STOCK AND NOTES PURCHASE AGREEMENT

___________________________________________________________________________

STOCK AND NOTES PURCHASE AGREEMENT

by and among

China Recycling Energy Corporation

Sifang Holdings Co., Ltd.

Shanghai TCH Energy Technology Co., Ltd.

and

Carlyle Asia Growth Partners III, L.P.

CAGP III Co-Investment, L.P.

November 16, 2007

___________________________________________________________________________

TABLE ON CONTENTS
(continued)

ii

TABLE ON CONTENTS
(continued)

iii

TABLE ON CONTENTS
(continued)

iv

TABLE ON CONTENTS
(continued)

v

STOCK AND NOTES PURCHASE AGREEMENT

This STOCK AND NOTES PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of November 16, 2007 (the “ Effective Date ”), by and among China Recycling Energy Corporation, a Nevada corporation (the “ Company ”), Sifang Holdings Co., Ltd., a company organized under the Laws of the Cayman Islands (“ Sifang ”), Shanghai TCH Energy Technology Co., Ltd., a wholly-foreign-owned enterprise organized under the Laws of the People’s Republic of China (“ TCH ” and together with the Company and Sifang, the “ Company Group ”), and Carlyle Asia Growth Partners III, L.P., a limited partnership organized under the Laws of the Cayman Islands (“ CAGP ”), and CAGP III Co-Investment, L.P., a limited partnership organized under the Laws of the Cayman Islands (together with CAGP, each, an “ Investor ” and collectively, the “ Investors ”).  Each of the Company, Sifang, TCH and the Investors is referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

The Company proposes to issue, and the Investors proposes to purchase, (i) a senior secured convertible note in the principal amount of $5,000,000, substantially in the form attached hereto as Exhibit A (the “ First Note ”), (ii) 4,066,706 shares (the “ Shares ”) of common stock, US$0.001 par value, of the Company (the “ Common Stock ”), and (iii) a senior secured convertible note in the principal amount of $15,000,000, substantially in the form attached hereto as Exhibit B (the “ Second Note ”), pursuant to the terms and subject to the conditions of this Agreement. The First Note and Second Note are sometimes referred to as the “ Notes ”.

WITNESSETH

NOW, THEREFORE, in consideration of the foregoing, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

1.

Definitions.  The following terms shall have the meanings ascribed to them below:

“ Affiliate ” means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person.

“ Agreement ” has the meaning set forth in the Preamble of this Agreement.

“ Arbitration Notice ” has the meaning set forth in Section 11.6(b) hereof.

“ Board ” or “ Board of Directors ” means the board of directors of the Company.

“ Business Day ” means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in New York, USA.

“ Business Plan ” has the meaning set forth in Section 5.10 hereof.

“ CFC ” means a controlled foreign corporation as defined in the Code.

1

“ Charter Documents ” has the meaning set forth in Section 3.9 hereof.

“ Closing ” has the meaning set forth in Section 2.2 hereof.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Common Stock ” is defined in the Recitals.

“ Company ” has the meaning set forth in the Preamble of this Agreement.

“ Company Group ” has the meaning set forth in the Preamble of this Agreement.

“ Confidential Information ” has the meaning set forth in Section 9.1 hereof.

“ Contract ” means, as to any Person, any provision of any security issued by such Person or any oral or written contract, agreement, undertaking, understanding, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, or license to which such Person is a party or by which such Person or any of its property is bound.

“ Control ” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; provided , that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person.  The terms “Controlled” and “Controlling” have meanings correlative to the foregoing.

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

“ Disclosing Party ” has the meaning set forth in Section 9.1(c) hereof.

“ Disclosure Schedule ” has the meaning set forth in Section 3 hereof.

“ Dispute ” has the meaning set forth in Section 11.6(a) hereof.

“ Effective Date ” has the meaning set forth in the Preamble of this Agreement.

“ Environmental Laws ” has the meaning set forth in Section 3.18 hereof.

“ FCPA ” means the United States Foreign Corrupt Practices Act of 1977, as amended.

“ Financial Statements ” has the meaning set forth in Section 3.10 hereof.

