.

       

      (ii) Disclosure.  Neither
any Company Entity nor any Person acting on its behalf has provided any Investor
or its respective agents or counsel with any information that such Company
Entity believes constitutes material, non-public information concerning the
Company, the Subsidiaries or their respective businesses, except insofar as the
existence and terms of the proposed transactions contemplated hereunder may
constitute such information. The Company understands and confirms that the
Investors will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company.  All disclosure provided to
the Investors regarding the Company Entities and their respective businesses and
the transactions contemplated hereby, furnished by or on behalf of the Company
Entities (including their respective representations and warranties set forth in
this Agreement and the disclosure set forth in any diligence report or business
plan provided by any Company Entity or any Person acting on such Company
Entity’s behalf) are true and correct and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.

       

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

       

      (a) Organization;
Authority.  Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents to which it is a party or a signatory 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.  

       

       

      
        
          
          

        

        
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        Each
Transaction Document executed by such Investor 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) No
Conflicts. The execution, delivery and performance of this Agreement and each of
the other Transaction Documents to which the Investor is a party and the
consummation by the Investor of the transactions contemplated hereby and thereby
or relating hereto do not and will not (i) result in a violation of the
Investor’s charter documents, bylaws, operating agreement, partnership agreement
or other organizational documents or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
the Investor is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to the Investor or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Investor). The Investor is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or any other Transaction Document to which the Investor is
a party or to purchase the Shares in accordance with the terms hereof, provided,
that for purposes of the representation made in this sentence, the Investor is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.

       

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

       

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

       

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

       

       

      
        
          
          

        

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

       

      (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 or any placement agent acting on behalf of 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.

       

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

       

      (i) Rule 144.  Such
Investor understands that the Securities must be held indefinitely unless such
Securities are registered under the Securities Act or an exemption from
registration is available.  Such Investor acknowledges that it is
familiar with Rule 144 and that such Investor has been advised that
Rule 144 permits resales only under certain circumstances.  Such
Investor understands that to the extent that Rule 144 is not available,
such Investor will be unable to sell any Securities without either registration
under the Securities Act or the existence of another exemption from such
registration requirement.

       

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

      (j) General.  Such
Investor understands that the Securities are being offered and sold in reliance
on a transactional exemption from the registration requirements of federal and
state securities laws and the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Investor set forth herein in order to determine the applicability of
such exemptions and the suitability of such Investor to acquire the
Securities.  Such Investor understands that no United States federal
or state agency or any Governmental Body has passed upon or made any
recommendation or endorsement of the Securities.

       

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

       

      ARTICLE
4.

       

      OTHER
AGREEMENTS OF THE PARTIES

       

      4.1. Transferability;
Certificate.  (a)

       

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

       

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

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

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

       

      (c) Certificates
evidencing Shares, 2008 Make Good Shares, 2009 Make Good Shares and 2010 Make
Good Shares, if ever 2008 Make Good Shares, 2009 Make Good Shares, or 2010 Make
Good Shares are due to be delivered pursuant to the Transaction Documents 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 Securities is then effective, or (ii) following a sale or transfer of such
Securities pursuant to Rule 144 (assuming the transferee is not an Affiliate of
the Company), or (iii) while such Securities 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 Securities
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 Securities containing a restrictive legend,
deliver or instruct the Transfer Agent to deliver to such Investor, Securities
which are free of all restrictive and other legends.  If the Company
is then eligible, certificates for Securities subject to legend removal
hereunder shall be transmitted by the Transfer Agent to an Investor by crediting
the prime brokerage account of such Investor with the Depository Trust Company
System as directed by such Investor.  If an Investor shall make a sale
or transfer of Securities either (x) pursuant to Rule 144 or (y) pursuant to a
registration statement and in each case shall have delivered to the Company or
the Company’s transfer agent the certificate representing the applicable
Securities containing a restrictive legend which are the subject of such sale or
transfer and a representation letter in customary form (the date of such sale or
transfer and Securities delivery being the “Share Delivery Date”) and (1)
the Company shall fail to deliver or cause to be delivered to such Investor a
certificate representing such Securities that is free from all restrictive or
other legends by the third Trading Day following the Share Delivery Date and (2)
following such third Trading Day after the Share Delivery Date and prior to the
time such Securities are received free from restrictive legends, the Investor,
or any third party on behalf of such Investor, purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Investor of such Securities (a “Buy-In”), then, in addition
to any other rights available to the Investor under the Transaction Documents
and Legal Requirements, the Company shall pay in cash to the Investor (for costs
incurred either directly by such Investor or on behalf of a third party) the
amount by which the total purchase price paid for Common Stock as a result of
the Buy-In (including brokerage commissions, if any) exceed the proceeds
received by such Investor as a result of the sale to which such Buy-In
relates.  

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

         

         

        The
Investor shall provide the Company written notice indicating the amounts payable
to the Investor in respect of the Buy-In.  The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this
Section.

      

       

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

       

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

       

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

       

      4.5. Securities Laws Disclosure;
Publicity.  By
(i) 9:30 a.m. (New York time) on the Trading Day following the Closing Date, the
Company shall issue a press release, disclosing the transactions contemplated by
the Transaction Documents (including, without limitation, details with respect
to the make good provision and thresholds (i.e. Earnings Per Share and After Tax
Net Income) contained in the Make Good Escrow Agreement as well as projected
revenue estimates for the Company for each of the fiscal years ending December
31, 2008, December 31, 2009 and December 31, 2010) and the Closing and by (ii)
5:30 p.m. (New York time) on the Trading Day following the Closing Date, the
Company will file a Current Report on Form 8-K, disclosing the material terms of
the Transaction Documents, including details with respect to the make good
provision and thresholds (i.e. Earnings Per Share and After Tax Net Income)
contained in the Make Good Escrow Agreement (and attach as exhibits thereto all
existing Transaction Documents) and the Closing.  

       

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      The
Company covenants that following such disclosure, the Investors shall no longer
be in possession of any material, non-public information with respect to any of
the Existing Company Entities.  In addition, the Company will make
such other filings and notices in the manner and time required by the Commission
and the Trading Market on which the Common Stock is
listed.  Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
filing with the Commission (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or Trading Market
regulations.

       

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

       

      4.7. Indemnification of
Investors

       

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

       

      4.8. Non-Public
Information.  The
Company covenants and agrees that neither it, any Company Entity nor any other
Person acting on its or their 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.

