UNDERWRITING AGREEMENT

EXHIBIT 1.1

Execution Copy

SMARTHEAT, INC.

7,246,087 Shares of Common Stock

(Plus an Option to Acquire Up to 1,086,913 Shares to Cover Overallotments)

U NDERWRITING A GREEMENT

September 17, 2009

William Blair & Company, L.L.C.

  As Representative of the

  Underwriters Named in Schedule A

c/o William Blair & Company, L.L.C.

222 West Adams Street

Chicago, Illinois 60606

Ladies and Gentlemen:

Section 1. Introductory . SmartHeat, Inc., a Nevada corporation (“ Company ”), has an authorized capital stock consisting of seventy-five million (75,000,000) shares of common stock, par value $0.001 per share (“ Common Stock ”), of which 24,194,425 shares were outstanding as of September 1, 2009, and no other shares of Common Stock will have been issued as of the First Closing Date (as hereinafter defined) except for shares of Common Stock issued upon the exercise of stock options and warrants outstanding as of the date hereof, shares of Common Stock issued pursuant to the Company’s director compensation policies or shares of Common Stock issued pursuant to this Agreement. The Company proposes to issue and sell 7,246,087 shares of its authorized but unissued Common Stock (“ Underwritten Shares ”) to the several underwriters named in Schedule A (“ Underwriters ”) as it may be amended by the Pricing Agreement (as hereinafter defined), who are acting severally and not jointly. In addition, the Company has granted the Underwriters options to purchase up to an aggregate of 1,086,913 additional shares of Common Stock (“ Option Shares ”) as provided in Section 4 hereof (collectively, the “ Overallotment Option ”). The Underwritten Shares and, to the extent such Overallotment Option is exercised in whole or in part, the Option Shares, are hereinafter collectively referred to as the “ Shares .”

You have advised the Company that the Underwriters propose to make a public offering of the Shares as soon as you deem advisable after the registration statement hereinafter referred to becomes effective, if it has not yet become effective, and the Pricing Agreement (as hereinafter defined) has been executed and delivered.

Prior to the purchase and public offering of the Shares by the several Underwriters, the Company and the Representative, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (“ Pricing Agreement ”). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Representative and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Underwriting

Agreement (as it may be amended, supplemented or modified in accordance with its terms, this “ Agreement ”), as supplemented by the Pricing Agreement. From and after the time of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.

The Company hereby confirms its agreement with the Underwriters as follows:

Section 2. Representations and Warranties of the Company . The Company represents and warrants to the several Underwriters that:

(a) A shelf registration statement on Form S-3 (File No. 333-160190), has been prepared and filed with the Securities and Exchange Commission (the “ Commission ”) by the Company in conformity with the requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ 1933 Act ”; unless otherwise indicated all references herein to specific rules are rules promulgated under the 1933 Act) relating to securities of the Company, including Common Stock, to be issued from time to time by the Company; and the Company has so prepared and has filed such amendments thereto, if any, as may have been required to the date hereof and will file such additional amendments thereto as may hereafter be required. Such registration statement has been declared effective by the Commission. Such registration statement, including the exhibits thereto and the other information and documents deemed pursuant to Rule 430B under the 1933 Act to be part thereof as amended to (and including) the date of this Agreement, is hereinafter referred to as the “ Registration Statement ”. The term “ Base Prospectus ” means the prospectus, dated August 6, 2009, included in the Registration Statement. The Company shall prepare and file with the Commission pursuant to Rule 424(b) under the 1933 Act a prospectus supplement or supplements to the Base Prospectus that discloses the information previously omitted from the Base Prospectus in reliance on Rule 430B with respect to the offering and sale of the Shares and such further information with respect to the Company as the Company has previously advised you. The Base Prospectus, as supplemented by such prospectus supplement including pricing information specifically relating to the Shares in the form in which it shall be filed with the Commission pursuant to Rule 424(b) under the 1933 Act is hereinafter called the “ Prospectus ”. Any preliminary form of Prospectus relating to the Shares including the “subject to completion” legend required by Item 501(b)(10) under Regulation S-K which has heretofore been filed pursuant to Rule 424 under the 1933 Act is hereinafter called a “ Preliminary Prospectus ”. Any reference herein to the Registration Statement, the Base Prospectus, any Preliminary Prospectus or the Prospectus includes, in each case, the information, if any, deemed to be part thereof pursuant to Rule 430B under the 1933 Act and the documents incorporated by reference therein including periodic reports under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ Exchange Act ”). The terms “supplement,” “amendment,” and “amend” as used herein with respect to the Registration Statement, the Base Prospectus, any Preliminary Prospectus, or the Prospectus shall be deemed to refer to and include the filing of any documents under the Exchange Act that are deemed to be incorporated therein by reference. Any registration statement (including any amendment

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or supplement thereto or information which is deemed part thereof) filed by the Company under Rule 462(b) (“ Rule 462(b) Registration Statement ”) shall be deemed to be part of the “Registration Statement” as defined herein, and any prospectus (including any amendment or supplement thereto or information which is deemed part thereof) included in such registration statement shall be deemed to be part of the “Prospectus” as defined herein, as appropriate.

