As filed with the Securities and Exchange Commission on April 13, 2010

Registration No. 333-

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM F-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

Kingtone Wirelessinfo Solution Holding Ltd

(Exact Name of Registrant as Specified in Its Charter)

   
British Virgin Islands   7371   Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

3rd Floor, Borough A, Block A. No.181, South Taibai Road, Xi’an, Shaanxi Province,
People’s Republic of China 710065
Tel: (86) 29-88266368

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

Corporation Service Company
1133 Avenue of the Americas, Suite 3100
New York, NY 10036
(212) 299-5600

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)



 

Copies to:

   
Elizabeth Chen, Esq.
Pryor Cashman LLP
7 Times Square
New York, New York 10036-6569
Telephone: (212) 421-4100
Facsimile: (212) 326-0806
  
  
  Larry Liu
Global Law Office
15/F, Tower 1, China Central Place
No. 81 Jianguo Road,
Chaoyang District
Beijing, China
Telephone: (86) 10-6584-6688
Facsimile: (86) 10-6584-6666
  Mitchell S. Nussbaum, Esq.
Loeb & Loeb LLP345
Park Avenue
New York, New York 10154
Telephone: (212) 407-4159
Facsimile: (212) 407-4990
  
  

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o



 
 

 


 
 

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CALCULATION OF REGISTRATION FEE

   
Title of Each Class of Securities to Be Registered   Proposed Maximum Aggregate Offering Price (1) (2)   Amount of Registration Fee (1)
Ordinary shares, par value $.001 per share (2) (3)   $ 30,000,000     $ 2,139.00  

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Acts of 1933, as amended.
(2) Includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and also includes ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. The ordinary shares are not being registered for the purpose of sales outside the United States.
(3) American Depositary Shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333- ). Each American depositary share represents  ordinary shares.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


 
 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION, DATED ______, 2010

 American Depositary Shares

[GRAPHIC MISSING]

Kingtone Wirelessinfo Solution Holding Ltd

REPRESENTING ____ ORDINARY SHARES

Kingtone Wirelessinfo Solution Holding Ltd is offering _______ American Depositary Shares, or ADSs, in its initial public offering. Each ADS represents the right to receive ___ ordinary shares, par value $.001 per share. We anticipate that the public offering price per share will be between $____ and $____ per share.

We have applied to list our ADSs on the Nasdaq Capital Market under the symbol “KONE”. No assurance can be given that our application will be approved. If the application is not approved, we will not complete this offering.

Investing in our ADSs involves risks. See “Risk Factors” beginning on page 9 .

Price $    Per ADS

     
  Price to Public   Underwriting Discounts and Commissions   Proceeds to Company
Per ADS   $     $     $  
Total   $     $     $  

We have granted the underwriters a 30-day option to purchase up to an aggregate of ___________ additional ADSs on the same terms set forth above. See the section of this prospectus entitled “Underwriting.”

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs to purchasers on or about __, 2010 through the book-entry facilities of The Depository Trust Company.

Roth Capital Partners

  

 
       

  
  
  
Prospectus dated , 2010


 
 

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  Page
Prospectus Summary     1  
The Offering     5  
Summary Consolidated and Combined Financial Information     6  
Risk Factors     9  
Special Note Regarding Forward-Looking Statements     30  
Use of Proceeds     31  
Dividend Policy     31  
Exchange Rate Information     32  
Capitalization     33  
Dilution     34  
Selected Consolidated and Combined Financial Data     35  
Corporate History and Structure     37  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     43  
Business     54  
PRC Government Regulations     67  
Management     71  
Principal Shareholders     77  
Related Party Transactions     79  
Description of Share Capital     81  
Description of American Depositary Shares     86  
Shares Eligible for Future Sale     93  
Taxation     95  
Enforceability of Civil Liabilities     101  
Underwriting     102  
Legal Matters     105  
Experts     105  
Expenses Related to this Offering     105  
Where You Can Find More Information     106  
Index to Consolidated and Combined Financial Statements     F-1  


 

You should rely only on the information contained in this prospectus, any free writing prospectus prepared by or on behalf of us or any other information to which we have referred you in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. Neither the delivery of this prospectus nor sale of the ADSs means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ADSs in any circumstances under which the offer or solicitation is unlawful.



 

Through and including ______, 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade our ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

The following summarizes information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. For a more complete understanding of this offering, we encourage you to read this entire prospectus. The following summary should be read in conjunction with the more detailed information and financial statements (including the related notes) appearing elsewhere in this prospectus. For a discussion of certain factors you should consider before deciding to invest in our shares, see “Risk Factors.”

Overview

We are a China based software and solutions developer focused on wirelessly enabling businesses and government agencies to more efficiently manage their operations. Our products, known as mobile enterprise solutions, extend a company’s or enterprise’s information technology, or IT, systems to include mobile participants. We develop and implement mobile enterprise solutions for customers in a broad variety of sectors and industries, to improve efficiencies by enabling information management in wireless environments. At the core of our many diverse packaged solutions is our proprietary middleware, which enables wireless interactivity across many protocols, devices, and platforms.