“ First Note ” has the meaning set forth in the Recitals.

2

“ First Note Purchase Price ” has the meaning set forth in Section 2.1 hereof.  

“ Governmental Authority ” means any nation or government or any federation, province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the U.S., Cayman Islands, PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

“ HKIAC ” has the meaning set forth in Section 11.6(c) hereof.

“ Indebtedness ” shall mean (i) indebtedness for borrowed money, including indebtedness evidenced by a note, bond, debenture or similar instrument, and any guarantees, endorsements or keep-well obligations or other contingent obligations in respect thereof, (ii) obligations to pay rent or other amounts under any lease of real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet under U.S. GAAP, but excluding leases of capital equipment entered into in the ordinary course of business not deemed material under U.S. GAAP in the applicable Person’s financial statements, in each case consistent with past practice, or (iii) obligations in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such Person.

“ Indemnifiable Loss ” means, with respect to any Person, any action, cost, damage, disbursement, expense, liability, loss, deficiency, diminution in value, obligation, penalty or settlement of any kind or nature.  Notwithstanding anything to the contrary provided in the preceding sentence, “ Indemnifiable Loss ” shall include, but shall not be limited to, (i) interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person and (ii) any Taxes that may be payable by such Person by reason of the indemnification of any Indemnifiable Loss hereunder, other than Taxes that would have been payable notwithstanding the event giving rise to indemnification.

“ Indemnified Party ” has the meaning set forth in Section 11.3(b) hereof.

“ Indemnifying Party ” has the meaning set forth in Section 11.3(b) hereof.

“ Initial Closing ” has the meaning set forth in Section 2.2 hereof.

“ Investor(s) ” has the meaning set forth in the Preamble of this Agreement.

“ Intellectual Property ” means all patents, patent applications, trademarks, service marks, trade names, copyrights, trade secrets, processes, compositions of matter, formulas, designs, inventions, proprietary rights, know-how and any other confidential or proprietary information owned or otherwise used by the Company Group.

“ Key Employee ” means, with respect to any Person, the president, chief executive officer, the chief financial officer, the chief operating officer, the chief technical officer, the chief sales and marketing officer, the general manager, any other manager with the title of “vice-president” or higher or any other employee with responsibilities similar to any of the foregoing, of such Person.  For purposes of this Agreement, “Key Employee” includes any current Key Employee of Yingfeng who will be executing an employment agreement with TCH as contemplated by this Agreement.

3

“ Knowledge ” means, with respect to any Person, the actual knowledge of such Person and that knowledge which should have been acquired by such Person after making such due inquiry and exercising such due diligence as a prudent business person would have made or exercised in the management of his or her business affairs, including but not limited to due inquiry of all officers, directors, employees, consultants and professional advisers (including attorneys, accountants and auditors) of the Person and of its Affiliates who could reasonably be expected to have knowledge of the matters in question.

“ Law ” or “ Laws ” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.

“ Liabilities ” means, with respect to any Person, all liabilities owing by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

“ Lien ” means any mortgage, pledge, claim, security interest, encumbrance, title defect, lien, charge or other restriction or limitation.

“ Management Incentive Plan ” means that certain management incentive plan established by the Company.  

“ Management Stock Option ” means any option to purchase Common Stock granted under the Management Incentive Plan.  

“ Material Adverse Effect ” means with respect to any Person, any event, occurrence, fact, condition, change or development that (i) has or is reasonably like to have a material adverse effect on the operations, results of operations, financial condition, prospects, assets or liabilities of such Person, or (ii) materially impairs or is reasonably likely to materially impair the ability to perform the material obligations of such Person hereunder or under any Transaction Document or any Material Contract of such Person, as applicable.  In the case of any member of the Company Group, any Material Adverse Effect with respect to such member of the Company Group shall be deemed to constitute a Material Adverse Effect with respect to all of the members of the Company Group.

“ Material Contracts ” has the meaning set forth in Section 3.14(i) hereof.

“ Notes ” has the meaning set forth in the Recitals.

“ Party ” has the meaning set forth in the Preamble of this Agreement.