(b) The Commission has not issued any order preventing or suspending the use of the Base Prospectus or any Preliminary Prospectus, and each of the Base Prospectus and each Preliminary Prospectus has conformed in all material respects with the requirements of the 1933 Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and when the Registration Statement became effective, and at all times subsequent thereto, through and including the First Closing Date or the Second Closing Date (as hereinafter defined) as the case may be, the Registration Statement, including the information deemed to be part of the Registration Statement at the time specified in Rule 430B, if applicable, and the Prospectus and any amendments or supplements thereto, in all material respects conformed or will in all material respects conform to and comply with the requirements of the 1933 Act, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact, in the case of the Registration Statement or any amendment or supplement thereto, required to be stated therein or necessary to make the statements therein not misleading and, in the case of the Prospectus, or any amendment or supplement thereto, necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

As used in this subsection and elsewhere in this Agreement:

“ Applicable Time ” means 9:00 a.m., New York Time, on the date of this Agreement or such other time as agreed by the Company and William Blair & Company, L.L.C.

“ Time of Sale Prospectus ” means the Base Prospectus, as supplemented by the Preliminary Prospectus last filed before the Applicable Time, including any document incorporated by reference therein as of the Applicable Time.

Notwithstanding the foregoing, the representations and warranties of the Company set forth in this Section 2(b) shall not apply to information contained in or omitted from the Registration Statement, the Prospectus, any Preliminary Prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representative specifically for use in the preparation thereof.

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(c) The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1933 Act or the Exchange Act, as applicable, were filed on a timely basis with the Commission and, when read together with the other information in the Prospectus, (i) at the time the Registration Statement became effective, (ii) at the earlier of the time the Prospectus was first used and the Applicable Time and (iii) at the First Closing Date (as hereinafter defined) did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

(d) As used herein, the term “subsidiary” shall mean a subsidiary of the Company having financial statements that are consolidated with those of the Company for purposes of the Company’s audited consolidated financial statements. The Company’s subsidiaries are Shenyang Taiyu Machinery and Electronic Equipment Co., Ltd., SmartHeat Siping Beifang Energy Technology Co., Ltd. and SanDeKe Co., Ltd. and the Company has no other subsidiaries. The Company and each of its subsidiaries have been duly incorporated or formed and are validly existing as corporations, limited liability companies, or similar People’s Republic of China (“ PRC ”) equivalent entities in good standing under the laws of their respective places of incorporation or formation, as the case may be, with all requisite power and authority to own their properties and conduct their business as described in the Prospectus under “Business”; the Company and each of its subsidiaries are duly qualified to do business as foreign corporations, limited liability companies, or PRC equivalent entities under the laws of, and are in good standing as such in, each jurisdiction in which they own or lease substantial properties, have an office, or in which substantial business is conducted and such qualification is required except in any such case where the failure to so qualify or be in good standing would not have a material adverse effect upon the Company and its subsidiaries taken as a whole (a “ Material Adverse Effect ”); and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.

(e) Other than director qualifying shares or interests and shares or interests held by persons other than the Company in jurisdictions requiring that such entity have more than one holder of shares or interests, the Company owns directly or indirectly 100 percent of the issued and outstanding capital stock or other ownership interest of each of its subsidiaries, free and clear of any claims, liens, encumbrances or security interests, and all of such capital stock has been duly authorized and validly issued and is fully paid and nonassessable.

(f) The issued and outstanding shares of capital stock of the Company as set forth in the Prospectus under “Description of Securities and Securities We May Offer” have been duly authorized and validly issued, are fully paid and nonassessable, and conform to the description thereof contained in the Prospectus. There are no other shares of the Company’s capital stock outstanding except as set forth in such section of the Prospectus.

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(g) The Shares to be sold by the Company have been duly authorized and when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and (i) will conform to the description thereof contained in the Prospectus under “Description of Securities and Securities We May Offer”, (ii) will be free of any lien, security interest, mortgage, pledge, charge or encumbrance of any kind or preemptive rights, rights of first refusal, rights of co-sale or similar rights in favor of stockholders with respect to any of the Shares, or the issuance or sale thereof, whether pursuant to the Company’s articles of incorporation or bylaws, any Legal Requirement (as hereinafter defined), contract or otherwise and (iii) will not be subject to any voting trust arrangements.

(h) The making and performance by the Company of this Agreement and the Pricing Agreement have been duly authorized by all necessary corporate action and will not (i) violate any provision of the Company’s charter or bylaws and (ii) result in the breach, or be in violation, of any of the terms and provisions of, or constitute a default or change of control under (A) any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which the Company or any subsidiary is a party or by which the Company, any subsidiary or the property of any of them may be bound or affected, or (B) any Legal Requirement (as hereinafter defined) applicable to the Company or any subsidiary of any Governmental Body (as hereinafter defined) or any order of any Governmental Body entered in any proceeding to which the Company or any subsidiary was or is now a party or by which it is bound. No consent, approval, authorization or other order of any Governmental Body is required for the execution and delivery of this Agreement or the Pricing Agreement or the consummation of the transactions contemplated herein or therein, except for (i) compliance with the 1933 Act and blue sky laws applicable to the public offering of the Shares by the several Underwriters and (ii) compliance with the rules and requirements of The Nasdaq Stock Market, as applicable to the Company. This Agreement and the Pricing Agreement (upon the execution and delivery thereof) have been duly executed and delivered by the Company, and are legal, valid and binding agreements of the Company, except to the extent that enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except as to those provisions relating to indemnities for liabilities arising under the 1933 Act.