The ability for an enterprise’s office, factory and field personnel to be continuously connected with all of its participants creates many opportunities for new efficiencies. For example, using a mobile enterprise solution, a company’s accounting and enterprise resource planning, or ERP, systems can be extended to seamlessly integrate data collected in the field by sales and delivery personnel, in real time. Mobile enterprise solutions can also be used in short distance applications such as factory automation and production control systems, where wireless data connections can be used to simplify and enhance system operation and control.

The recent deployment of third generation, or 3G, wireless networks in China is resulting in increased interest and demand for mobile enterprise solutions. The increased bandwidth of 3G enables more comprehensive applications and feature sets. In addition, the wireless carriers in China are motivated to generate greater bandwidth sales, in part, by encouraging enterprises and government agencies to adopt mobile enterprise solutions in their daily operations. We collaborate with each of the three Chinese telecom carriers, namely China Telecom, China Mobile and China Unicom, making joint presentations to potential business and governmental customers. The carrier provides the network service and we provide the mobile software, which we customize for the specific customer application and package with third party hardware and complete system installation. These collaborative relationships are informal and are not memorialized in contract. However, we have a formal co-marketing agreement with China Telecom to co-promote next-generation mobile solutions for law enforcement applications.

We have completed mobile enterprise solutions for customers in 30 out of China’s 32 provinces, municipalities and autonomous regions in the PRC, with a primary focus on the western provinces. As of September 30, 2009, we had 112 employees, including 60 engineers dedicated to research, development and implementation, and 32 engineers and professional in sales and marketing. We are headquartered in Xian, China.

In the past two years, we have experienced significant growth. Our revenue grew from $4.3 million in fiscal 2008 to $11.2 million in fiscal 2009, representing an increase of 162%. Our net income grew from $1 million to $5.3 million during the same period, representing an increase of 422%. Our gross and net margins in fiscal 2009 were above 65% and 47%, respectively, both representing an improvement from those levels achieved during fiscal 2008. A material portion of the increases in our revenue and net income for this period was due to a related party transaction.

Our Industry and Market

We operate in the mobile enterprise software industry in China. We believe the mobile enterprise market in China benefits from compelling industry fundamentals such as increasing investment in IT, the country’s 3G rollout, and increasing demand for wireless applications within working environments.

Government bureaus and corporations are investing heavily in China in IT systems to improve operating efficiencies, focus on core competencies and maximize returns. Investment in information technology in China is rapidly growing. According to an October 22, 2009 article published by IDC, a leading provider of market

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data and intelligence, IT spending by the PRC government in 2009 is expected to total RMB 53.65 billion, and is predicted to reach RMB 73.36 billion in 2013. Gradually, we expect the focus of such investment to shift from hardware infrastructure to software applications. From 2008 to 2013, the annual compound growth rate of IT hardware is projected to be 5.6%, compared to the annual compound growth rates of software and IT services of 13.2% and 14%, respectively, during the same period, according to IDC.

On January 7, 2009, the Ministry of Industry and Information Technology (MIIT) officially issued three 3G licenses to Chinese wireless telecom carriers. Compared to services developed under prior generation standards, 3G communications allow simultaneous use of speech and data services at higher data rates. According to a January 2009 report by CITIC Jiantou Securities, it is estimated that investment in 3G between 2009 and 2011 by the three Chinese telecom carriers will total $44.0 billion. According to the MIIT, the 3G industry is expected to generate RMB 1 trillion, or $146.5 billion, in demand in the next three years. We believe the 3G rollout and the upcoming commercial deployment will both inspire and facilitate new and diversified customer applications for mobile enterprise software. According to a 2008 report by IDC, the enterprise mobility market in China will reach $15.56 billion in 2011.

Our Strengths

We believe that the following strengths greatly assist our business:

Proprietary suite of mobile enterprise solutions offerings
Strong development capability
Industry expertise
Growing track record
Joint efforts with Chinese wireless telecom carriers

Our Strategy

Specific elements of our growth strategy include:

Seize the opportunity presented by 3G adoption in China
Recruit, train and retain engineering professionals
Expand operations
Invest more in research and development to create more successful software products
Pursue strategic acquisition opportunities

Risks

We face certain risks, challenges and uncertainties that may materially affect our business, financial condition, results of operations and prospects. You should consider the risks discussed in “Risk Factors” and elsewhere in this prospectus before investing in our ADSs.

Corporate History and Structure

We conduct our operations through a contractually-controlled entity in the PRC named “Xi’an Kingtone Information Technology Co., Ltd.”, a PRC limited liability company (“Kingtone Information”). Kingtone Information commenced operations in December 2001 and is mainly engaged in the enterprise software solutions for the wireless environment in the PRC. In December 2009, we consummated a number of related transactions through which we acquired contractual control of Kingtone Information. We serve as a holding company and have no operations other than the operations of Kingtone Information. See the section entitled “Corporate History and Structure”.