4

“ Permitted Liens ” means (i) Liens for taxes not yet delinquent or the validity of which are being contested and (ii) Liens incurred in the ordinary course of business, which (x) do not in the aggregate materially detract from the value of the assets that are subject to such Liens and (y) were not incurred in connection with the borrowing of money.

“ Permits ” has the meaning set forth in Section 3.19(b) hereof.

“ Person ” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

“ PFIC ” means a passive foreign investment company as defined in the Code.

“ PRC ” means the People’s Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and the islands of Taiwan.

“ Principal Shareholders ” means the shareholders of the Company party to the Shareholders Agreement.

“ Project Contracts ” means contracts, memoranda of understanding, term sheets or bids for contracts relating to the provision of energy saving and recycling products, systems and services (such as TRT, CHPG, GTPG, and CGGE), including the design, construction, installation, operation, leasing and/or sale of such products, systems or services.

 “ Purchased Securities ” has the meaning set forth in Section 3.27 hereof.

“ Qualified Accounting Firm ” has the meaning set forth in Section 5.5(b) hereof.

“Registration Rights Agreement ” ” means the Registration Rights Agreement entered into by the Company and the Investors on the date hereof, in the form attached hereto as Exhibit D.

“ Related Party ” has the meaning set forth in Section 3.21 hereof.

“ SAFE ” means the State Administration of Foreign Exchange of the PRC.

“ SEC ” means the U.S. Securities and Exchange Commission.

“ SEC Reports ” has the meaning set forth in Section 3.11(a) hereof.

“ Second Closing ” has the meaning set forth in Section 2.2 hereof.

“ Second Note Purchase Price ” has the meaning set forth in Section 2.1 hereof.  

“ Securities Act ” means the U.S. Securities Act of 1933, as amended and interpreted from time to time.

5

“ Shareholders Agreement ” means the Shareholders Agreement entered into by and among the parties thereto as of the date hereof, in the form attached hereto as Exhibit C .

“Share Pledge Agreement ” means the Share Pledge Agreement entered into by the Principal Shareholders and the Investors on the date hereof, in the form attached hereto as Exhibit E .

“ Shares ” has the meaning set forth in the Recitals.

“ Shares Purchase Price ” has the meaning set forth in Section 2.1 hereof.

“ Social Insurance ” has the meaning set forth in Section 3.23 hereof.

“ Subsidiary ” means, with respect to any specified Person, any other Person Controlled by the specified Person, directly or indirectly, whether through contractual arrangements or through ownership of equity securities, voting power or registered capital.

“ Tax ” means any national, provincial or local income, sales and use, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance or withholding tax or any other type of tax, levy, assessment, custom duty or charge imposed by any Governmental Authority, any interest and penalties (civil or criminal) related thereto or to the nonpayment thereof, and any loss or Liabilities incurred in connection with the determination, settlement or litigation of any Liabilities arising therefrom.

“ Tax Return ” means any tax return, declaration, report, estimate, claim for refund, claim for extension, information return, or statement relating to any Tax, including any schedule or attachment thereto.

“ Transaction Documents ” means this Agreement, the Shareholders Agreement, the  Registration Rights Agreement and the Share Pledge Agreement, and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.

“ U.S. GAAP ” means generally accepted accounting principles in the United States, applied on a consistent basis.

“ US$ ” means United States dollars, the lawful currency of the United States.

“ Yingfeng Contract ” has the meaning set forth in Section 3.16(a) hereof.

“ Zheng Transactions ” means the transactions contemplated by that certain Asset Transfers and Share Issuance Agreement and Common Stock Purchase Agreement by and between the Company and Hanqiao Zheng, each dated as of November 14, 2007.

6

2.

Purchase and Sale.

2.1

Sale and Issuance of the Shares and the Notes.   Subject to the terms and conditions of this Agreement:

(a)

at the Initial Closing (as defined below), the Company will issue and sell to the Investors, and the Investors will purchase from the Company, the First Note, for an aggregate purchase price of US$5,000,000 (the “ First Note Purchase Price ”).  The First Note will be secured by a perfected first priority Lien on 50% of all of the equity interests of the pledgor under the Share Pledge Agreement.