(i) The accountants who have expressed their opinions with respect to the financial statements and schedules included or incorporated by reference in the Registration Statement are an independent registered public accounting firm as required by the 1933 Act and the Exchange Act, and such accountants are not in violation of the auditor independence requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

(j) The consolidated financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company as of the respective dates of such

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financial statements, and the consolidated results of operations and cash flows of the Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed in the Registration Statement or the Prospectus. The financial information set forth in the Prospectus under “Selected Consolidated Financial Data” presents fairly, on the basis stated in the Prospectus, the information set forth therein as of the respective dates and for the respective periods set forth therein. No other financial statements, pro forma financial information or schedules are required to be included or incorporated by reference in the Registration Statement, Time of Sale Prospectus or other Prospectus. All disclosures contained in the Registration Statement and the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the Commission’s rules and regulations) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the 1933 Act, to the extent applicable.

(k) Neither the Company nor any subsidiary (i) is in violation of its charter or other organizational documents, or (ii) is in default (A) under any consent decree, or (B) with respect to any material provision of any lease, loan agreement, franchise, license, permit or other contract obligation to which it is a party; and there does not exist any state of facts which constitutes an event of default as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default, except in each such case in this clause (B) for violations or defaults that neither singly nor in the aggregate could reasonably be expected to have a Material Adverse Effect.

(l) There are no Governmental Body proceedings material to the Company and its subsidiaries, taken as a whole, which are pending, or to the Company’s knowledge, threatened, to which the Company or any subsidiary is or may be a party or of which material property owned or leased by the Company or any subsidiary is or may be the subject, or related to environmental or discrimination matters that are not disclosed in the Prospectus under “Business – Governmental and Environmental Regulation”, or that question the validity of this Agreement or the Pricing Agreement or any action taken or to be taken pursuant hereto or thereto.

(m) There are no holders of securities of the Company having rights to registration thereof or preemptive rights to purchase Common Stock, except as disclosed in the Prospectus.

(n) The Company and each of its subsidiaries have good and marketable title to all the properties and assets reflected as owned in the consolidated financial statements incorporated by reference into the Prospectus, including, but not limited to, all tangible and intangible assets acquired by the Company or any of its subsidiaries in any asset or equity acquisition, which are subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those, if any, reflected in such consolidated financial statements (or elsewhere in the Prospectus) or that are not material to the Company and its subsidiaries taken as a whole, other than assets disposed of since the date of such balance sheet in the ordinary course of business. The Company and each of its subsidiaries hold their respective leased properties that are material to the Company and its subsidiaries taken as a whole under valid and binding leases.

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(o) The Company has not taken and will not take prior to the earlier of the Second Closing Date or the expiration of the Overallotment Option (including any time after the effective date of the Registration Statement during which the Underwriters may be deemed to be making a public offering), directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(p) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as contemplated by the Prospectus, neither the Company nor its subsidiaries have incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of their respective business and there has not been any material adverse change in their respective condition (financial or otherwise) or results of operations nor any material change in their respective capital stock, short-term debt or long-term debt.

(q) There is no material document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required.

(r) The Company, together with its subsidiaries, owns and possesses all right, title and interest in and to, or has duly licensed from third parties, all patents, patent rights, trade secrets, inventions, know-how, trademarks, trade names, copyrights, service marks and other proprietary rights (“ Trade Rights ”), material to the business of the Company and each of its subsidiaries taken as a whole. Neither the Company nor any of its subsidiaries has received any written notice of infringement, misappropriation or conflict from any third party as to such material Trade Rights which has not been resolved or disposed of and neither the Company nor any of its subsidiaries has infringed, misappropriated or otherwise conflicted with material Trade Rights of any third parties, which infringement, misappropriation or conflict could reasonably be expected to have a Material Adverse Effect. All assignments by the Company or its subsidiaries of any Trade Rights have been properly executed and are valid and enforceable against all such assignees of the Trade Rights. Any licensing or assignment of the Trade Rights by the Company or its subsidiaries has been properly consummated and properly recorded with the appropriate governmental agency, including the appropriate PRC Governmental Body. The Company or its subsidiaries are entitled to use all Trade Rights in the continued operation of their business without limitation, subject only to the terms of the licenses relating to the licensed Trade Rights. The Trade Rights have not been adjudged invalid or unenforceable in whole or in part, and are valid and enforceable. The expiration of any patents, patent rights, trademarks, service marks, trade names or copyrights would not result in a Material Adverse Effect that is not otherwise disclosed in the Registration Statement, the Time of Sale Prospectus and the Prospectus.