We were incorporated under the name of ReiZii Capital Management Ltd. in the British Virgin Islands on October 27, 2009, and changed our name to Kingtone Wirelessinfo Solution Holding Ltd (“Kingtone Wireless”) on December 17, 2009. Topsky Info-tech Holdings Pte Ltd. (“Topsky”), was incorporated in Singapore on November 3, 2009. Kingtone Wireless is the sole shareholder of Topsky. Topsky incorporated

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Xi’an Softech Co., Ltd. (“Softech”) as a wholly foreign-owned enterprise (“WFOE”) in China on November 27, 2009. Pursuant to a series of control agreements between Kingtone Information and Softech dated December 15, 2009, Kingtone Information became a contractually-controlled subsidiary of Softech. See the section entitled “Corporate History and Structure – Contractual Arrangements with Kingtone Information and Its Respective Shareholders.”

As a result of the restructuring, four of our record shareholders, Xtra Heights Management Ltd. (“Xtra”), SCGC Capital Holding Company Limited (“SCGC Capital”), Big Leap Enterprises Limited (“Big Leap”), and Silver Avenue Overseas Inc. (“Silver Avenue”) hold our ordinary shares as nominees on behalf of the record shareholders of Kingtone Information. Through their nominee shareholder at the level of our parent company, the shareholders of Kingtone Information received, a part of the restructuring, rights to acquire our ordinary shares, representing, prior to the offering, approximately the same relative ownership percentages as they hold in Kingtone Information. For more detailed information, see the section entitled “Corporate History and Structure”.

The following diagrams illustrate our corporate structure and the place of formation and affiliation of each of our subsidiaries and affiliates upon consummation of the offering.

Organizational Chart — Upon Consummation of the Offering

[GRAPHIC MISSING]

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Corporate Information

Our principal executive office are located at 3/F, Block A, No. 181 South Taibai Road, Xi’an 710065, the People’s Republic of China. Our telephone number at this address is +86-29-8823-1591. Our agent for service of process in the British Virgin Islands is Portcullis TrustNet (BVI) Limited with an address at Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands. Our agent for service of process in the United States is Corporation Service Company, located at 1180 Avenue of the Americas, Suite 210, New York, NY 10036.

Investors should contact us for any inquires through the address and telephone number of our principal executive office. Our principal website is www.kingtone.cn. The information contained on our website is not a part of this prospectus.

Risk Factors

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors.” We urge you to carefully consider all the information presented in the “Risk Factors” section of this prospectus beginning on page 9 .

Conventions that Apply to this Prospectus

Unless otherwise indicated and except where the context otherwise requires, references in this prospectus to:

“we,” “us,” “our company,” “the company” and “our” are to Kingtone Wirelessinfo Solution Holding Ltd, a company incorporated under the laws of the British Virgin Islands, and its subsidiaries;
“PRC” is the People’s Republic of China, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan for the purpose of this prospectus;
“RMB” is the lawful currency of the PRC; and
“fiscal 2009” and “fiscal 2008” are to our fiscal years ended November 30, 2009 and November 30, 2008, respectively.

Unless otherwise indicated and except where the context otherwise suggests, our financial information presented in this prospectus, including our audited consolidated financial statements and related notes, has been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

For fiscal 2009 and fiscal 2008, our income statements were translated at the average rates of RMB 6.8451 to US$1.00 and RMB 7.1106 to US$1.00, respectively. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. See “Risk Factors — Risks Related to Doing Business in China — Government control of currency may affect the value of your investment” for discussions of the effects of currency control and fluctuating exchange rates on the value of our ADSs. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

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THE OFFERING

ADSs offered by us    
    _______ ADSs
Over-allotment option    
    _______ ADSs
Ordinary shares to be outstanding immediately after this offering    
    _______
Offering Price    
    We currently estimate that the initial public offering price will be between $___ and $___ per ADS.
Use of proceeds    
    We estimate we will receive net proceeds from this offering of approximately $27.5 million, assuming an initial public offering price of $__ per ADS, the midpoint of the estimated range of the public offering price. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $___ million. We intend to use our net proceeds from this offering as follows:
   

•  

$13.6 million for product development;

   

•  

$5.6 million to expand research and development center;

   

•  

$5.0 million to develop customer relations management (CRM) systems; and

   

•  

the balance of the proceeds for working capital.

    For further information, see the section of this prospectus entitled “Use of Proceeds.”
The ADSs    
    Each ADS represents the right to receive ___ ordinary shares. The ADSs may be evidenced by American Depositary Receipts, or ADRs. As an ADS holder, we will not treat you as one of our shareholders. The depositary will be the holder of the shares underlying your ADSs. You will have ADS holder rights as provided in the deposit agreement. Under the deposit agreement, you may instruct the depositary to vote the shares underlying your ADSs. The depositary will pay you the cash dividends or other distributions it receives on shares after deducting its fees and expenses and applicable withholding taxes. You must pay a fee for issuance or cancellation of ADSs, distribution of shares by the depositary and other depositary services, as provided in the deposit agreement. You are entitled to the delivery of the shares underlying your ADSs upon the surrender of such ADSs at the depositary’s office, the payment of applicable fees and expenses and the satisfaction of applicable conditions set forth in the deposit agreement. To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus.
Depositary    
    The Bank of New York Mellon
Risk factors    
    See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ADSs.