(b)

at the Second Closing (as defined below), the Company will issue and sell to the Investors, and the Investors will subscribe for and purchase, the Shares, for an aggregate purchase price of US$5,002,048.38 (the “ Share Purchase Price ”); and

(c)

at the Third Closing (as defined below), the Company will issue and sell to the Investors, and the Investors will purchase from the Company, the Second Note, for an aggregate purchase price of US$15,000,000 (the “ Second Note Purchase Price ”).  The Second Note will be secured by a perfected first priority Lien (pari passu with the First Note) on 50% of all of the equity interests of the pledgor under the Share Pledge Agreement.

2.2

Closings.

(a)

Initial Closing.  The consummation of the sale and issuance of First Note pursuant to Section 2.1(a) (the “ Initial Closing ”) shall take place remotely via the exchange of documents and signatures as soon as practicable after all closing conditions specified in Section 6 hereof have been waived or satisfied in accordance thereto, or at such time and place as the Company and the Investors shall mutually agree upon, orally or in writing.  If at the Initial Closing any of the closing conditions specified in Section 6 of this Agreement shall not have been fulfilled, the Investors shall, at their election, be relieved of all of their obligations under this Agreement without thereby waiving any other right such the Investors may have by reason of such failure or such non-fulfillment.  At the Initial Closing, the Company shall deliver to the Investors the First Note, duly executed, and the Investors shall pay the First Note Purchase Price within 10 days of the Initial Closing, by check or wire transfer to a bank account designated in writing by the Company prior to the Initial Closing.

(b)

Second Closing.  The consummation of the sale and issuance of the Shares pursuant to Section 2.1(b) (the “ Second Closing ”) shall take place remotely via the exchange of documents and signatures as soon as practicable after all closing conditions specified in Section 6 and Section 7 hereof have been waived or satisfied in accordance thereto, or at such time and place as the Company and the Investors shall mutually agree upon, orally or in writing.  If at the Second Closing any of the closing conditions specified in Section 6 and Section 7 of this Agreement shall not have been fulfilled, the Investors shall, at their election, be relieved of all of their further obligations under this Agreement without thereby waiving any other right such Investors may have by reason of such failure or such non-fulfillment.  At the Second Closing, the Company shall deliver to the Investors  a certificate or certificates representing the Shares (or through its share transfer agent as applicable), and the Investors shall pay the Share Purchase Price within 10 days of the Initial Closing, by check or wire transfer to a bank account designated in writing by the Company prior to the Second Closing.  The Shares shall be allocated among each Investor in accordance with Exhibit G hereto.

7

(c)

Third Closing.  The consummation of the sale and issuance of the Second Note pursuant to Section 2.2(c) (the “ Third Closing ”; for purposes of this Agreement, any reference to a “ Closing ” shall mean any of the Initial Closing, the Second Closing or the Third Closing, as the context requires) shall take place remotely via the exchange of documents and signatures as soon as practicable after all closing conditions specified in Section 6 ,   Section 7 ,  and Section 8 hereof have been waived or satisfied in accordance thereto, or at such time and place as the Company and the Investors shall mutually agree upon, orally or in writing.  If at the Third Closing any of the closing conditions specified in Section 6 ,   Section 7 ,  and Section 8 of this Agreement shall not have been fulfilled, the Investors shall, at their election, be relieved of all of their further obligations under this Agreement without thereby waiving any other right such Investors may have by reason of such failure or such non-fulfillment.  At the Third Closing, the Company shall deliver to the Investors the Second Note, duly executed, and the Investors shall pay the Second Note Purchase Price within 10 days of the Second Closing, by check or wire transfer to a bank account designated in writing by the Company prior to the Third Closing.

2.3

Use of Proceeds.  The proceeds from the First Note Purchase Price, Share Purchase Price,  and the Second Note Purchase Price shall be used by the Company to fund the capital investments required under its Business Plan and for its other working capital needs.

3.