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(s) The conduct of the business of the Company and each of its subsidiaries is in compliance in all respects with applicable federal, national, provincial, state, local, municipal, foreign or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, pronouncement, requirement, specification, determination, decision, opinion or interpretation issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Body (“ Legal Requirements ”), except where the failure to be in compliance with any Legal Requirements would not have a Material Adverse Effect.

(t) All offers and sales of the Company’s issued and outstanding capital stock prior to the date hereof were either (1) made pursuant to an effective registration statement filed by the Company with the Commission under the 1933 Act or (2) at all relevant times exempt from the registration requirements of the 1933 Act and, in each case, were duly registered with or the subject of an available exemption from the registration requirements of the applicable state and local securities or blue sky laws.

(u) No transaction, stamp, capital or other issuance, registration, transaction, transfer or withholding taxes or duties are payable in any jurisdiction, including without limitation, the PRC, by or on behalf of the Underwriters to any PRC taxing authority in connection with (1) the issuance, sale and delivery of the Shares to the Underwriters and the delivery of such Shares to or for the account of the Underwriters, (ii) the initial sale and delivery by the Underwriters of such Shares to purchasers thereof, or (iii) the execution and delivery of this Agreement.

(v) The Company has filed all necessary U.S., PRC and other applicable national, provincial, federal and state and local income and franchise tax returns and has paid all taxes shown as due thereon, and there is no tax deficiency that has been, or to the knowledge of the Company might be, asserted against the Company or any of its properties or assets that would or could be expected to have a Material Adverse Effect; all national, provincial and local PRC governmental tax relief, concessions, waivers, holidays and preferential treatments claimed or obtained by the Company and its subsidiaries are valid, binding and enforceable and do not violate any PRC law.

(w) A registration statement pursuant to Section 12(g) of the Exchange Act to register the Common Stock thereunder has been declared effective by the Commission pursuant to the Exchange Act, and the Common Stock is duly registered thereunder and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Shares under the Exchange Act and the Company has not received any notification of termination of such registration from the Commission.

(x) The Common Stock is listed on the NASDAQ Global Market and the Shares are duly approved for trading thereon. The Company has not received any notification of delisting or that the Commission or NASDAQ is contemplating initiating delisting procedures of the Common Stock.

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(y) None of the Company nor any subsidiary is involved in any labor disputes with any of its employees and, to the knowledge of the Company, no employee has threatened the commencement of any labor disputes with the Company or any subsidiary, which, in either case, would reasonably be expected to result in a Material Adverse Effect, nor has the Company or any subsidiary received any notice of any bankruptcy, labor disturbance or other event affecting any of its principal suppliers or customers, which would reasonably be expected to result in a Material Adverse Effect. Each of the Company and each subsidiary is in compliance in all material respects with all Legal Requirements respecting employment and employment practices, terms and conditions of employment and wages and hours that are applicable to them. Neither the Company nor any subsidiary has received notice of any pending investigations involving the Company or any subsidiary by the U.S. Department of Labor, any PRC labor bureau or any other Governmental Body responsible for the enforcement of such Legal Requirements. There is no unfair labor practice charge or complaint against the Company or any subsidiary pending before the National Labor Relations Board, any PRC labor bureau, or any applicable foreign labor administration agencies, or any strike, picketing, boycott, labor dispute, slowdown or stoppage pending or, to the knowledge of the Company, threatened against or involving the Company or any subsidiary. No collective bargaining agreement exists among the employees of the Company or any subsidiary, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any subsidiary. Neither the Company nor any subsidiary has received notice that any grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or any subsidiary. The Company and its subsidiaries are in compliance with employee social security contribution requirements, including, without limitation, the social security and pension contribution programs in the PRC.

(z) The Company is not, and does not intend to conduct its business in a manner in which it would become, an “investment company” as defined in Section 3(a) of the Investment Company Act of 1940, as amended (“ Investment Company Act ”).

(aa) No transaction has occurred between or among the Company or its subsidiaries and any of its officers or directors, stockholders or any affiliate or affiliates of any such officer or director or stockholder that is required to be and is not described in the Registration Statement and the Prospectus.

(bb) The Company is in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act.

(cc) The Company’s board of directors has validly appointed an audit committee whose composition satisfies the requirements of the Exchange Act and Rules 5601 and 5605 of the rules of the NASDAQ Global Market. The Company’s audit committee has adopted a charter that satisfies the Exchange Act and Rules 5601 and 5605 of the NASDAQ Global Market.

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(dd) The Company and its subsidiaries are insured by insurers of national standing against such losses and risks and in such amounts as are customary in the business in which they engage or propose to engage after giving effect to the transactions as described in the Prospectus. To the knowledge of the Company, all policies of insurance and fidelity or surety bonds insuring the Company, its subsidiaries and their respective businesses, assets, employees, officers and directors are in full force and effect; and the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects.