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Lock-Up    
    Of our outstanding ordinary shares not being offered in this offering, __ are subject to 180-day lock-up agreements with our underwriters, ROTH Capital Partners, LLC, or ROTH Capital Partners. Subject to certain exceptions, neither we nor any of our directors, executive officers, employees and existing shareholders who are subject to these contractual lock-ups will, for a period of 180 days following the date of this prospectus, offer, sell or contract to sell any ADSs, ordinary shares or similar securities. See “Underwriting.”
Dividend Policy    
    We do not anticipate paying any cash dividends in the near future.
Ticker Symbol    
    We have applied to list our ADSs on the Nasdaq Capital Market under the symbol “KONE”.

Unless we specifically state otherwise, the share information in this prospectus does not give effect to the underwriters’ option to purchase up to an aggregate of ________ additional ADSs.

SUMMARY CONSOLIDATED AND COMBINED FINANCIAL INFORMATION

You should read the summary consolidated and combined financial information set forth below in conjunction with our consolidated and combined financial statements and related notes, “Selected Consolidated and Combined Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary consolidated and combined statements of income and comprehensive income for each of the two years ended November 30, 2009 and 2008, the summary consolidated and combined balance sheets as of November 30, 2009 and 2008, and the summary consolidated and combined statements of cash flows for each of the two years ended November 2009 and 2008 have been derived from our audited consolidated and combined financial statements that are included elsewhere in this prospectus. The consolidated and combined financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results to be expected for future periods.

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CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME DATA

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
Consolidated and Combined Statements of Income and Comprehensive Income
(In thousands of U.S. Dollars)

   
  For the Years Ended November 30,
     2009   2008
Revenues   $ 11,240     $ 4,286  
Cost of sales     3,894       1,621  
Gross margin     7,346       2,665  
Operating expenses
                 
Selling and marketing expenses     350       301  
General and administrative expenses     537       355  
Research and development expense     139       79  
       1,026       735  
Income from operations     6,320       1,930  
Other income (expense)
                 
Subsidy income     307       163  
Interest expenses     (340 )       (531 )  
Other income     24       16  
Other expenses     (79 )       (372 )  
       (88 )       (724 )  
Income before income tax expense     6,232       1,206  
Income tax expense     (935 )       (191 )  
Net income     5,297       1,015  
Other comprehensive income
                 
Foreign currency translation gain (loss)     22       544  
Comprehensive income   $ 5,319     $ 1,559  
Gross Margin Percentage     65.4 %       62.2 %  
Operating Margin Percentage     56.2 %       45.0 %  
Net Margin Percentage     47.1 %       23.7 %  

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CONSOLIDATED AND COMBINED BALANCE SHEET DATA

KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
Consolidated and Combined Balance Sheets
(In thousands of US Dollars)

   
  As of November 30,
     2009   2008
Cash   $ 344     $ 9  
Accounts receivable, net of allowance     2,353       499  
Other receivables and prepayments     1,012       781  
Total assets     17,907       14,677  
Total liabilities     8,781       6,953  
Total stockholders’ equity     9,126       7,724  

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RISK FACTORS

An investment in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other information contained in this prospectus, including the matters discussed under “Special Note Regarding Forward-Looking Statements,” before you decide to invest in our ADSs. You should pay particular attention to the fact that we are a holding company with substantial operations in China and are subject to legal and regulatory environments that in many respects differ from those of the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable to us, actually occur, our business, financial condition, results of operations, liquidity and our future growth prospects would be materially and adversely affected. You should also consider all other information contained in this prospectus before deciding to invest in our ADSs.

Risks Related to Our Company and Our Industry

If demand for enterprise remote and mobile connectivity does not continue to expand in China, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations.

The growth of our business is dependent, in part, upon the increased migration by enterprises to wireless connectivity services in China and our ability to capture a higher proportion of this market. If the demand in China for enterprise connectivity services does not continue to grow, or grows in ways that do not use our services, then we may not be able to grow our business, maintain our profitability or meet public market expectations. Increased usage of enterprise connectivity services depends on numerous factors, including:

the willingness of enterprises to make additional information technology expenditures;
the availability of security products necessary to ensure data privacy over the public networks;
the quality, cost and functionality of these services and competing services;
the increased adoption of wired and wireless broadband access methods;
the proliferation of electronic devices such as handhelds and smart-phones and related applications; and
the willingness of enterprises to invest in our services during the current world-wide economic crisis.

We depend on a single customer for a significant portion of our revenues, the loss of which could have a material adverse impact on our business, results of operations or financial condition.