Representations and Warranties of the Company Group.  Subject to such exceptions as may be specifically set forth in the disclosure schedule attached to this Agreement (the “ Disclosure Schedule ”), each member of the Company Group, jointly and severally, represents and warrants to the Investors that each of the statements contained in this Section 3 are true, complete and not misleading as of the date of this Agreement, and each of such statements shall be true, complete and not misleading on and as of the date of each Closing, with the same effect as if made on and as of the date of such Closing.  

3.1

Organization, Good Standing and Qualification.  Each member of the Company Group is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation.  Each member of the Company Group has all requisite legal and corporate power and authority to carry on its business as now conducted, and is duly qualified to transact business in each jurisdiction in which it conducts and proposes to conduct business.

3.2

Capitalization and Voting Rights.

(a)

As of the date of this Agreement, the authorized capital of the Company consists of 100,000,000 shares of Common Stock, of which (i) 17,147,268 shares of Common Stock are currently issued and outstanding, (ii) no shares of Common Stock are subject to options, and (iii) there are no other capital stock issued or authorized.

8

(b)

After giving effect to the Zheng Transactions and the adoption of the Management Incentive Plan, and as of the date of this Agreement, the authorized capital of the Company consists of, 100,000,000 shares of Common Stock, of which (i) 28,293,348 shares of Common Stock are issued and outstanding, (ii) 3,000,000 shares of Common Stock are subject to Management Stock Options under the Management Incentive Plan, and (iii) there are no other capital stock issued or authorized.

(c)

Other than the Management Incentive Plan, there are no outstanding (i) options, warrants or other rights to purchase from any member of the Company Group, (ii) agreements, contracts, arrangements or other obligations of the Company Group to issue, or (ii) other rights to convert any obligation into or exchange any securities for, in the case of each of clauses (i) through (iii), shares of capital stock of, or other ownership or equity interests in, the Company or any member of the Company Group.  Except as otherwise expressly contemplated by the Transaction Documents, no member of the Company Group is a party or subject to any agreement or understanding that affects or relates to (x) the voting or giving of written consents with respect to any security of any member of the Company Group (including, without limitation, any voting agreements, voting trust agreements, shareholder agreements or similar agreements) or the voting by a director of any member of the Company Group or (y) the sale, transfer or other disposition with respect to any security of any member of the Company Group.

(d)

All share capital of each member of the Company Group has been duly and validly issued (or subscribed for), fully paid and non-assessable and are free of Liens and any restrictions on transfer (except for any restrictions on transfer under applicable securities Law or as expressly contemplated under the Transaction Documents) and have been issued in compliance with the requirements of all applicable securities Laws and regulations, including, to the extent applicable, the Securities Act.  No share capital of any member of the Company Group was issued or subscribed to in violation of the preemptive rights of any Person, terms of any agreement or any Laws, by which each such Person at the time of issuance or subscription was bound.  There are no (i) resolutions pending to increase the share capital of any member of the Company Group; (ii) outstanding options, warrants, proxy, agreements, pre-emptive rights or other rights relating to the share capital of any member of the Company Group, other than as contemplated by this Agreement; (iii) outstanding Contracts or other agreements under which any member of the Company Group or any other Person purchases or may purchase or otherwise acquires or may acquire, any interest in the share capital of any member of the Company Group; (iv) dividends which have accrued or been declared but are unpaid by any member of the Company Group; or (v) outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any member of the Company Group.

(e)

Except as provided in the Registration Rights Agreement, no member of the Company Group has granted or agreed to grant any Person any registration rights (including piggyback registration rights) with respect to any of their securities.

3.3

Corporate Structure; Subsidiaries and Related Entities.

9

(a)

Schedule 3.3(a) of the Disclosure Schedule contains complete and correct lists of each Person in which the Company owns, directly or indirectly, any capital stock or similar equity interests, showing, as to each such Person, the legal name thereof, the jurisdiction of its organization, and the number and percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary.  Except otherwise disclosed in Schedule 3.3(a) of the Disclosure Schedule, no member of the Company Group owns or Controls, directly or indirectly, any interest in any other Person, other than members of the Company Group, as applicable, or is a participant in any joint venture, partnership or similar arrangement except for its interest and/or relationship with Xi’an Yingfeng Science and Techology Co., Ltd. (“ Yingfeng ”).