       

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

       

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

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

       

      4.11. Make Good.  The Company covenants to
enter into the Make Good Escrow Agreement, in the form of Exhibit D hereto.

       

      4.12. The Trademarks of the
WFOE.  For any trademarks that are owned in the name of any
predecessor of the WFOE, the WFOE shall complete the change of the registered
owner from that of the WFOE’s predecessor to the WFOE’s current name, address
and other related updates which is required by PRC State Administration of
Industry and Commerce within 18 months of the Closing Date (the “Compliance Period”) as
evidenced by a written notice or document evidencing the completion of the
change of registered owner information (the “Notice”) from the PRC State
Administration of Industry and Commerce (the date which is 18 months following
the Closing Date, the “Compliance Notice
Date”).  A copy of the Notice shall be promptly provided to the
Investors.   If for any reason or for no reason whatsoever, the
WFOE does not receive the Notice and provide such evidence to the Investors
within the Compliance Period with respect to any trademark that is necessary and
material for the business of the WFOE, then on the Compliance Notice Date and on
each monthly anniversary thereof (until the WFOE provides a copy of the Notice
to the Investors) the Company shall pay to each Investor via wire transfer an
amount in immediately available funds, as partial liquidated damages and not as
a penalty, equal to 1.0% of the aggregate Investment Amount paid by such
Investor for Shares pursuant to this Agreement.  The partial
liquidated damages pursuant to the terms of this Section 4.12 shall be
independent of any other damages payable under this Agreement or any other
Transaction Document.

       

      4.13. Further
Assurances.  The Company will, and will cause all of the
Company Entities and their management to, use their best efforts to satisfy all
of the closing conditions under Section 5.1, and will not take any action which
could frustrate or delay the satisfaction of such conditions.  In
addition, either prior to or following the Closing, the WFOE Founder and each
Company Entity signatory hereto will, and will cause each other Company Entity
and its management to, perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated
hereby.

       

      4.14. Closing Escrow
Holdback.  The Company and Investors agree that, from the
aggregate Investment Amounts to be delivered into escrow pursuant to the Closing
Escrow Agreement, at the Closing $3,150,000 (“Total Holdback Amount”) shall
be deposited into escrow and administered in accordance with the Holdback Escrow
Agreement in order to incentivize the Company to satisfy the following
conditions:

       

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

       

      (a) Independent Board of
Directors.  The Company covenants and agrees that no later than
ninety (90) days following the Closing Date, the Board of Directors of the
Company shall be comprised of a minimum of five members (at least two of whom
shall be fluent English speakers who possess
experience such that he or she can fulfill its fiduciary obligations and other
responsibilities as a director of a United States publicly listed company
incorporated in the United States), a majority of which shall be “independent
directors” as such term is defined in NASDAQ Marketplace Rule 4200(a)(15) and a
meeting of such full Board of Directors shall be convened within such ninety
(90) days following the Closing Date.  The Board of Directors shall
appoint Board committees, which shall include, but not be limited to, an Audit
Committee, Nominating Committee and Compensation Committee.  The
chairperson of such Audit Committee shall be acceptable to the
Investors.  The Company agrees that $1,500,000 (the “Board Holdback Escrow Amount”)
of the Total Holdback Amount delivered to the Escrow Agent pursuant to the
Closing Escrow Agreement shall remain in escrow post Closing pursuant to and
subject to the provisions of the Holdback Escrow Agreement until such time as
the Company complies with the conditions precedent to its release in accordance
with the Holdback Escrow Agreement.

       

      (b) Chief Financial
Officer.  The Company covenants and agrees that no later than
ninety (90) days following the Closing Date, the Company will hire a full-time
chief financial officer who has experience as the chief financial officer of a
United States public reporting company and who is (i) a certified public
accountant, (ii) fluent in English, (iii) an expert in (x) GAAP and (y) auditing
procedures and compliance for United States public companies, and (iv) approved
by a majority-in-interest of the Investors (such a chief financial officer being
referred to as a “Qualified
CFO”).  The Company shall enter
into an employment agreement with the Qualified CFO for a term of no less than
two years.  Should the Qualified CFO be dismissed at any time prior to
the later to occur of the second anniversary of (x) his or her employment
agreement or (y) the Closing Date, then the Company shall replace the Qualified
CFO with a chief financial officer who fits the criteria set forth herein as
soon as practicable.  By 9:00 a.m. (New York time) on the
second Trading Day following the hiring of such Qualified CFO, the Company will
file a Current Report on Form 8-K disclosing the information required by Item
5.02 of Form 8-K.  Subject to the provisions of this Section 4.14(b),
the Company agrees that $1,500,000 (the “CFO Holdback Escrow Amount”)
of the Total Holdback Amount delivered to the Escrow Agent pursuant to the
Closing Escrow Agreement shall remain in escrow post Closing pursuant to and
subject to the provisions of the Holdback Escrow Agreement until such time as
the Company complies with the conditions precedent to its release in accordance
with the Holdback Escrow Agreement.

       

      (c) Investor Relations
Firm.  The Company covenants and agrees that no later than
thirty (30) days following the Closing Date, the Company shall have hired CCG
Elite as its investor relations firm.  Subject to the provisions of
this Section 4.14(c), the Company and the Investors agree that $150,000 (the
“IR Holdback
Amount”) of the Total Holdback Amount delivered to the Escrow
Agent pursuant to the Closing Escrow Agreement shall be released from escrow in
such amounts as are required for the Company to pay such investor relations
firm, subject to the provisions of the Holdback Escrow Agreement, it being
understood that such IR Holdback Amount will be used by the Company to pay such
firm.

       

      (d) Liquidated Damages for
Failure to Appoint Independent Board and Qualified CFO.  The
Holdback Escrow Agreement provides for specified partial liquidated damages
(which the parties agree are not a penalty) should the Company fail for any or
no reason to timely satisfy its obligations under Sections 4.14(a) or
4.14(b).  

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

         

         

        If any
term or provision of this Section 4.14 as to the Board Holdback Escrow Amount or
CFO Holdback Escrow Amount and/or partial liquidated damages is in contradiction
of or conflicts with any term or provision of the Holdback Escrow Agreement
relating thereto, the terms of the Holdback Escrow Agreement shall
control.

      

       

      4.15. Right of First
Refusal.

       

      (a) From the
date hereof until the one (1) year anniversary of the Effective Date (plus one
additional day for each Trading Day following the Effective Date of any
Registration Statement during which either (1) the Registration Statement
is not effective or (2) the prospectus forming a portion of the
Registration Statement is not available for the resale of all Registrable
Securities (as defined in the Registration Rights Agreement) required to be
covered thereby) (the “Trigger
Date”), the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or its
Subsidiaries’ equity or equity equivalent securities, including, without
limitation, any debt, preferred stock or other instrument or security that is,
at any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent
Placement”) unless the Company shall have first complied with this
Section 4.15.  If the Company desires to engage in a Subsequent
Placement it shall deliver to each of the Investors a written notice to such
effect specifying the general terms of the offering the Company desires to make
(including, without limitation, all information relating to price, structure and
amount of such offering) and for a period of at least twenty Business Days after
the giving of such notice the Company agrees to negotiate in good faith with any
Investors responding to such notice the terms of a sale of the Company’s
securities to such responding Investors.