(ee) The Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Exchange Act) and such controls and procedures are effective in ensuring that material information relating to the Company, including its subsidiaries, is made known to the principal executive officer and the principal financial officer. The Company has utilized such controls and procedures in preparing and evaluating the disclosures included or incorporated by reference in the Registration Statement and Prospectus.

(ff) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) amounts reflected on the Company’s consolidated balance sheet for assets are compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(gg) Each of the Company and its subsidiaries complies in all respects with PRC advertising laws and related Legal Requirements, except where the failure to comply with such Legal Requirements would not individually or in the aggregate have a Material Adverse Effect.

(hh) The choice of laws of the State of Illinois as the governing law of this Agreement is a valid choice under the laws of the PRC and will be honored by courts in the PRC. The Company has the power to submit, and pursuant to Section 20 of this Agreement, has legally, validly, effectively and irrevocably submitted to, the personal jurisdiction of the State courts of the State of Illinois County of Cook and the United States District Court for the Northern District of Illinois.

(ii) Neither the Company, nor any subsidiary nor any of their respective properties, assets or revenues has any right of immunity under PRC law, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any PRC, state or U.S. federal court, from service of process, attachment upon or prior to judgment, or attachment in aid of execution of judgment, or from execution of a judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of a

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judgment, in any such court, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement; and, to the extent that the Company, or any subsidiary or any of their respective properties, assets or revenues may have or may hereafter become entitled to any such right of immunity in any such court in which proceedings may at any time be commenced, each of the Company and the subsidiaries waives or will waive such right to the extent permitted by law and has consented to such relief and enforcement as provided in Section 20 of this Agreement.

(jj) None of the Company or its subsidiaries, and to the knowledge of the Company, any of its respective officers, directors, managers, agents or employees have, directly or indirectly, made or authorized any contribution, payment or gift of funds, or property to any official, employee or agent of any governmental agency, authority or instrumentality in the PRC or any other jurisdiction where either the payment or gift or the purposes of such contribution, payment or gift was, is, or will be prohibited under the applicable Legal Requirements of any relevant locality at the time of such contribution, payment or gift, including without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the rules and regulations promulgated thereunder.

(kk) Except as set forth in the Registration Statement, none of the Company’s subsidiaries are currently prohibited, directly or indirectly, from paying any dividends to their respective shareholders, nor are they so prohibited from making any other distribution on their respective share capital, from repaying to their respective shareholders any loans or advances or from transferring any of their respective property or assets to their respective shareholders or to any other subsidiary of the Company. Except as set forth in the Registration Statement and the Time of Sale Prospectus, any dividends and other distributions declared with respect to after-tax retained earnings on the equity interests of any of the Company’s subsidiaries may lawfully be paid to the their respective shareholders in Renminbi that may be converted into U.S. dollars and freely transferred out of the PRC, and all such dividends and other distributions are not and will not be subject to withholding or other taxes in the PRC, are otherwise free and clear of any other tax, withholding or deduction in the PRC, and without the necessity of obtaining any governmental authorization in the PRC except for routine PRC foreign exchange procedures and tax withholding procedures.

(ll) Except as set forth in the Prospectus, all dividends and other distributions declared and payable on the Shares may under current PRC Legal Requirements be paid to the holders of the Shares in U.S. dollars and may be converted into foreign currency that may be transferred out of the PRC, and all such payments made to holders thereof or therein who are non-residents of the PRC will not be subject to income, withholding or other taxes under the Legal Requirements of the PRC or any political subdivision or taxing authority thereof or therein and without the necessity of obtaining any governmental authorization in the PRC or any political subdivision or taxing authority thereof or therein.

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(mm) It is not necessary that this Agreement, the Registration Statement, the Prospectus or any other document be filed or recorded with any Governmental Body in the PRC.

(nn) The Company and the subsidiaries have materially complied with, are not in material violation of, and have not received any written notices of violation with respect to any Legal Requirements applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, reimbursement, storage, import, export or disposal of any product manufactured or distributed by the Company or the subsidiaries (“ Applicable Laws ”), or any license, certificate, approval, clearance, authorization, permit, supplement, or amendment required by any Applicable Laws to conduct its business as described in the Prospectus under “Business” (“ Authorizations ”). The Company and its subsidiaries possess all material Authorizations and such material Authorizations are in full force and effect. The Company and its subsidiaries are, and their products are, in compliance in all material respects with all Authorizations and Applicable Laws, including, but not limited to, all Legal Requirements administered, issued or enforced by any (a) nation, including without limitation, the United States and the PRC, principality, state, commonwealth, province territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental authority or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multi-national organization or body; or (e) individual, entity or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature having authority over the Company, its subsidiaries or any of their products or other governmental authority having authority over the Company, its subsidiaries or any of their products or property (“ Governmental Body ”). The Company and its subsidiaries have not receive notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other similar action from any Governmental Body alleging that any product, operation or activity is in material violation of any Applicable Laws or Authorizations and, to the knowledge of the Company, no such Governmental Body is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding. Each regulatory submission for the Company’s or its subsidiaries’ products has been filed, cleared, approved and maintained in compliance in all material respects with all Applicable Laws and Authorizations, including without limitation, applicable PRC Legal Requirements. To the knowledge of the Company, there are no facts which are reasonably likely to cause (A) the withdrawal, or recall of any products sold or intended to be sold by the Company or its subsidiaries, or (B) a suspension or revocation of any of the Company’s or subsidiaries’ Authorizations. The Company and its subsidiaries have not received notice (whether complete or pending) of any proceeding seeking recall, suspension or seizure of any products sold or intended to be sole by the Company or its subsidiaries.