(b)

Schedule 3.3(b) of the Disclosure Schedule sets forth, as to Yingfeng, its  legal name, the jurisdiction of its organization, and the number and percentage of shares of each class of its capital stock or similar equity interests outstanding owned by any shareholder, officer or director or employee of the Company or any of its Subsidiaries.

(c)

The constitutional documents and certificates of TCH are valid and have been duly approved or registered (as applicable) by competent PRC Governmental Authorities.

(d)

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

3.4

Authorization.  Each member of the Company Group has all requisite legal and corporate power, and has taken all corporate action on the part of such Person, its officers, directors and shareholders as may be necessary for the authorization, execution and delivery of this Agreement and each of the Transaction Documents to which it is a party and the performance of all obligations of such Person hereunder and thereunder.  The authorization, issuance (or reservation for issuance), sale and delivery of the Shares and Notes being sold hereunder, and the Conversion Shares issuable upon conversion of the Notes, has been taken or will be taken prior to the applicable Closing, and this Agreement, each of the Transaction Documents to which each member of the Company Group is a party, when executed and delivered by such Person, will constitute the valid and legally binding obligation of such Person, enforceable against such Person in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.  The issuance of any Shares or Conversion Shares is not subject to any preemptive rights or rights of first refusal, or if any such preemptive rights or rights of first refusal exist, waiver of such rights has been obtained from the holders thereof.

10

3.5

Valid Issuance of Shares, Notes and Conversion Shares.

(a)

The Shares that are being purchased by or issued to the Investors hereunder, when issued, delivered and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens and will be free of restrictions on transfer (except for any restrictions on transfer under applicable securities Laws and under the Shareholders Agreement).

(b)

The Notes, when issued, sold and delivered in accordance with the terms and for the consideration set forth herein, will be free of restrictions on transfer, other than restrictions on transfer under applicable state and federal securities laws.  The Notes will be issued in compliance with applicable state and federal securities laws.

(c)

The conversion rights attached to the Notes, when the Notes are issued, will provide for the right to convert to such number of shares of Common Stock as provided thereunder.  The Conversion Shares have been duly and validly authorized for issuance by the Company, and when issued pursuant to the terms of the Notes, will be validly issued, fully paid and non-assessable, not subject to any preemptive or similar rights, free from all taxes, Liens, and restrictions on transfer other than as imposed under any applicable securities Law or as expressly contemplated by the Transaction Documents.

(d)

Except as expressly contemplated by the Transaction Documents, the Shares, Notes and Conversion Shares are not subject to any preemptive rights, rights of first refusal or other similar rights.

3.6

Governmental Consents.   No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority on the part of the Company Group is required in connection with the valid execution, delivery and consummation of the transactions contemplated by this Agreement or the Transaction Documents or the offer, sale, issuance or reservation for issuance of the Shares, the Notes and the Conversion Shares.

3.7

Broker.  The Company does not have any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement or by any of the Transaction Documents and the Company has incurred no liability for any brokerage fees, agents’ fees, commissions or finders’ fees in connection with any of the Transactions Documents or the consummation of the transactions contemplated therein.

3.8

Tax Matters.

(a)

Except as set forth in Schedule 3.8(a) of the Disclosure Schedule, each member of the Company Group (i) has timely filed all Tax Returns that are required to have been filed by it with any Governmental Authority, (ii) has timely paid all Taxes owed by it which are due and payable or withheld and remitted to the appropriate Governmental Authority all Taxes which it is obligated to withhold and remit from amounts owing to any employee, creditor, customer or third party, and (iii) has not waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency other than, in the case of clauses (1) and (ii), unpaid taxes that are in contest with tax authorities by any member of the Company Group in good faith or nonmaterial in amount.