       

      (b) In the
event that the Company shall receive an offer regarding the purchase of the
Company’s securities or a Subsequent Placement contemplated in the last sentence
of Section 4.15(a) shall not have closed by the 45th
Business Day following the delivery to the Investors of the written notice for
such Subsequent Placement, and in either event prior to any Subsequent
Placement, the Company shall deliver to each Investor hereunder a written notice
(the ”Offer
Notice”) of any proposed or intended issuance or sale or exchange
(the ”Offer”) of
the securities being offered (the “Offered Securities”) in a
Subsequent Placement, which Offer Notice shall (v) identify and describe the
Offered Securities, (w) include the final form of documents and agreements
governing the Subsequent Placement, (x) specify the price and other terms
upon which the Offered Securities are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Investors all of the Offered Securities,
allocated among such Investors (the “Basic Amount”), and (b) with
respect to each Investor that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Investors as such Investor shall indicate it will purchase or acquire
should the other Investors subscribe for less than their Basic Amounts (the
“Undersubscription
Amount”), which process shall be repeated until the Investors shall have
an opportunity to subscribe for any remaining Undersubscription
Amount.

       

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

       

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

       

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

       

      (e) In the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in this Section
4.15), then each Investor may, at its sole option and in its sole discretion,
reduce the number or amount of the Offered Securities specified in its Notice of
Acceptance to an amount that shall be not less than the number or amount of the
Offered Securities that such Investor elected to purchase pursuant to Section
4.15(c) above multiplied by a fraction, (i) the numerator of which shall be the
number or amount of Offered Securities the Company actually proposes to issue,
sell or exchange (including Offered Securities to be issued or sold to Investors
pursuant to Section 4.15(c) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities.  In the event that any Investor so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have again
been offered to the Investors in accordance with Section 4.15(b)
above.

       

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

       

      (f) Upon the
closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Investors shall acquire from the Company, and the Company shall
issue to the Investors, the number or amount of Offered Securities specified in
the Notices of Acceptance, as reduced pursuant to Section 4.15(e) above if the
Investors have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Investors of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Investors of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Investors and their
respective counsel (such agreement, the “Subsequent Placement
Agreement”).

       

      (g) Any
Offered Securities not acquired by the Investors or other persons in accordance
with Section 4.15(f) above may not be issued, sold or exchanged until they are
again offered to the Investors under the procedures specified in this
Agreement.

       

      (h) In
exchange for the Company’s willingness to agree to these procedures, each
Investor hereby irrevocably agrees that it will hold in strict confidence any
and all Offer Notices, the information contained therein, and the fact that the
Company is contemplating a Subsequent Placement, until such time as the Company
is obligated to make the disclosures required by Section 4.15(d), or unless it
notifies the Company in writing that it no longer desires to receive Offer
Notices.

       

      (i)           The
rights contained in this Section shall not apply to the issuance and sale by the
Company of

       

      (a)
shares of Common Stock or Common Stock Equivalents to employees, officers, or
directors of the Company, as compensation for their services to the Company or
any of its direct or indirect Subsidiaries pursuant to arrangements approved by
the Board of Directors of the Company,

       

      (b)
shares of Common Stock or Common Stock Equivalents issued as consideration for
the acquisition of another company or business in which the shareholders of the
Company do not have an ownership interest, and where the primary purpose is not
to raise capital for the Company or any Subsidiary, which acquisition has been
approved by the Board of Directors of the Company, or

       

      (c) up to
an aggregate of $250,000 worth of shares of Common Stock or Common Stock
Equivalents issued to non-Affiliates in connection with services rendered to the
Company pursuant to arrangements approved by the Board of Directors of the
Company.

       

      4.16. Professionals.  The
Company covenants and agrees that no later than thirty (30) days following the
Closing Date, the Company shall have hired (i) CCG Elite as the Company's
investor relations firm, (ii) any of Moore Stephens International, Horwath
International, BDO Seidman, LLP, or Weinberg & Company as the Company's
independent public auditors and (iii) an external accounting or audit
preparation service to facilitate the filing of the Company's Exchange Act
reports until such time as a Qualified CFO and finance staff has been
hired.  During the three year period following the Closing Date,
should the Company subsequently change independent public auditors, the
Company's new independent public auditor shall be chosen from the list set forth
in clause (ii) of this Section.

       

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      4.17. Reverse
Split.  The Company shall effect a 1 for 2 reverse split of its
Common Stock within ninety (90) days following the Closing Date, provided, however,
that if the SEC comments on the information statement that is filed in
connection with such reverse split, then the Company shall have one hundred
thirty five (135) days to effectuate the reverse split.

       

      4.18. Real
Estate.  The Company will acquire the land and buildings
located at No. 93, Xinsong Road, Kaifeng (covering 256,921.09 square meters) no
later than ten months following the date of this Agreement for a purchase price
not to exceed 5,500,000 shares of Common Stock.  The Company and the
Chairman will use their reasonable best efforts to promptly comply with this
Section.

       

      4.19. Liquidated Damages for
Governmental Rescission of Restructuring Transaction.  If any
Governmental Body in the PRC challenges or otherwise takes any action that
adversely affects the transactions contemplated by the Exchange Agreement or the
Form 8-K Disclosure, and the Company cannot undo such governmental action or
otherwise address the material adverse effect to the reasonable satisfaction of
the Investors within sixty (60) days of the occurrence of such governmental
action, then, upon written demand from an Investor, the Company shall promptly,
and in any event within thirty (30) days from the date of such written demand,
pay to that Investor, as liquidated damages, an amount equal to that Investor’s
entire Investment Amount with interest thereon from the Closing Date until the
date paid at the rate of 18% per annum (the liquidated damages payable under
this Section 4.19 shall be independent of any other damages payable under this
Agreement or any other Transaction Document).  As a condition to the
receipt of such payment, the Investor shall return to the Company for
cancellation the certificates evidencing the Shares acquired by the Investor
under the Agreement.

       

      4.20. Further
Assurances.  The Company will, and will cause all of the
Company Entities and their management to, use their best efforts to satisfy all
of the closing conditions under Section 5.1, and will not take any action which
could frustrate or delay the satisfaction of such conditions.  In
addition, either prior to or following the Closing, the WFOE Founder and each
Company Entity signatory hereto will, and will cause each other Company Entity
and its management to, perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated
hereby.

       

      ARTICLE
5.