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(oo) The Company (A) is in compliance, in all material respects, with any and all applicable Legal Requirements promulgated by any and all Governmental Bodies relating to the protection of human health and safety in the workplace (“ Occupational Laws ”); (B) has received all material permits, licenses or other approvals required of it under applicable Occupational Laws to conduct its business as currently conducted; and (C) is in compliance, in all material respects, with all terms and conditions of such permit, license or approval. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s knowledge, threatened against the Company relating to Occupational Laws, and to the Company’s knowledge there are no facts, circumstances or developments relating to its operations or cost accounting practices that could reasonably be expected to form the basis for or give rise to such actions, suits, investigations or proceedings.

(pp) The Company and each of its subsidiaries has taken or is in the process of taking all reasonable steps (to the extent required of the Company and each such subsidiary under PRC Legal Requirements) to comply with, and to ensure compliance by each of (i) its principal shareholders as disclosed in the Registration Statement and Prospectus, and (ii) any other persons known to the Company that are required to comply (in connection with their interests in the Company) with applicable Legal Requirements of the relevant PRC Governmental Body (including, without limitation, the Ministry of Commerce, National Development and Reform Commission and the State Administration of Foreign Exchange (“ SAFE ”)) relating to overseas investment by PRC residents and citizens or overseas listings by offshore special purpose vehicles controlled directly or indirectly by PRC companies and individuals, such as the Company (the “ PRC Overseas Investment and Listing Regulations ”), including, without limitation, requesting such persons to complete any registration and other procedures required under applicable PRC Overseas Investment and Listing Regulations.

(qq) The entry into, and performance or enforcement of the this Agreement in accordance with its terms will not subject the Underwriters to any requirement to be licensed or otherwise qualified to do business in the PRC, nor will the Underwriters be deemed to be resident, domiciled, carrying on business through an establishment or place in the PRC or in breach of any laws or regulations in the PRC by reason of entry into, performance or enforcement of this Agreement.

(rr) Each of the Company and each of the Company’s directors that signed the Registration Statement is aware of and has been advised as to, the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly promulgated by the Ministry of Commerce (the “ MOFCOM ”), the State Assets Supervision and Administration Commission, the State Tax Administration, the State Administration of Industry and Commerce, the China Securities Regulatory Commission (the “ CSRC ”) and SAFE of the PRC on August 8, 2006 (the “ M&A Rules ”), in particular the relevant provisions thereof which purport to require offshore special purpose vehicles, or SPVs, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of the CSRC prior to the listing and trading of their securities on an overseas stock exchange, and the relevant provisions

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thereof which purport to require foreign companies acquiring PRC companies to obtain the approval of MOFCOM prior to the acquisition by the foreign company of such PRC company; the Company has received legal advice specifically with respect to the M&A Rules from its PRC counsel and the Company understands such legal advice; and the Company has fully communicated such legal advice from its PRC counsel to each of its directors that signed the Registration Statement and each director has confirmed that he or she understands such legal advice; and as of the date of the Prospectus and as of the date of this Agreement, the M&A Rules did not and do not apply to the issuance and sale of the Shares, the listing and trading of the Shares on the NASDAQ Global Market, the consummation of the transactions contemplated by this Agreement, nor is the CSRC, MOFCOM or other PRC governmental approval required in connection with the above. The Company and its subsidiaries have received all proper and necessary approvals, permits and authorizations from government bodies for its business transactions, including, without limitation, the Taiyu Transaction.

(ss) The statements under the captions “Risk Factors - Risks Related to Doing Business in China”; “Risk Factors - Risks Related to this Offering and Ownership of our Common Stock”; “Risk Factors - Risks Related to our Business”; and “Description of Securities and Securities We May Offer” in the Preliminary Prospectus as of the Applicable Time and in the Prospectus and under Item 15 in the Registration Statement, insofar as such statements constitute a summary of documents referred to therein or matters of law or legal conclusions or proceedings, are fair and accurate summaries of the matters described therein, and (i) no material information has been omitted from such summaries which would make the same misleading in any material respect, and (ii) nothing has come to the attention of the Company that would lead it to believe that the CSRC is taking any action to require the Company to seek its approval for the consummation of the transactions contemplated under this Agreement or that would otherwise have a Material Adverse Effect.