In fiscal year 2009 and fiscal year 2008, we derived approximately 44.7% and 57%, respectively, of our revenues from a single customer. The loss of that customer or a material reduction in the revenue or gross profit generated from that customer could have a material adverse impact on our business, results of operations and financial condition. We also maintain a significant receivable balance with this customer. If this customer becomes unable or unwilling to pay amounts owed to us, our financial condition and results of operations could be adversely affected.

We face intense competition from other software development and IT service companies and, if we are unable to compete effectively, we may lose customers and our revenues may decline.

The market for software products and IT services, including wireless IT application products and solutions, is highly competitive and subject to rapid changes in technology. In the future, we expect significant competition from both established and emerging software companies. In addition, our growth opportunities in new product markets could be limited to the extent established and emerging software companies enter or have entered those markets. We believe the principal competitive factors in our markets are industry experience, quality of the products and services offered, reputation, marketing and selling skills, as well as price. We face significant competition from various competitors, including:

other Chinese wireless data communication and exchange software application and service providers, such as Beijing Silu Innovation Technology Co., Ltd. and Cyber Technologies (Suzhou) Co., Ltd.
other Chinese software developers and IT service provider, that may decide to add wireless data communication and exchange programming capability;

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telecommunication equipment producers and suppliers; and
multi-national service providers.

Many of our current and prospective competitors have significantly greater financial, marketing, service, support, technical and other resources than we do. As a result, they may be able to adapt more quickly than we to new or emerging technologies and changes in customer requirements or to devote greater resources to the promotion and sale of their products. Announcements of competing products by large competitors or other vendors could result in the cancellation of orders by customers in anticipation of the introduction of such new products. In addition, some of our competitors currently make complementary products that are sold separately. Such competitors could decide to enhance their competitive position by bundling their products to attract customers seeking integrated, cost-effective software applications. We also expect competition to increase as a result of software industry consolidations, which may lead to the creation of additional large and well-financed competitors. Increased competition is likely to result in price reductions, fewer customer orders, reduced margins and loss of market share.

We may be unable to effectively manage our rapid growth, which could place significant strain on our management personnel, systems and resources. We may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.

We have experienced rapid growth in our application implementations and revenues recently. Our sales grew to $11.24 million in fiscal 2009 from $4.29 million in fiscal 2008. With the forecasted increased market demand for wireless information management applications created by the recent deployment of 3G networks, we are actively developing our business and expanding our workforce to pursue existing and potential market opportunities.

Our rapid growth places a significant strain on our management personnel, system and resources. To accommodate our growth, we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems, all of which require substantial management efforts. We also will need to continue to expand, train, manage and motivate our workforce and manage our customer relationships. Moreover, as we introduce new solutions or services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar or cannot foresee. All of these endeavors will involve risks and require substantial management efforts and skills. As a result of any of these problem associated with growth, our business, results of operations and financial condition could be materially and adversely affected. Furthermore, we may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.

We may undertake acquisitions, investments, joint ventures or other strategic alliances, which could have a material adverse effect on our ability to manage our business. In addition, such undertakings may not be successful.

Our strategy includes plans to grow both organically and through acquisitions, participation in joint ventures or other strategic alliances. Joint ventures and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks associated with additional capital requirements. We may not be able, however, to identify suitable future acquisition candidates or alliance partners. Even if we identify suitable candidates or partners, we may be unable to complete an acquisition or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or partners, or complete desired acquisitions, we may not be able to implement our strategies effectively or efficiently.

In addition, our ability to successfully integrate acquired companies and their operations may be adversely affected by a number of factors. These factors include:

diversion of management’s attention;
difficulties in retaining customers of the acquired companies;
difficulties in retaining personnel of the acquired companies;
entry into unfamiliar markets;

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unanticipated problems or legal liabilities; and
tax and accounting issues.

If we fail to integrate acquired companies efficiently, our earnings, revenues growth and business could be negatively affected.

Due to intense competition for highly-skilled personnel, we may fail to attract and retain enough sufficiently trained employees to support our operations; our ability to bid for and obtain new projects may be negatively affected and our revenues could decline as a result.

The IT industry relies on skilled employees, and our success depends to a significant extent on our ability to attract, hire, train and retain qualified employees. Wireless information management application development is a relatively new area in the IT industry. There is a small pool of experienced developers. As the market demand picks up and more IT companies enter this market, there is significant competition in China for professionals with the skills necessary to develop the products and perform the services we offer to our customers. Increased competition for these professionals, in the wireless information management application development areas or otherwise, could have an adverse effect on us if we experience significant increase in the attrition rate among employees with specialized skills, which could decrease our operating efficiency and productivity and could lead to a decline in demand for our services.

In addition, our ability to serve existing customers and business partners and obtain new business will depend, in large part, on our ability to attract, train and retain skilled personnel that enable us to keep pace with growing demands for wireless information management application, evolving industry standards and changing customer preferences. Our failure to attract, train and retain personnel with the qualifications necessary to fulfill the needs of our existing and future customers or to assimilate new employees successfully could have a material adverse effect on our business, financial condition and results of operations. Our failure to retain our key personnel on business development or find suitable replacements of the key personnel upon their departure may lead to shrinking new implementation projects, which could materially adversely affect our business.

