Asset Purchase Agreement Between Jining Huayi Light Industry Machinery Co., Ltd. (as Seller) and Kadant Jining Light Machinery Co. Ltd. (as Buyer)

1.1

Subject to due fulfillment of all Conditions Of Closing (as hereinafter defined) Kadant WFOE agrees to buy from Huayi and Huayi agrees to sell to Kadant WOFE with effect from and as of the Closing Date (as hereinafter defined) the following assets and business (hereinafter collectively referred to as “Purchased Assets and Business”), which are composed of:

(a)

Huayi Main Assets – Huayi Main Assets shall include the following items:

•

All related land use rights relating to the properties located in Jining High & New Tech Industries Development Zone and Yanzhou and the buildings located thereon (Hereinafter collectively referred to as “Facilities”); property, plant and equipment, including factory equipment, office furniture, vehicles and transportation equipment, leasehold improvements, tooling, dies, molds and related tooling located on the Facilities (Hereinafter collectively referred to as “Fixed Assets”; A list of the Fixed Assets as described herein and their approximate values is attached as Schedule 1(a) attached hereto); Detailed information regarding the transfer of land use right and building for each Facility will be provided in Land-use Right and Building Transfer Agreement which is attached hereto as Annex 1.

•

finished goods, work-in-progress and raw materials inventory (Hereinafter collectively referred to as “Inventory”;

•

Intellectual property and other intangible assets, including all registered and unregistered patents, trademarks, trade names, domain names, trade secrets, copyrights, licenses, product designs, service marks, logos, manufacturing processes, production know-how and any other intellectual or intangible asset owned or used by Huayi (Hereinafter collectively referred to as “Intellectual Property”) as listed in Schedule 1 (e) hereto;

•

all customer deposits relating to contracts assumed by or assigned to Kadant WFOE pursuant to Article 1.2 hereto or for which shipment of equipment has not been made as of the Closing Date (as defined below) (all such customer deposits shall be listed on the date hereof on Schedule 1 (c) hereto); and

•

all assets located on the Facilities;

•

all other assets owned by Huayi and used in the operation of the Purchased Assets and Business whether located on the Facilities or elsewhere.

(b)

Huayi Business – Huayi Business shall include the following items:

•

A list of all of the persons, whether individual, legal or other nature, to whom Huayi has sold or otherwise supplied products, directly or indirectly, after January 1 ^st , 2004 until the Closing Date (individually, a “Customer” and collectively the “Customers”), including related information as to the unit and currency volume of such sales, the type of products so sold or supplied, the method of distribution and other relevant marketing and product information for each Customer (hereinafter the “Customer List”) as set forth in the Schedule entitled “Customer List” which is listed as Schedule 2 (a) hereto and shall be consistently updated by Huayi from signing this Agreement and the updated version be delivered to Kadant WFOE at the Closing Date;

•

Subject to all consents required from third persons, whether individual, legal or governmental authority, in form and manner so as to be effective under PRC law at the Closing Date, all rights, claims, benefits and interests of Huayi in and to all contracts and agreements in relation to delivery of products to Customers, in relation to distribution and agency for products and in relation to supply of raw materials which are not fulfilled by either of the contractual parties thereto at the Closing Date as set forth in Schedule entitled “Assigned Contracts” which shall be consistently updated by Huayi and be delivered by Huayi to Kadant WFOE on Closing and which have specifically been accepted by Kadant WFOE’s legal representative or authorized person on Closing by making a written mark “accepted by Kadant WFOE” in the Schedule entitled “Assigned Contracts” pursuant to Article 12.2 (collectively the “Assigned Contracts”) and which is listed as Schedule 2 (b) hereto

•

Books and records, including, without limitation, all files, invoices (or copies in case Huayi is required by applicable law to retain the original invoice), forms, accounts, correspondence, production records, technical, accounting, manufacturing and procedural manuals, studies, reports or summaries and other books and records relating to the Huayi Business and the Purchased Assets, and all documentation relating to Huayi’s Production Know-how, which has been reduced to writing or other tangible medium (collectively the “Business Records”).