       

      CONDITIONS
PRECEDENT TO CLOSING

       

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

       

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (a) Representations and
Warranties.  The representations and warranties of the Existing
Company Entities 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;

       

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

       

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

       

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

       

      (e) WFOE Intellectual Property
Rights. The WFOE shall provide to the Investors evidence acceptable to
the Investors that all Intellectual Property Rights are either (i) validly owned
by the WFOE, or (ii) (a) if owned by any Person other than the WFOE or its
predecessor, subject to valid and binding Intellectual Property Right Licensing
Agreements which may not be terminated for any reason until any such
Intellectual Property Right covered thereby is validly owned by the WFOE, or (b)
if owned by the predecessor of the WFOE, the application for the change of the
registered owner information from that of the WFOE’s predecessor to the WFOE’s
current name, address and other related updates which is or may be required by
relevant PRC authorities in charge of such Intellectual Property is submitted by
the WFOE to the relevant PRC authority on or before the Closing;

       

      (f) Legal
Opinions.  The Company shall have delivered to the Investors,
and the Investors shall be able to rely upon, the legal opinions that the
Company shall have received from its US Company Counsel and PRC counsel (which,
among other things, shall confirm the legality under applicable PRC Legal
Requirements of the restructuring effected with Samoa in connection with the
Exchange);

       

      (g) Company
Agreements.  The Company shall have delivered:

       

      (i) This
Agreement, duly executed by the Company, Hong Kong, WFOE and the Make Good
Pledgors;

       

      (ii) The
Closing Escrow Agreement, duly executed by the Company and the Escrow
Agent;

       

      (iii) The Make
Good Escrow Agreement, duly executed by all parties thereto (other than the
Investors);

       

      (iv) The
Holdback Escrow Agreement, duly executed by all parties thereto (other than the
Investors);

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

       

       

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

       

      (vi) Lockup
Agreements, duly executed by the Company and each officer of the Company and
each member of the Board of Directors of the Company;

       

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

       

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

       

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

       

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

       

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

       

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

       

      (d) Investor
Deliverables.  Each Investor shall have delivered the
Registration Rights Agreement, the Closing Escrow Agreement and the Make Good
Escrow Agreement, each duly executed by such Investor and a completed Selling
Holder Questionnaire (as defined in the Registration Rights Agreement);
and

       

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

       

      ARTICLE
6.

       

      MISCELLANEOUS

       

      6.1. Fees and
Expenses.  At
the Closing, the Company shall reimburse Pinnacle upon presentation to the
Company of a summary invoice therefor which
is addressed to Pinnacle by its counsel, $100,000.00
for Pinnacle’s legal fees in connection with the transactions contemplated by
the Transaction Documents (Pinnacle may deduct
such amount from the Investment Amount deliverable to the Company at Closing),
it being understood that Winston & Strawn LLP has only rendered legal advice
to Pinnacle, and not to the Company or any other Investor in connection with the
transactions contemplated hereby, and that each of the Company and the other
Investors has relied for such matters on the advice of its own respective
counsel.  In addition, the Company shall at the Closing pay to
Pinnacle, upon presentation to the Company of reasonable documentation
therefor, not more than $10,000.00 to
reimburse Pinnacle for its out-of-pocket due diligence expenses in connection
with the transactions contemplated by the Transaction
Documents.  

       

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

         

         

        Except as
specified in the immediately preceding two sentences, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction
Documents.  The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Shares.  In the event that any waivers or amendments
are required with respect to any Transaction Document or the transactions
contemplated thereby, the Company covenants to reimburse Pinnacle for reasonable
legal expenses incurred in connection therewith.

      

       

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

       

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

       

      
        	
                 
      

              	
                If
      to the Company:

              	
                China Valves
      Technology, Inc. 
      
                  No.93
      West Xinsong Road

                  Kaifeng
      City, Henan Province, Peoples Republic of China

                        
                    Facsimile:  86-378-292-4630

                    
                      Attn.:  President

                    

                  

                

              

      

      
      

      
      

       

      
        	
                 
      

              	
                With
      a copy to:

              	
                Thelen
      Reid Brown Raysman & Steiner LLP

                
                  701
      8th
      Street NW

                  
                    Washington,
      D.C. 20001

                    
                      Facsimile:  (202)
      654-1804

                      
                        Attn.:  Louis
      A. Bevilacqua,
Esq.

                      

                    

                  

                

              

      

       

      
        	
                 
      

              	
                If
      to an Investor:

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

              

      

       

       

       

      
        
           

        

        
          32

          
            
 

        

        
           

        

      

       

       

      
        	
                 
      

              	
                With
      a copy to:

              	
                Winston
      & Strawn LLP

                
                  200
      Park Avenue

                  
                    New
      York, NY 10166

                    
                      Facsimile:  (212)
      294-4700

                      
                        Attn.:  Eric
      L. Cohen,
Esq.

                      

                    

                  

                

              

      

       

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

       

      6.4. Amendments; Waivers; No
Additional Consideration.  No
provision of this Agreement may be waived or amended except in a written
instrument signed by the Company and the Investors holding a majority of the
Shares at the time of the waiver or amendment.  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.

       

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

       

      (a) by
written agreement of the Investors and the Company, a copy of which shall be
provided to the Escrow Agent; and

       

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

       

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

       

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

       

      6.6. Construction.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.  

       

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

         

         

        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.

      

       

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

       

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

       

      6.9. Arbitration.           Any
dispute, controversy or claim arising out of or relating to this Agreement, or
the breach, termination or invalidity thereof, shall be settled definitively and
exclusively by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association by a single arbitrator appointed in
accordance with said Rules.  The arbitration shall take place in New
York, New York, United States of America.  The language to be used in
the arbitral proceedings shall be English.  The arbitrator shall apply
the law of the State of New York, United States of America, without regard for
its principles of conflict of laws.  Judgment upon the award may be
entered in any court having jurisdiction thereof.  If either party
shall commence a Proceeding to enforce any provisions of a Transaction Document,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such
Proceeding.

       

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

       

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

       

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

       

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

       

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

       

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

       

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

       

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

       

      6.17. Independent Nature of
Investors’ Obligations and Rights.  The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document.  The decision of each
Investor to purchase Securities pursuant to the Transaction Documents has been
made by such Investor independently of any other Investor.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Investor pursuant thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  

       

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

         

         

        Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents.  Each Investor shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose.  The Company acknowledges that each of
the Investors has been provided with the same Transaction Documents for the
purpose of closing a transaction with multiple Investors and not because it was
required or requested to do so by any Investor.

      

       

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

       

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
PAGES FOLLOW]

       

       

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

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

       

      
        
          	
                  CHINA
      VALVES TECHNOLOGY, INC.

                   

                   

                
	
                  By:

                	
                  ______________________________

                
	 
      	
                  Name:
      Siping Fang

                
	 
      	
                  Title:
      Chief Executive Officer

                
	 
      	 
      
	
                  CHINA
      FLUID EQUIPMENT HOLDINGS LIMITED

                   

                   

                
	
                  By:

                	
                  ______________________________

                
	 
      	
                  Name:
      Bin Li

                
	 
      	
                  Title:
      Director

                
	 
      	 
      
	
                  HENAN
      TONGHAI FLUID EQUIPMENT CO., LTD.