Our business depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services.

Our future success heavily depends upon the continued services of our senior executives and other key employees. In particular, we rely on the expertise and experience of Mr. Tao Li, our chairman. In addition, we rely on Mr. Peng Zhang, our chief executive officer, Ms. Li Wu, our chief financial officer, and Mr. Pengguo Xi, our chief technology officer, to run our business operations. If one or more of our senior executives or key employees is unable or unwilling to continue in his or her present position, we may not be able to replace such employee easily or at all, we may incur additional expenses to recruit, train and retain replacement personnel, our business may be severely disrupted, and our financial condition and results of operations may be materially adversely affected.

If Mr. Li’s other professional duties interfere or conflict with his duties for our company, our business, results of operations and financial condition could be materially and adversely affected.

Mr. Li, our chairman, currently serves as the chairman and chief executive officer of China Green Agriculture, Inc. (“CGA”), a producer of humic acid based compound fertilizer in the PRC whose common stock is listed on the New York Stock Exchange. Mr. Li’s duties as chairman and chief executive officer of CGA require the devotion of a substantial amount of his professional time and attention. Li currently devotes approximately 70% of his professional time to his duties for CGA. Similarly, our success and the execution of our growth strategy will require his significant efforts and the devotion of a substantial amount of his professional time and attention. If the performance of his duties on behalf of CGA interfere or conflict with his duties as chairman of our company, we may not be able to achieve our anticipated growth and our business, results of operations and financial condition could be materially adversely affected.

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Our business could suffer if our executives and directors compete against us and our non-competition agreements with them cannot be enforced.

If any of our senior executives or key employees joins a competitor or forms a competing company, we may lose customers, know-how and key professionals and staff members to them. Also, if any of our business development managers who keep a close relationship with our customers and business partners joins a competitor or forms a competing company, we may lose customers, and our revenues may be materially adversely affected. Most of our executives have entered into employment agreements with us that contain non-competition provisions. However, if any dispute arises between our executive officers and us, such non-competition provisions may not be enforceable, especially in China, where all of these executive officers and key employees reside, in light of the uncertainties with China’s legal system. See “— Risks Related to Doing Business in China — Uncertainties with respect to the PRC legal system could adversely affect us.”

A significant portion of the software development, ongoing system support and enhancement service revenues we generate are fixed amounts according to our sales contracts. If we fail to accurately estimate costs and determine resource requirements in relation to our projects, our margins and profitability could be materially and adversely affected.

A significant portion of the software development, ongoing system support and enhancement service revenues we generate are fixed amounts according to our sales contracts or bids we submit. Our projects often involve complex technologies and must often be completed within compressed timeframes and meet increasingly sophisticated customer requirements. We may be unable to accurately assess the time and resources required for completing projects and price our projects accordingly. If we underestimate the time or resources required, we may experience cost overruns and mismatches in project staffing. Conversely, if we over-estimate requirements, our bids may become uncompetitive and we may lose business as a result. Furthermore, any failure to complete a project within the stipulated timeframe could expose us to contractual and other liabilities and damage our reputation.

Our computer networks may be vulnerable to security risks that could disrupt our services and adversely affect our results of operations.

Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations. Computer attacks or disruptions may jeopardize the security of information stored in and transmitted through computer systems of our customers. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter telecom operators and consumers from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches, which could adversely affect our results of operations.

If we do not continually enhance our solution and service offerings, we may have difficulty in retaining existing customers and attracting new customers.

We believe that our future success will depend, to a significant extent, upon our ability to enhance our existing solutions and to introduce new solutions and features to meet the requirements of our customers in a rapidly developing and evolving market. We currently devote significant resources to refining and expanding our base software modules and to developing solutions that operate in accordance with our customers’ networks and systems. Unexpected technical, operational, distribution or other problems could delay or prevent the introduction of one or more of these products or services or any products or services that we may plan to introduce in the future. Our present or future products may not satisfy the evolving needs of the telecom industry, and these solutions and services may not achieve anticipated market acceptance or generate incremental revenue. If we are unable to anticipate or respond adequately to the need for solutions and services enhancements due to resource, technological or other constraints, our business, financial condition and results of operations could be materially and adversely affected.

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If we are unable to develop competitive new products and service offerings our future results of operations could be adversely affected.

Our future revenue stream depends to a large degree on our ability to utilize our technology in a way that will allow us to offer new types of software applications and services to a broader client base. We will be required to make investments in research and development in order to continue to develop new software applications and related service offerings, enhance our existing software applications and related service offerings and achieve market acceptance of our software applications and service offerings. We may incur problems in the future in innovating and introducing new software applications and service offerings. Our development-stage software applications may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we are unable to successfully define, develop and introduce competitive new software applications, and enhance existing software applications, our future results of operations would be adversely affected. Development schedules for software applications are difficult to predict. The timely availability of new applications and their acceptance by customers are important to our future success. A delay in new the development of new applications could have a significant impact on its results of operations.