(tt) Except as disclosed in the Registration Statement and Time of Sale Prospectus, there is neither pending nor, to the knowledge of the Company, threatened in writing, against the Company or any subsidiary any claim, action, suit, or proceeding at all or in equity, arbitration, investigation or inquiry to which the Company or any of its respective officers, directors or 5% or greater security holder is a party and involving the Company’s or any subsidiary’s properties or businesses, before or by any court, arbitration tribunal or governmental instrumentality, agency, or body.

(uu) At the time of filing the Registration Statement and at the date hereof, the Company was and is an “ineligible issuer,” as defined in Rule 405 under the 1933 Act. The Company has not made and will not make any offer relating to the Shares that would constitute an “issuer free writing prospectus,” as defined in Rule 433, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405.

(vv) The Company had a reasonable basis for, and made in good faith, each “forward-looking statement” (within the meaning of Section 27A of the Act or Section 21E of the Exchange Act) contained or incorporated by reference in the Registration Statement and the Prospectus.

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(ww) All statistical or market-related data, including any industry forecasts, included in the Registration Statement and the Prospectus are based on or derived from industry publications and sources that the Company reasonably believes to be reliable and accurate, and the Company has obtained the written consent to the use of such data from such sources, to the extent required, and no such sources are or were at any time under the Company’s control.

(xx) There is not pending or, to the knowledge of the Company, threatened, any action, suit or proceeding to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company is the subject before or by any court or governmental agency, authority or body, or any arbitrator or mediator, which individually or in the aggregate, might reasonably be expected to result in a Material Adverse Effect.

Section 3. Representations and Warranties of the Underwriters.

(a) The Representative, on behalf of the several Underwriters, represents and warrants to the Company that the information set forth (a) on the cover page of the Prospectus with respect to price, underwriting discount and terms of the offering and (b) in all paragraphs under “Underwriting” in the Prospectus and only insofar as such information relates to the amount of selling concession and re-allowance or to over-allotment and related activities that may be undertaken by the Underwriters, is correct and complete in all material respects.

(b) The Representative, on behalf of the several Underwriters, represents and warrants to the Company that each of the Underwriters is aware that the Company is an “ineligible issuer” and may not make any offer relating to the Shares that would constitute a “free writing prospectus” (as defined in Rule 433) or that would otherwise constitute a “free writing prospectus” (as defined in Rule 405), and as such, no Underwriter has taken any action or prepared or distributed any materials that could be deemed a “free writing prospectus” of the Company, nor will any Underwriter take any action or prepare or distribute any materials that could be deemed a “free writing prospectus” of the Company.

Section 4. Purchase, Sale and Delivery of Shares. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters named in Schedule A hereto, and the Underwriters agree, severally and not jointly, to purchase the Underwritten Shares from the Company at the price per share set forth in Section 2 of the Pricing Agreement. The obligation of each Underwriter to the Company shall be to purchase from the Company that number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule A hereto. The public offering price and the purchase price shall be set forth in the Pricing Agreement.

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At 9:00 A.M., New York Time, on the fourth business day, if permitted under Rule 15c6-1 under the Exchange Act, (or the third business day if required under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with the provisions of Section 12) following the date hereof (or, if the Company has elected to rely upon Rule 430B, the fourth business day, if permitted under Rule 15c6-1 under the Exchange Act, (or the third business day if required under Rule 15c6-1 under the Exchange Act) after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Representative and the Company, the Company will deliver to you at the offices of counsel for the Underwriters or through the facilities of The Depository Trust Company for the accounts of the several Underwriters, certificates representing the Underwritten Shares to be sold by it, against payment of the purchase price therefor by delivery of federal or other immediately available funds, by wire transfer or otherwise, to the Company. Such time of delivery and payment is herein referred to as the “First Closing Date.” The certificates for the Underwritten Shares so to be delivered will be in such denominations and registered in such names as you request by notice to the Company prior to 10:00 A.M., New York Time, on the second business day preceding the First Closing Date, and will be made available at the Company’s expense for checking and packaging by the Representative at 10:00 A.M., New York Time, on the business day preceding the First Closing Date. If the Representative so elects, delivery of the Underwritten Shares may instead be made by credit through the full fast transfer facilities of The Depository Trust Company to the accounts designated by the Representative on behalf of the Underwriters. Payment for the Shares so to be delivered shall be made at the time and in the manner described above to an account designated by the Company prior to the First Closing Date.

In addition, on the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants the Overallotment Option to the Underwriters to purchase, severally and not jointly, up to an aggregate of 1,086,913 Option Shares, at the same purchase price per share to be paid for the Underwritten Shares, for use solely in covering any overallotments made by the Underwriters in the sale and distribution of the Underwritten Shares. The Overallotment Option granted hereunder may be exercised at any time (but not more than once) within 30 days after the date of this Agreement upon notice by you to the Company setting forth the aggregate number of Option Shares as to which the Underwriters are exercising the option, the names and denominations in which the certificates for such shares are to be registered and the time and place at which such certificates will be delivered. Such time of delivery (which may not be earlier than the First Closing Date), being herein referred to as the “ Second Closing Date ,” shall be determined by you, but if at any time other than the First Closing Date, shall not be earlier than three nor later than 10 full business days after delivery of such notice of exercise. The number of Option Shares to be purchased by each Underwriter shall be determined by multiplying the number of Option Shares to be sold by a fraction, the numerator of which is the number of Underwritten Shares to be purchased by such Underwriter as set forth opposite its name in Schedule A and the denominator of which is the total number of Underwritten Shares (subject to such adjustments to eliminate any fractional share purchases as you in your absolute discretion may make). The manner of payment for and delivery of the Option Shares shall be the same as for the Underwritten Shares as specified in the preceding paragraph.