                   

                   

                
	
                  By:

                	
                  ______________________________

                
	 
      	
                  Name:
      Changsheng Zhou

                
	 
      	
                  Title:
      Director

                
	 
      	
                   
      

                   

                   

                
	 
      	
                  Only
      as to Sections 3.1 (bb) and 4.11 herein:

                   

                
	 
      	
                  Make
      Good Pledgor

                   

                
	 
      	
                  ____________________________

                
	 
      	
                  Bin
      Li

                
	 
      	 
      
	 
      	
                  Only
      as to Section 4.18 herein:

                   

                
	 
      	
                  Chairman
      of China Valves Technology, Inc.

                   

                
	 
      	
                  ____________________________

                
	 
      	
                  Siping
      Fang

                
	 
      	 
      
	 
      	
                  Only
      as to Section 4.20 herein:

                   

                
	 
      	
                  WFOE
      Founder

                
	 
      	 
      
	 
      	
                  ____________________________

                
	 
      	
                  Changsheng
      Zhou

                

        

      

       

       

      
        [Signature
page to SPA for Company]

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

       

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

       

      
        
          	
                  NAME
      OF INVESTOR

                   

                   

                
	
                  _________________________________________

                
	
                  By: 

                  Name:

                  Title:

                
	
                  Investment
      Amount:  $________________________

                   

                  Tax
      ID No.:  ________________________________

                   

                   

                
	
                  ADDRESS
      FOR NOTICE

                   

                   

                
	
                  c/o: 
      ____________________________________________________

                
	 
	
                  Street:
      ___________________________________________________

                
	 
	
                  City/State/Zip:
      _____________________________________________

                
	 
	
                  Attention:
      ________________________________________________

                
	 
	
                  Tel:
      _____________________________________________________

                
	 
	
                  Fax:
      _____________________________________________________

                   

                   

                
	
                  DELIVERY
      INSTRUCTIONS

                  (if
      different from above)

                   

                   

                
	
                  c/o:
      _____________________________________________________

                
	 
	
                  Street:
      ___________________________________________________

                
	 
	
                  City/State/Zip:
      _____________________________________________

                
	 
	
                  Attention:
      ________________________________________________

                
	 
	
                  Tel: 
      _____________________________________________________

                

        

      

      
         

        
          [Signature
page to SPA for Company]f8k082708ex10ii_ea3chinavlve.htm

    

     

    Exhibit
10.2

    

    HOLDBACK ESCROW
AGREEMENT

     

    This
Holdback Escrow Agreement, dated as of August 26, 2008 (this “Agreement”), is entered into
by and among China Valves Technology, Inc. (f/k/a Intercontinental Resources,
Inc.), a Nevada corporation, and all predecessors thereof (collectively, the
“Company”), the
investors set forth on Exhibit A and
signatory hereto (collectively, the “Investors”), and Escrow,
LLC  (the “Escrow
Agent”).

     

    WITNESSETH:

     

    WHEREAS,
the Company proposes to make a private offering to the Investors (the “Offering”) of the Company’s
common stock, par value $0.001 per share pursuant to that certain Securities
Purchase Agreement, dated as of the date hereof, by and among the Company, the
Investors and certain other parties signatory thereto (the “Securities Purchase
Agreement”) (capitalized terms used but not otherwise defined herein
which are defined in the Securities Purchase Agreement shall have the respective
meanings given to such terms in the Securities Purchase Agreement);

     

    WHEREAS,
pursuant to the Securities Purchase Agreement and the Closing Escrow Agreement,
the Company has agreed that an aggregate of $3,150,000 of the aggregate
Investment Amounts paid by Investors to the escrow account established in
accordance with the Closing Escrow Agreement (the “Escrowed Funds”), will be
deposited at Closing with the Escrow Agent, to continue to be held in escrow,
administered and distributed as described in Section 4.14 of the Securities
Purchase Agreement and in accordance with Section 3 of this Agreement;
and

     

    WHEREAS,
as a material inducement for the Investors to enter into the Securities Purchase
Agreement and consummate the Closing, the Company and Escrow Agent have agreed
to enter into this Agreement.

     

    NOW,
THEREFORE, in consideration of the mutual promises herein contained and
intending to be legally bound, the parties hereby agree as follows:

     

    1.           Appointment of Escrow
Agent. The Company hereby appoints Escrow Agent to act as escrow agent in
accordance with the terms of this Agreement, and the Escrow Agent hereby accepts
such appointment.

     

    
      2.  Delivery of the Escrowed
Funds.

    

     

    2.1          The
Company hereby directs that the Escrowed Funds be delivered simultaneously with
the Closing to the Escrow Agent’s account (the “Escrow Account”) as
follows:

     

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    
 

    Domestic:

    Virginia
Commerce Bank

    Leesburg,
VA

    ABA#056005253

    Account
Name: Escrow, LLC

    Account
#: 01194186

    

    International:

    Correspondent
Bank: Wells Fargo Bank, San Francisco, CA

    SWIFT#:
WFBIUS6S

    Credit
Account #: 412-11-08146

    Virginia
Commerce Bank

    FBO
Account Name: Escrow, LLC

    Account:
01194186

    Escrowed
Funds: $3,150,000

    

            
3.           Escrow Agent to Hold and
Disburse Escrowed Funds. Promptly following the Closing, the Escrow Agent
will provide written notice to the Company (for simultaneous distribution to the
Investors) that the Escrow Agent has received the entire amount of Escrowed
Funds in the Escrow Account.  The Escrow Agent will hold and disburse
the Escrowed Funds received by it pursuant to the terms of this Agreement, as
follows:

     

    3.1           Board Holdback
Escrow.  Pursuant to Section 4.14(a) of the Securities Purchase
Agreement, the Company has undertaken that no later than ninety (90) days
following the Closing Date, the Board of Directors of the Company shall be
comprised of a minimum of five members (at least two of whom shall be fluent
English speakers who possess experience such that
he or she can fulfill its fiduciary obligations and other responsibilities as a
director of a United States publicly listed company incorporated in the
United States), a majority of which shall be “independent directors” as such
term is defined in NASDAQ Marketplace Rule 4200(a)(15) and a meeting of such
full Board of Directors shall be convened within such ninety (90) days following
the Closing Date.  The Board of Directors shall appoint Board
committees, which shall include, but not be limited to, an Audit Committee,
Nominating Committee and Compensation Committee.  The chairperson of
such Audit Committee, which shall be acceptable to the Investors, shall be
nominated within ninety (90) days following the Closing Date (such Board of
Directors meeting the criteria set forth herein shall be referred to as a “Qualified
Board”).  To secure the establishment of a Qualified Board, the
Company has agreed that $1,500,000 of the Escrowed Funds (the “Board Holdback Escrow Amount”) shall be held
in the Escrow Account subject to the satisfaction of the Company’s obligations
under this Section 3.1 and Section 4.14(a) of the Securities Purchase Agreement
and subject to the provisions of Section 4.14(d) of the Securities Purchase
Agreement and Section 3.4 of this Agreement with respect to payment of partial
liquidated damages to Investors from such amount.  Upon the
establishment of a Qualified Board, the Company and Investors that have invested
at least a majority of the total Investment Amount under the Purchase Agreement
(a “Majority in Interest of the
Investors”) shall execute and deliver written instructions (such written
instructions shall not be unreasonably withheld, conditioned, or delayed by the
Investors) 