Changes in technology could adversely affect our business by increasing our costs, reducing our profit margins and causing a decline in our competitiveness.

China’s wireless telecom industry, in which we operate, is characterized by rapidly changing technology, evolving industry standards, frequent new services and solutions introductions and enhancements as well as changing customer demands. New solutions and new technologies often render existing solutions and services obsolete, excessively costly or otherwise unmarketable. As a result, our success depends on our ability to adapt to the latest technological progress, such as the 3G standard and technologies, and to develop or acquire and integrate new technologies into our software solutions and IT-related services. Advances in technology also require us to commit substantial resources to developing or acquiring and then deploying new technologies for use in our operations. We must continuously train personnel in new technologies and in how to integrate existing hardware and software systems with these new technologies. We may not be able to adapt quickly to new technologies or commit sufficient resources to compete successfully against existing or new competitors in bringing to market solutions and services that incorporate these new technologies. We may incur problems in the future in innovating and introducing new software applications and service offerings. Our development-stage software applications may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we fail to adapt to changes in technologies and compete successfully against established or new competitors, our business, financial condition and results of operations could be adversely affected.

Returns on our investment in new technologies, such as 3G technology, and new solutions may not materialize as expected.

We have invested and will invest in the future a substantial amount of capital, manpower and other resources to develop new solutions and acquire technologies in preparation for the adoption by the wireless telecom industry in China of new standards and technologies, such as the 3G standard and technologies. However, our abilities to successfully develop and commercialize these new solutions and technologies are subject to a number of risks and uncertainties, including uncertainty surrounding the timing of the adoption of these new standards and technologies by China’s telecom industry and the receptiveness to these new technologies by their customer base, as well as our abilities to develop and market these new solutions cost-effectively and to deliver these solutions ahead of our competitors. Any of the above risks and uncertainties could jeopardize our ability to successfully realize a significant return on our investment in the 3G and other new technologies and solutions, if at all.

Problems with the quality or performance of our solutions may cause delays in the introduction of new solutions or result in the loss of customers and revenues, which could have a material and adverse effect on our business, financial condition and results of operations.

Our software solutions are complex and may contain defects, errors or bugs when first introduced to the market or to a particular customer, or as new versions are released. Because we cannot test for all possible scenarios, our solutions may contain errors which are not discovered until after they have been installed, and

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we may not be able to timely correct these problems. These defects, errors or bugs could interrupt or delay completion of projects or sales to our customers. In addition, our reputation may be damaged and we may fail to acquire new projects from existing customers or new customers. Errors may occur when we provide systems integration and maintenance services. Some of the contracts with our customers do not have provisions setting forth limitations on liability for consequential damages. Even in cases where we have agreements with our customers that contain provisions designed to limit our exposure to potential claims and liabilities arising from customer problems, these provisions may not effectively protect us against such claims in all cases and in all jurisdictions. In addition, as a result of business and other considerations, we may undertake to compensate our customers for damages arising from the use of our solutions, even if our liability is limited by these provisions. Moreover, claims and liabilities arising from customer problems could also result in adverse publicity and materially and adversely affect our business, results of operations and financial condition. We currently do not carry any product or service liability insurance and any imposition of liability on us may materially and adversely affect our business and increase our cost, resulting in reduced revenues and profitability.

Our products may contain undetected software defects, which could negatively affect our revenues.

Our software products are complex and may contain undetected defects. In the past, we have discovered software defects in certain of our products and have experienced delayed or lost revenues during the period it took to correct these problems. Although we test our products, it is possible that errors may be found or occur in our new or existing products after we have commenced commercial shipment of those products. Defects, whether actual or perceived, could result in adverse publicity, loss of revenues, product returns, a delay in market acceptance of our products, loss of competitive position or claims against us by customers. Any such problems could be costly to remedy and could cause interruptions, delays, or cessation of our product sales, which could cause us to lose existing or prospective customers and could negatively affect our results of operations.

We may be subject to infringement, misappropriation and indemnity claims in the future, which may cause us to incur significant expenses, pay substantial damages and be prevented from providing our services or technologies.

Our success depends, in part, on our ability to carry out our business without infringing the intellectual property rights of third parties. Patent and copyright law covering software-related technologies and IT marketing is evolving rapidly and is subject to a great deal of uncertainty. Our self-developed or licensed technologies, processes or methods may be covered by third-party patents or copyrights, either now existing or to be issued in the future. Any potential litigation may cause us to incur significant expenses. Third-party claims, if successfully asserted against us may cause us to pay substantial damages, seek licenses from third parties, pay ongoing royalties, redesign our services or technologies, or prevent us from providing services or technologies subject to these claims. Even if we were to prevail, any litigation would likely be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

Additionally, most of our software development contracts signed with our customers contain indemnity clauses whereby we will indemnify our customers for any loss or damages suffered as a result of any third-party claims against them for any infringement of intellectual property rights in connection with the installation and use of the customized software solutions we develop for them. We may still be exposed to significant liabilities under these indemnity clauses agreed with our customers.