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The Representative has advised the Company that each Underwriter has authorized the Representative to accept delivery of its Shares, to make payment and to receipt therefor. You, individually and not as the Representative of the Underwriters, may make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by you by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any obligation hereunder.

Section 5. Covenants of the Company. The Company covenants and agrees that:

(a) The Company will advise the Representative promptly of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement relating to the Shares or of the institution of any proceedings for that purpose, or of any notification of the suspension of qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceedings for that purpose or of any examination pursuant to Section 8(e) of the 1933 Act concerning the Registration Statement and if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Shares, and will also advise you promptly of any request of the Commission for amendment or supplement of the Registration Statement, any new registration statement relating to the Shares, of any Preliminary Prospectus or of the Prospectus, or for additional information.

(b) The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment), any new registration statement relating to the Shares or any Rule 462(b) Registration Statement or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file at the Commission at the time the Registration Statement became or becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b)) and will furnish you with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which you or counsel for the Underwriters shall reasonably and timely object.

(c) If at any time when a prospectus relating to the Shares is required to be delivered under the 1933 Act any event occurs as a result of which the Prospectus, including any amendments or supplements, would include an untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or to file a new registration statement or amend or supplement the Prospectus, including any amendments or supplements thereto and including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file with the Commission at the time of effectiveness of the Registration Statement, whether or not such revised prospectus is

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required to be filed pursuant to Rule 424(b) to comply with the 1933 Act or the 1933 Act Regulations, the Company promptly will advise you thereof and will promptly prepare and file with the Commission an amendment, supplement or new registration statement which will correct such statement or omission or an amendment which will effect such compliance.

(d) The Company will effect the filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)). The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. The Company has paid all requisite filing fees in accordance with Rule 457 of the 1933 Act.

(e) Neither the Company nor any of its subsidiaries will, prior to the First Closing Date, incur any liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, except as contemplated by the Prospectus.

(f) Neither the Company nor any of its subsidiaries will acquire any capital stock of the Company prior to the earlier of the Second Closing Date or termination or expiration of the Overallotment Option, nor will the Company declare or pay any dividend or make any other distribution upon the Common Stock payable to stockholders of record on a date after the date hereof and prior to the First Closing Date or Second Closing Date, as the case may be, except in either case as contemplated by the Prospectus.

(g) Within the time period prescribed by the Exchange Act, the Company will make generally available to its security holders an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Registration Statement, which will satisfy the provisions of the last paragraph of Section 11(a) of the 1933 Act.

(h) During such period as a prospectus is required by law to be delivered in connection with offers and sales of the Shares by an Underwriter or dealer, the Company will furnish to you at its expense, subject to the provisions of subsection (b) hereof, copies of the Registration Statement, the Prospectus, each Preliminary Prospectus, any documents incorporated by reference therein and all amendments and supplements to any such documents, in each case as soon as available and in such quantities as you may reasonably request, for the purposes contemplated by the 1933 Act.

(i) The Common Stock, including the Shares, is a “covered security” as defined in Section 18 of the 1933 Act. If the Common Stock ceases to be a “covered security”, the Company will cooperate with the Underwriters in qualifying or registering the Shares for sale under the blue sky or similar laws of such jurisdictions as you designate, and will continue such qualifications in effect so long as reasonably required for the distribution of the Shares. The Company shall not be required to qualify as a

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foreign corporation or to file a general consent to service of process in any such jurisdiction where it is not currently qualified or where it would be subject to taxation as a foreign corporation.

(j) During the period of two years hereafter, the Company will upon request furnish you with a copy (i) as soon as practicable after the filing thereof, of each report filed by the Company with the Commission, any securities exchange or FINRA; and (ii) as soon as available, of each report of the Company mailed to stockholders.

(k) The Company will use the proceeds received by it from the sale of the Shares being sold by it in the manner specified in the Prospectus under “Use of Proceeds”.

(l) If, at the time of effectiveness of the Registration Statement, any information shall have been omitted therefrom in reliance upon Rule 430B, then promptly following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with Rule 430B and Rule 424(b), copies of an amended Prospectus, or, if required by such Rule 430B, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. If required and not yet filed, the Company will prepare and file, or transmit for filing, a Rule 462(b) Registration Statement immediately after the execution of the Pricing Agreement and no later than 6:00 a.m. Eastern Time the next business day. If a Rule 462(b) Registration Statement is filed, the Company shall make payment of, or arrange for payment of, the additional registration fee owing to the Commission required by Rule 111 of the 1933 Act.