     

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

     

    with
reference to this Section 3.1 to release the Board Holdback Escrow Amount to the
Company (“Instructions to
Release Board Holdback”).  Within one (1) Business Day
following its receipt of Instructions to Release Board Holdback (with wire
instructions attached) jointly executed by the Company and a Majority in
Interest of the Investors, the Escrow Agent shall distribute the Board Holdback
Escrow Amount in accordance with such written instructions.  It is
expressly understood that the Company shall have the sole authority to select
the members of the Board of Directors of the Company, provided that such members
shall satisfy the requirements as set forth in Section 3.1 of this Agreement and
Section 4.14(a) of the Securities Purchase Agreement.  For the
avoidance of doubt, the Board Holdback Escrow Amount shall be released from the
Escrow Account upon the establishment of a Qualified Board in accordance with
Section 3.1 of this Agreement (after deducting any liquidated damages payable to
the Investors pursuant to Section 3.4 hereof) notwithstanding whether a
Qualified Board is established within ninety (90) days following the Closing
Date.

     

    3.2           CFO Holdback
Escrow.  Pursuant to Section 4.14(b) of the Securities Purchase
Agreement, the Company has undertaken that no later than ninety (90) days
following the Closing Date, the Company will hire a full-time chief financial
officer who has experience as the chief financial officer of a United States
public reporting company and who is (i) a certified public accountant, (ii)
fluent in English, and (iii) an expert in (x) GAAP and (y) auditing procedures
and compliance for United States public companies (such a chief financial
officer being referred to as a “Qualified
CFO”).  The Company shall enter
into an employment agreement with the
Qualified CFO for a term of no less than two years.  Should the
Qualified CFO be dismissed at any time prior to the later to occur of the second
anniversary of (x) his or her employment agreement or (y) the Closing Date,
then
the Company shall replace the Qualified CFO with a chief financial officer who
fits the criteria set forth herein as soon as practicable.  By
9:00 a.m. (New York time) on the second Trading Day following the hiring of such
Qualified CFO, the Company will file a Current Report on Form 8-K disclosing the
information required by Item 5.02 of Form 8-K.  Accordingly,
$1,500,000 (the “CFO Holdback
Escrow Amount”)
of the Escrowed Funds is to be held in the Escrow Account subject to the
satisfaction of the Company’s obligations under this Section 3.2 and Section
4.14(b) of the Securities Purchase Agreement and subject to the provisions of
Section 4.14(d) of the Securities Purchase Agreement and Section 3.4 of this
Agreement with respect to payment of partial liquidated damages to Investors
from such amount.  Upon the Company’s satisfaction of the aforesaid
obligations in this Section 3.2 and Section 4.14(b) of the Securities Purchase
Agreement, the Company and a Majority in Interest of the Investors shall execute
and deliver written instructions (such written instructions shall not be
unreasonably withheld, conditioned, or delayed by the Investors) with reference
to this Section 3.2 to release the CFO Holdback Escrow Amount to the Company
(“Instructions to Release CFO
Holdback”).  Within one (1) Business Day following its receipt
of Instructions to Release CFO Holdback (with wire instructions attached)
jointly executed by the Company and a Majority in Interest of the Investors, the
Escrow Agent shall distribute the CFO Holdback Escrow Amount, less any portion
thereof previously required to be distributed to Investors as partial liquidated
damages in accordance with Section 3.4 of this Agreement, in accordance with
such written instructions.  For the avoidance of doubt, the CFO
Holdback Escrow Amount shall be released from the Escrow Account (after
deducting any liquidated damages payable to the Investors pursuant to Section
3.4 hereof) upon the appointment of a Qualified CFO in accordance with Section
3.2 of this Agreement notwithstanding whether a Qualified CFO is appointed
within ninety (90) days following the Closing Date.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

     

    3.3           IR Holdback
Escrow.  Pursuant to Section 4.14(c) of the Securities Purchase
Agreement, the Company has undertaken that no later than thirty (30) days
following the Closing Date, the Company shall have hired CCG Elite as its
investor relations firm.  Accordingly, $150,000 (the “IR Holdback Escrow Amount”) of the
Escrowed Funds is to be held in the Escrow Account subject to the satisfaction
of the Company’s obligations under this Section 3.3 and Section 4.14(c) of the
Securities Purchase Agreement. The IR
Holdback Escrow Amount shall remain in the Escrow Account and shall only be
released by the Escrow Agent to the Company upon the Escrow Agent’s receipt of
written notice from the Company and a Majority in Interest of the Investors that
the Company has hired the aforementioned investor relations firm and then only
to the extent that the Company provides evidence of investor relations related
expenses.   From time to time as the Company incurs investor
relations related expenses, it shall reflect such amount on written instructions
(such written instructions shall not be unreasonably withheld, conditioned, or
delayed by the Investors) with reference to this Section 3.3 to release a
portion of the IR Holdback Escrow Amount to the Company (“Instructions to Release IR
Holdback”), which shall specify the dollar amount and payee bank account
to which the applicable amount shall be transferred.  The Escrow Agent
shall, upon receipt of Instructions to Release IR Holdback (on one or more
occasions) jointly executed by the Company and a Majority in Interest of the
Investors, pay the IR Holdback Escrow Amount in accordance with such written
instructions, such payment or payments to be made by wire transfer within one
(1) Business Day of receipt of such written instructions.