11

(b)

Each Tax Return referred to in paragraph (a) above was properly prepared in compliance with applicable Law and was (and will be) true, correct and complete in all material respects.  None of such Tax Returns contains a statement that is false or misleading in any material respect or omits any matter that is required to be included or without which the statement would be false or misleading in any material respect.  No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate tax authority or in such Tax Return, as may be required by Law.  All records relating to such Tax Returns or to the preparation thereof required by applicable Law to be maintained by applicable member of the Company Group have been duly maintained.

(c)

The assessment of any additional Taxes with respect to the applicable member of the Company Group for periods for which Tax Returns have been filed is not expected to exceed the recorded Liability therefor in the most recent balance sheet in the Financial Statements (as defined below), and except as disclosed in Schedule 3.8(c) of the Disclosure Schedule, there are no material unresolved questions or claims concerning any Tax Liability of any member of the Company Group.  There is no pending dispute with, or notice from, any taxing authority relating to any of the Tax Returns filed by any member of the Company Group which, if determined adversely to such member, would result in the assertion by any taxing authority of any valid deficiency in a material amount for Taxes, and to the Knowledge of the applicable member of the Company Group, there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of each member of the Company.  No member of the Company Group has been the subject of any examination or investigation by any tax authority relating to the conduct of its business or the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any tax authority relating to the conduct of its business or the payment of withholding of Taxes.  No member of the Company Group is responsible for the Taxes of any other Person by reason of contract, successor liability or otherwise.

(d)

No member of the Company Group expects to become, as a result of the transactions contemplated hereby and by each of the other Transaction Documents a CFC.  No member of the Company Group anticipates that it will become a PFIC or CFC for the current taxable year or any future taxable year.

(e)

The Company is treated as a corporation for U.S. federal income tax purposes.

3.9

Constitutional Documents; Books and Records.  The articles of incorporation, memorandum of association, bylaws and other similar constitutional documents (the “ Charter Documents ”) of each member of the Company Group are in the form previously provided to the Investors.  Each member of the Company Group maintains in all material respects its books of accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior practice, and which permits its Financial Statements (as defined below) to be prepared in accordance with U.S. GAAP.

12

3.10

Financial Statements; Undisclosed Liabilities.

(a)

Schedule 3.10(a) of the Disclosure Schedule sets forth, and the Company has delivered to the Investors, (i) the audited consolidated balance sheet, and consolidated statements of operations and cash flows of the Company Group for the year ended December 31, 2006, (ii) the unaudited monthly financial statements of TCH for the nine (9)-month period ended September 30, 2007, and (iii) quarterly financial statements of the remaining members of the Company Group for the nine (9)-month period ended September 30, 2007 (collectively, the financial statements referred to in clauses (i) and (ii), the “ Financial Statements ”).   The Financial Statements are (x) complete and correct in all material respects and present fairly the financial condition and position of the Company Group as of their respective dates, in each case except as disclosed therein and except, in the case of unaudited interim financial statements, for the absence of notes and to normal, immaterial, year-end audit adjustments, and (y) prepared in accordance with U.S. GAAP.

(b)

Except as disclosed is Schedule 3.10(b) of the Disclosure Schedule, the Company has no liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, except for (i) liabilities set forth in the Financial Statements, and (ii) trade or business liabilities incurred in the ordinary course of business since the period covered by the Financial Statements and which do not exceed US$100,000 in the aggregate.

3.11

SEC Reports and OTC Requirements.

(a)

The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of the date of filing, in the case of SEC Reports filed pursuant to the Exchange Act (and to the extent such SEC Report was amended, then as of the date of filing of such amendment), and as of the date of effectiveness in the case of SEC Reports filed pursuant to the Securities Act (and to the extent such SEC Report was amended, then as of the date of effectiveness of such amendment), the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, as of the date of filing, in the case of SEC Reports filed pursuant to the Exchange Act (and to the extent such SEC Report was amended, then as to the date of filing of such amendment), and as of the date of effectiveness in the case of SEC Reports filed pursuant to the Securities Act (and to the extent such SEC Report was amended, then as of the date of effectiveness of such amendment), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  All other financial, statistical, and market and industry-related data included in the SEC Reports are based on or derived from sources that the Company reasonably believes to be reliable and accurate.