1.2

Liabilities:

2.1

The contracts listed in the Schedule 2 (to be updated at closing) “Assigned Contracts” shall be delivered by Huayi to Kadant WFOE on Closing as set forth in Article 1.1. In case such contracts or agreements have only been concluded orally, the terms and conditions thereof shall be detailed in the Schedule “Assigned Contracts” as well. Before Closing Huayi shall have taken all actions necessary to assign all Assigned Contracts to Kadant WFOE including to obtain all consents, approvals, authorizations and other requirements (collectively “Consents”) necessary for the legally effective transfer of such contracts and, in case such contracts have

been concluded by Huayi only orally, said Consents shall include the confirmation of the consenting party of the contractual terms and conditions of such contracts. In addition, Huayi shall from the Effectiveness Date (as hereinafter defined) provide Kadant WFOE with copies, if any, of such contracts.

2.2

The Schedule entitled “Mortgaged Assets” attached hereto in Schedule 1 sets forth a list of all Purchased Assets, which are mortgaged to or otherwise encumbered by third party rights (hereinafter the “Mortgaged Assets”). Both Parties agree that the mortgage over the Mortgaged Assets shall be cancelled in accordance with the Agreement on Cancellation of Mortgage signed among Huayi, Kadant WFOE and relevant bank. Such Agreement is attached hereto as Annex 2. Huayi undertakes to deliver and transfer to Kadant WFOE, on Closing, the Mortgaged Assets free of any such third party rights as well as proof satisfactory to Kadant WFOE that any such third party rights have been cancelled with the competent authorities and the related entitled third parties.

3.1

For any registered (or registered application for) Intellectual Property as described in the Schedule “Intellectual Property” in Schedule 1, Huayi shall enter into assignment contract with Kadant and deliver all necessary documents to Kadant WFOE vest legal ownership and to allow Kadant WFOE to register the Intellectual Property in its name. Kadant shall be responsible to go through with the transfer formalities and pay relevant fees. Huayi shall cooperate with Kadant WFOE in such regard with reasonable efforts, including by signing any transfer instrument or other documents that may be required statutorily or by the competent authorities for such purposes.

3.2

In the event the Intellectual Property transfers cannot be registered by the time the other conditions of Closing are completed then this shall not delay Closing but the registration will need to be done promptly by Huayi and Kadant.

3.3

Further if the Intellectual Property is not registered by Closing then Huayi will grant to Kadant WFOE a worldwide exclusive and royalty free license to use the Intellectual Property until registered in Kadant WFOE’s name. Huayi will also agree to enforce the patents against third parties infringement if requested by Kadant WFOE at Kadant WFOE’s expense.

4.1

Kadant WFOE agrees to take over all of the employees actively employed by Huayi on the Closing Date and who are willing to join the Kadant WFOE. A list of the Huayi Employees is attached hereto as Schedule 3. All employees who shall join the Kadant WFOE shall before Closing enter into:

(a)

new labor contracts with Kadant WFOE for a duration of not less than the remaining term of their employment contracts with Huayi, containing confidentiality provisions acceptable to Kadant WFOE.

4.2

Kadant WFOE shall increase the salaries of the factory workers in amounts determined in its sole discretion after such Employees have joined Kadant WFOE. Although the Parties agree Kadant WFOE shall have no obligation to change the salaries of the other employees, Kadant WFOE undertakes that the salary of other employees will not be decreased on or after the Closing Date, unless their positions or responsibilities are changed.

4.3

Kadant WFOE will agree to provide an allowance to employees with 10 years or less to retirement identified in Schedule 5 who are notified after the Closing Date by Kadant WFOE that their services are no longer necessary, provided that employees who are Shareholders shall

be required to sign Annex 3 as a condition to receiving such allowance. During the period from notification until the employee’s retirement date, Employees in Schedule 5(a) shall receive an amount equal to an average of 700 RMB/month in gross, Employees in Schedule 5(b) shall receive an average of 900 RMB/month in gross. Employees shall not be entitled to such any other salary or other wage compensation. The allowance will be calculated individually consistent with the formula in relation to Jining Huayi’s currently applicable regulations on internal retirement which is attached hereto as Schedule 6. Kadant WFOE will pay social insurance and housing allowance in accordance with Chinese law.