     

    3.4           If
for any or no reason whatsoever, the Escrow Agent does not receive written
notice from the Company and the Majority in Interest of the Investors directing
the release to the Company of (i) the Board Holdback Escrow Amount on or prior
to ninety-one (91) calendar days following the Closing Date (the “Board Compliance Period”) or
(ii) CFO Holdback Escrow Amount on or prior to ninety-one (91) calendar days
following the Closing Date (the “CFO Compliance Period”) (each
such failure or breach being referred to as a “Holdback Event,” and for
purposes of this Section the date such Holdback Event occurs being referred to
as “Holdback Event
Date”), then in addition to any other rights the Investors may have
hereunder, under the Securities Purchase Agreement or under applicable law, on
each such Holdback Event Date and on each monthly anniversary of such Holdback
Event Date (if the applicable Holdback Event shall not have been cured by such
date) until the applicable Holdback Event is cured, the Escrow Agent (on behalf
of the Company) will deliver and pay to each Investor by wire transfer an amount
in immediately available funds, as partial liquidated damages and not as a
penalty, equal to 1% of the aggregate Investment Amount paid by such Investor
for Shares pursuant to the Securities Purchase Agreement.  The partial
liquidated damages payable under this Section 3.4 shall be independent of any
other damages payable under this Agreement or any other Transaction Document and
shall apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Holdback Event.  In no event will the Company be liable for
partial liquidated damages under this Agreement in excess of 1% of the aggregate
Investment Amount of the Investors in any 30-day period in respect of any single
Holdback Event (it being understood that if the Company suffers an Holdback
Event relating to its failure to comply with Section 4.14(a) of the Securities
Purchase Agreement and a Holdback Event relating to its failure to comply with
Section 4.14(b) of the Securities Purchase Agreement in a 30-day period it will
be responsible for 2% of partial liquidated damages under this provision in a
30-day period).  

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

     

    It is
further understood that partial liquidated damages under this Agreement are
limited to the Board Holdback Escrow Amount as to that Holdback Event and the
CFO Holdback Escrow Amount as to that Holdback Event; provided, that the
Investors are entitled to all other remedies available under applicable
law.  On any Holdback Event Date, the Company will deliver to each
Investor a written notice which shall set forth the relevant Holdback
Event.  Schedule 1 attached
hereto shall set forth the name, address, Investment Amount and delivery
instructions for any partial liquidated damages contemplated hereby of each
Investor.

     

    4.           Interpleader.  Should
any controversy arise among the parties hereto with respect to this Agreement or
with respect to the right to receive the Escrowed Funds, the Escrow Agent shall
have the right to consult counsel and/or to institute an appropriate
interpleader action to determine the rights of the parties. The Escrow Agent is
also hereby authorized to institute an appropriate interpleader action upon
receipt of a written letter of direction executed by the parties so directing
the Escrow Agent. If the Escrow Agent is directed to institute an appropriate
interpleader action, it shall institute such action not prior to thirty (30)
days after receipt of such letter of direction and not later than sixty (60)
days after such date. Any interpleader action instituted in accordance with this
Section 4 shall be filed in any court of competent jurisdiction in New York, and
the portion of the Escrowed Funds in dispute shall be deposited with the court
and in such event the Escrow Agent shall be relieved of and discharged from any
and all obligations and liabilities under and pursuant to this Agreement with
respect to that portion of the Escrowed Funds.

     

                  5.Exculpation and
Indemnification of Escrow Agent and Investors.

     

    5.1           The
Escrow Agent shall have no duties or responsibilities other than those expressly
set forth herein. The Escrow Agent and the Investors shall have no duty to
enforce any obligation of any person other than itself to make any payment or
delivery, or to direct or cause any payment or delivery to be made, or to
enforce any obligation of any person to perform any other act. The Escrow Agent
and the Investors shall be under no liability to the other parties hereto or
anyone else, by reason of any failure, on the part of any other party hereto or
any maker, guarantor, endorser or other signatory of a document or any other
person, to perform such person’s obligations under any such document. Except for
amendments to this Agreement referenced below, and except for written
instructions given to the Escrow Agent by the Company and a Majority in Interest
of the Investors relating to the Escrowed Funds, the Escrow Agent shall not be
obligated to recognize any other agreement.

     

    5.2           Neither
the Escrow Agent nor the Investors shall be liable to the Company or to anyone
else for any action taken or omitted by it, or any action suffered by it to be
taken or omitted, in good faith and acting upon any order, notice, demand,
certificate, opinion or advice of counsel (including counsel chosen by the
Escrow Agent), statement, instrument, report, or other paper or document (not
only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any information
therein contained), which is believed by the Escrow Agent or the Investors to be
genuine and to be signed or presented by the proper person or persons.

     

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    The
Escrow Agent shall not be bound by any of the terms thereof, unless evidenced by
written notice delivered to the Escrow Agent signed by the proper party or
parties and, if the duties or rights of the Escrow Agent are affected, unless it
shall give its prior written consent thereto.

     

    5.3           Neither
the Escrow Agent nor the Investors shall be responsible for the sufficiency or
accuracy of the form, or of the execution, validity, value or genuineness of,
any document or property received, held or delivered to it hereunder, or of any
signature or endorsement thereon, or for any lack of endorsement thereon, or for
any description therein; nor shall the Escrow Agent or the Investors be
responsible or liable to the Company or to anyone else in any respect on account
of the identity, authority or rights, of the person executing or delivering or
purporting to execute or deliver any document or property or this Agreement. The
Escrow Agent shall have no responsibility with respect to the use or application
of the Escrowed Funds pursuant to the provisions hereof.

     

    5.4           The
Escrow Agent shall have the right to assume, in the absence of written notice to
the contrary from the proper person or persons, that a fact or an event, by
reason of which an action would or might be taken by the Escrow Agent, does not
exist or has not occurred, without incurring liability to the Company or to
anyone else for any action taken or omitted to be taken or omitted, in good
faith and in the exercise of its own best judgment, in reliance upon such
assumption.

    

    5.5           To
the extent that the Escrow Agent becomes liable for the payment of taxes,
including withholding taxes, in respect of income derived from the investment of
the Escrowed Funds, or any payment made hereunder, the Escrow Agent may pay such
taxes; and the Escrow Agent may withhold from any payment to the Company of the
Escrowed Funds such amount as the Escrow Agent estimates to be sufficient to
provide for the payment of such taxes not yet paid, and may use the sum withheld
for that purpose. The Escrow Agent shall be indemnified and held harmless by the
Company against any liability for taxes and for any penalties in respect of
taxes, on such investment income or payments in the manner provided in Section
5.6.

    

    5.6           The
Escrow Agent will be indemnified and held harmless by the Company from and
against all expenses, including all reasonable counsel fees and disbursements,
or loss suffered by the Escrow Agent in connection with any action, suit or
proceedings involving any claim, or in connection with any claim or demand,
which in any way, directly or indirectly, arises out of or relates to this
Agreement, the services of the Escrow Agent hereunder, except for claims
resulting from the gross negligence or willful malfeasance of the Escrow Agent
or breach of this Agreement by the Escrow Agent, or the monies or other property
held by it hereunder. Promptly after the receipt of the Escrow Agent of notice
of any demand or claim or the commencement of any action, suit or proceeding,
the Escrow Agent shall, if a claim in respect thereof is to be made against the
Company, notify it thereof in writing, but the failure by the Escrow Agent to
give such notice shall not relieve any such party from any liability which the
Company may have to the Escrow Agent hereunder.