13

(b)

The Company has not, in the 12 months preceding the date hereof, received notice from the OTC on which the Common Stock has been traded to the effect that the Company is not in compliance with the OTC requirements.  The Company is, and upon consummation of the transactions contemplated hereby expects to be, in compliance with all of the OTC listing requirements.  

3.12

Internal Controls.  Each member of the Company Group maintains a system of internal accounting controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general or specific authorization, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. GAAP and to maintain asset accountability, (c) access to assets is permitted only in accordance with management’s general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences.

3.13

Changes.  Since December 31, 2006 and except as disclosed in any SEC Report or as contemplated by this Agreement, there has not been:

(a)

any material change in the assets, liabilities, financial condition or operations of the Company Group from that reflected in the Financial Statements;

(b)

any waiver by a member of the Company Group of a valuable right or of a debt owed to it;

(c)

any incurrence of or commitment to incur any indebtedness for money borrowed;

(d)

any resignation or termination of any Key Employee of any member of the Company Group, and to the Knowledge of Company Group, no such employee intends to resign and no member of the Company Group intends to termination the employment of any such employee;

(e)

any satisfaction or discharge of any Lien or payment of any obligation by the Company Group, except in the ordinary course of business and that is not material to the assets, properties, financial condition, or operation of such entities (as such business is presently conducted);

(f)

any change, amendment to or termination of a material contract or arrangement by which any member of the Company Group or any of its assets or properties is bound or subject;

(g)

any change in any compensation arrangement or agreement with any Key Employee of any member of the Company Group;

14

(h)

any sale, assignment, exclusive license, or transfer of any Intellectual Property of any member of the Company Group;

(i)

any mortgage, pledge, transfer of a security interest in, or lien, created by any member of the Company Group, with respect to any of its properties or assets, except liens for taxes not yet due or payable;

(j)

any loan or advance to, guarantee for the benefit of, or investment in, any Person (including but not limited to any of the employees, officers or directors, or any members of their immediate families, of any member of the Company Group), corporation, partnership, joint venture or other entity;

(k)

any declaration, setting aside or payment or other distribution in respect of any member of the Company Group’s capital shares, or any direct or indirect redemption, purchase or other acquisition of any of such shares by any member of the Company Group (including without limitation, any warrants, options or other rights to acquire capital stock or other equity securities);  

(l)

any failure to conduct business in the ordinary course, consistent with the past practices of any member of the Company Group;

(m)

any damage, destruction or loss, whether or not covered by insurance, adversely affecting the assets, properties, financial condition, operation or business of any member of the Company Group;

(n)

receipt of notice that there has been a loss of, or order cancellation by, any major customer of any member of the Company Group;

(o)

made capital expenditures or commitments therefor that aggregate in excess of US$100,000;

(p)

any other event or condition of any character which individually or in the aggregate might materially and adversely affect the assets, properties, financial condition, operating results or business of any member of the Company Group; or

(q)

any agreement or commitment by any member of the Company Group to do any of the things described in this Section 3.13 .

3.14

Litigation.   There is no action, suit, investigation or other court, regulatory or other proceeding pending or to the Knowledge of the Company Group, currently threatened against any member of the Company Group or their respective assets, businesses or proposed business activities, nor is there any basis for any of the foregoing.  The foregoing shall include but not be limited to any action, suit, or other court, regulatory or other proceeding involving the prior employment of any of employees of the members of the Company Group, their use in connection with the Company’s business of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.  There is no action, suit, proceeding or investigation pending or, to the Knowledge of the Company Group, threatened against any Key Employee or director of any member of the Company Group in connection with their respective relationship with such entity.  There is no judgment, decree or order of any court or Governmental Authority in effect and binding on any member of the Company Group or their respective assets or properties.  There is no court action, suit, proceeding or investigation by any member of the Company Group which such Person intends to initiate against any third party.  No Government Authority has at any time materially challenged or questioned in writing the legal right of any member of the Company Group to conduct its business as presently being conducted or proposed to be conducted.  No member of the Company Group has received any opinion or mem