5.1

After the Closing Date and for a period of 10 years for Huayi and for a period of 3 years the Shareholders (listed on Schedule 7 attached hereto) shall not directly or indirectly:

(a)

engage in manufacturing businesses related to the machinery and parts manufacture, sales and sevices related business that competes with the Kadant or the Huayi Business (the “Machinery Business”);

(b)

make use of the Intellectual Property other than to transfer such to Kadant WFOE;

(c)

establish or acquire an enterprise or other business unit which competes with the Machinery Business;

(d)

compete, directly or indirectly, through employment, ownership or otherwise in any other manner with the Machinery Business; or

(e)

establish or invest in any facilities to produce, distribute or sell or which provide after-sales service, installation or other services for the Machinery Business.

5.2

Obligation of Secrecy

(a)

Kadant WFOE, Huayi and the Shareholders acknowledge that in connection with their association with the Huayi Business, they have confidential information pertaining to the Huayi Business. Kadant WFOE, Huayi and the Shareholders each undertake to keep strictly confidential both, all Intellectual Property as well as all information of a confidential nature pertaining to the business of Huayi (hereinafter collectively the “Confidential Information”), and that none of Kadant WFOE, Huayi, the Shareholders or their affiliates will disclose, directly or indirectly, any Confidential Information to any person or entity, except to only use such Confidential Information to the extent as this is indispensably required for the due performance of this Agreement. Kadant WFOE, Huayi and the Shareholders commit themselves to prevent unauthorized third parties from getting access to such Confidential Information and documents related thereto.

(b)

If the transfer of some Confidential Information to third parties is indispensably required for the due performance of this Agreement then Kadant WFOE, Huayi and/or the Shareholders shall do so only with the prior express written consent of the other parties. In addition, Kadant WFOE, Huayi and the Shareholders shall in any such case keep account of the whereabouts of the said Confidential Information and shall deliver to Kadant WFOE promptly at any time that Kadant WFOE may so request, all memoranda, notes, records (including electronic data records), report and other documents (and all copies thereof) relating to the Confidential Information which they may then possess or have within their control.

(c)

The obligation of secrecy set out in Article 5.2 herein shall survive any termination of this Agreement and shall remain in place until November 3 ^rd , 2015.

(d)

The foregoing provisions shall not apply to Kadant WFOE, Huayi and the Shareholders to the extent Kadant WFOE or Huayi and/or the Shareholders proves that

(aa)

the Confidential Information was rightfully disclosed to Kadant WFOE or Huayi and/or the Shareholders after the Closing Date by a third party through

no fault of Kadant WFOE or Huayi and/or the Shareholder and without the third party having any obligation of confidentiality or restriction of use therefrom; or

(bb)

the Confidential Information at the time of transfer was already generally known to the public through no fault of Kadant WFOE or Huayi or the Shareholders; or

(cc)

the Confidential Information after transfer becomes publicly known other than as a result of a breach of this Agreement or other confidentiality obligation of Kadant WFOE or Huayi and/or the Shareholders are bound to.

5.3

In the event of any violation or threatened violation of the covenants contained in this Article 5, in addition to any other remedy available at law or in equity, the affected party shall (i) have the right and remedy of specific enforcement, including injunctive relief, it being acknowledged and agreed that any such violation or threatened violation will cause irreparable injury and that monetary damages will not provide an adequate remedy, and (ii) if successful in its claim again the violating party, be reimbursed by the violating party for the actual costs and expenses incurred in pursuing rights under this Article 5, including reasonable attorneys’ fees and other litigation expenses incurred.

6.1

The purchase price (hereinafter the “Preliminary Purchase Price”) for the Purchased Assets and Business is RMB 156,161,923 .

6.2

The Preliminary Purchase Price shall be adjusted upon Closing in accordance with the following stipulations:

7.1

The Parties agree that the Final Purchase Price shall be paid by Kadant WFOE to Huayi in accordance with the following stipulations:

(a)

An amount required to cancel the mortgage shall be paid in accordance with Article 13.2(l) hereof and the Agreement on Cancellation of Mortgage to Kadant WFOE’s special account (Fund to Cancel Mortgage);

(b)

An amount equal to the total payments received from customers in connection with Assigned Contracts shall be deducted and paid to Kadant WFOE;