     

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    5.7           For
purposes hereof, the term “expense or loss” shall include all amounts paid or
payable to satisfy any claim, demand or liability, or in settlement of any
claim, demand, action, suit or proceeding settled with the express written
consent of the Escrow Agent, and all costs and expenses, including, but not
limited to, reasonable counsel fees and disbursements, paid or incurred in
investigating or defending against any such claim, demand, action, suit or
proceeding.

     

    6.            Resignation of Escrow
Agent.  The Escrow Agent may resign at any time and be
discharged from its duties as Escrow Agent hereunder by giving the Company and
the Investors at least ten (10) Business Days written notice thereof (the “Notice Period”). As soon as
practicable after its resignation, the Escrow Agent shall, if it receives notice
from the Company within the Notice Period, turn over to a successor escrow agent
appointed by the Company all Escrowed Funds (less such amount as the Escrow
Agent is entitled to retain pursuant to Section 8) upon presentation of the
document appointing the new escrow agent and its acceptance
thereof.  If no new agent is so appointed within the Notice Period,
the Escrow Agent shall return the Escrowed Funds to or as directed by the
Investors who delivered the same, without interest or deduction with the
understanding that such Escrowed Funds will continue to be subject to the
provisions of this Agreement.

     

    7.           Form of Payments by Escrow
Agent.

     

    7.1           Any
payments of the Escrowed Funds by the Escrow Agent pursuant to the terms of this
Agreement shall be made by wire transfer unless directed to be made by check by
the receiving party.

     

    7.2           All
amounts referred to herein are expressed in United States Dollars (US$) and all
payments by the Escrow Agent shall be made in such dollars.

     

    8.           Compensation.  At
the Closing, the Company shall pay a fee to the Escrow Agent of $ 1,000.00 (it
being understood that no Investor shall be responsible to pay the Escrow Agent
any compensation or fees hereunder). Interest payments, if any, will be shared
equally at the prevailing bank rate.

     

    9.           Notices.  All
notices, requests, demands, and other communications provided herein shall be in
writing, shall be delivered by hand or by first-class mail, shall be deemed
given when received and shall be addressed to parties hereto at their respective
addresses All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if sent by hand-delivery, by facsimile (followed by first-class
mail), by nationally recognized overnight courier service or by prepaid
registered or certified mail, return receipt requested, to the addresses set
forth below.

     

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    
      	 	If to
    Investors:
	 	 
	 	To
      the address set forth on the signature pages hereto.
	 	 
	
               
      

            	
              With a copy
      to:

               

              Winston
      & Strawn LLP

              200 Park Avenue

              New
      York, NY 10166

              Facsimile:  (212)
      294-4700

              Attn.:  Eric
      L. Cohen, Esq.

               

                    
                 

                If to the
      Company:

                 

                China
      Valves Technology, Inc.

                No.93
      West Xinsong Road

                Kaifeng
      City, Henan Province, People’s Republic of China

                Facsimile:  86-378-292-4630

                Attention:  Chief
      Executive Officer

                 

                 

                With a copy to:

                
                   

                  Thelen
      Reid Brown Raysman & Steiner LLP

                  701
      8th
      Street NW

                  Washington,
      D.C. 20001

                  Facsimile:  (202)
      654-1804

                  
                    Attn.:  Louis
      A. Bevilacqua, Esq.

                     

                     

                    If to Escrow
      Agent:

                    
                       

                      Escrow,
      LLC

                      20
      Rock Pointe, Suite 204

                      Warrenton,
      VA 20186

                      Attention:
      Johnnie Zarecor

                      Telephone:
      (540) 347-2212

                      Fax:  (540)
      347-2291

                      Email:
      jzarecor@escrowllc.net

                    

                  

                

              

            

    

     

    10.           Further
Assurances.  From time to time on and after the date hereof, the
Company shall deliver or cause to be delivered to the Escrow Agent such further
documents and instruments and shall do and cause to be done such further acts as
the Escrow Agent shall reasonably request (it being understood that the Escrow
Agent shall have no obligation to make any such request) to carry out more
effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder.

     

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

     

    11.           Miscellaneous.

     

    11.1           This
Agreement shall be construed without regard to any presumption or other rule
requiring construction against the party causing such instrument to be drafted.
The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as used in
this Agreement, refer to the Agreement in its entirety and not only to the
particular portion of this Agreement where the term is used. The word “person”
shall mean any natural person, partnership, corporation, government and any
other form of business of legal entity. All words or terms used in this
Agreement, regardless of the number or gender in which they were used, shall be
deemed to include any other number and any other gender as the context may
require. This Agreement shall not be admissible in evidence to construe the
provisions of any prior agreement.

     

    11.2           This
Agreement and the rights and obligations hereunder of the Company may be
assigned by the Company only following the prior written consent of the Majority
in Interest of the Investors. This Agreement and the rights and obligations
hereunder of the Escrow Agent may be assigned by the Escrow Agent only with the
prior consent of the Company and the Majority in Interest of the
Investors.  An Investor may assign its rights under this Agreement
without any consent from any other party.  This Agreement may not be
changed orally or modified, amended or supplemented without an express written
agreement executed by the Escrow Agent, the Company and the Majority in Interest
of the Investors. This Agreement is binding upon and intended to be for the sole
benefit of the parties hereto and their respective successors, heirs and
permitted assigns, and none of the provisions of this Agreement are intended to
be, nor shall they be construed to be, for the benefit of any third
person.

     

    11.3           This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York. The representations and warranties contained in
this Agreement shall survive the execution and delivery hereof and any
investigations made by any party. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement shall be commenced exclusively in the state and
federal courts sitting in the City of New York, Borough of Manhattan (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, and hereby irrevocably waives, and
agrees not to assert in any such 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.

     

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

     

    11.4           The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect any of the terms thereof.  This Agreement
may be executed in a number of counterparts, by facsimile, each of which shall
be deemed to be an original as of those whose signature appears thereon, and all
of which shall together constitute one and the same instrument. This Agreement
shall become binding when one or more of the counterparts hereof, individually
or taken together, are signed by all the parties.

    

    

    

    [Remainder of page intentionally
blank-signature pages follow]

    

    

     

     

    
 

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement on the
day and year first above written.

     

    

     

    ESCROW
AGENT

     

    ESCROW,
LLC

    

    

    By:_________________________________

    Name:  Johnnie
L. Zarecor

    Title:
Vice-President

    

    THE
COMPANY

    CHINA
VALVES TECHNOLOGY, INC.

    

    

    By:_________________________________

    Name:  Siping
Fang

    Title:
Chief Executive Officer

    

    

    NAME
OF INVESTOR:

     

    ____________________________________

     

    By:_____________________

     

    Name:

     

    Title:

     

    

    
 

     

    [Signature
page to Holdback Escrow Agreement]

     

    11

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