Our failure to protect our intellectual property rights may undermine our competitive position, and subject us to costly litigation to protect our intellectual property rights.

Any misappropriation of our technology or the development of competitive technology could seriously harm our business. We regard a substantial portion of our software solutions and systems as proprietary and rely on statutory copyright, trademark, patent, trade secret laws, customer license agreements, employee and third-party non-disclosure agreements and other methods to protect our proprietary rights. Nevertheless, these resources afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. In particular, third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial

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condition and results of operations. In addition, intellectual property rights and confidentiality protection in China may not be as effective as in the United States, and policing unauthorized use of proprietary technology can be difficult and expensive. In addition, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of any such litigation may not be in our favor. Furthermore, any such litigation may be costly and may divert management attention as well as our other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all litigation costs in excess of the amount recoverable from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Our solutions incorporate a portion of and work in conjunction with third-party hardware and software solutions. If these third-party hardware or software solutions are not available to us at reasonable costs or at all, our results of operations could be adversely impacted.

Although our solutions primarily rely on our own core technologies, some of our solutions incorporate a small portion of third-party hardware and software solutions. In addition, our solutions are designed to work in conjunction with the third-party hardware and software in our customers’ existing systems. If any third party were to discontinue making their solutions available to us or our customers on a timely basis, or increase materially the cost of their solutions, or if our solutions failed to properly function or interoperate with replacement hardware or software solutions, we may need to incur costs in finding replacement third-party solutions and/or redesigning our solutions to replace or function with or on replacement third-party solutions. Replacement solutions may not be available on terms acceptable to us or at all, and we may be unable to develop alternative solutions or redesign our solutions on a timely basis or at a reasonable cost. If any of these were to occur, our results of operations could be adversely impacted.

Our ability to sell our products is highly dependent on the quality of our service and support offerings, and our failure to offer high quality service could have a material adverse effect on our ability to market and sell our products.

Our customers depend upon our customer service and support staff to resolve issues relating to our products. High-quality support services are critical for the successful marketing and sale of our products. If we fail to provide high-quality support on an ongoing basis, our customers may react negatively and we may be materially and adversely affected in our ability to sell additional products to these customers. This could also damage our reputation and prospects with potential customers. Our failure to maintain high-quality support services could have a material and adverse effect on our business, results of operations and financial condition.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may, therefore, be adversely impacted.

We will be subject to reporting obligations under the U.S. securities laws. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Beginning with our annual report on Form 20-F for the fiscal year ending September 30, 2010, we will be required to prepare a management report on our internal controls over financial reporting containing our management’s assessment of the effectiveness of our internal controls over financial reporting. In addition, depending on our market capitalization, our independent registered public accounting firm may be required to attest to and report on our management’s assessment of the effectiveness of our internal controls over financial reporting. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

Prior to this offering, we have been a private company with a limited number of accounting personnel and we have accounted for our business using PRC accounting standards similar for small growing PRC

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companies. Our accounting staff has limited experience with U.S. GAAP standards and reporting requirements and the rules and regulations as promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB. Our current staff is not experienced in U.S. GAAP requirements and we may experience difficulties or problems in developing strong internal controls and internal documentation, accounting, auditing and reporting systems. It is possible that our weaknesses in these areas could lead to errors and mistakes that are damaging to the Company. We have begun the process to improve our U.S. GAAP reporting capabilities and we plan to hire additional accounting personnel with U.S. GAAP experience to improve our ability to apply U.S. GAAP. We prepared and are in the process of implementing formal accounting policies and procedures to address key accounting areas for routine and non-routine transactions. We are working to implement these measures in fiscal 2010, although we cannot assure you that we will complete such implementation by then. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments.

We will continue to implement measures to identify and, if necessary, to remedy any material weaknesses and significant deficiencies to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our ADSs. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act. We estimate that the cost of improving our U.S. GAAP reporting capabilities and establishing effective internal controls will be $250,000 to $350,000 per year, which includes the cost of hiring additional qualified chief financial officer and qualified accounting personnel.

We have very limited insurance coverage which could expose us to significant costs and business disruption.

We do not maintain any insurance coverage for our leased properties. Should any natural catastrophes such as earthquakes, floods, typhoons or any acts of terrorism occur in Shaanxi Province, where our head office is located and most of our employees are based, or elsewhere in China, we might suffer not only significant property damages, but also loss of revenues due to interruptions in our business operations, which could have a material adverse effect on our business, operating results or financial condition.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources, particularly if it affects our technology platforms which we depend on for delivery of our software and services, and could have a material adverse effect on our financial condition and results of operations.

We may be liable to our customers for damages caused by unauthorized disclosure of sensitive and confidential information, whether through our employees or otherwise.

We are typically required to manage, utilize and store sensitive or confidential customer data in connection with the products and services we provide. Under the terms of our customer contracts, we are required to keep such information strictly confidential. We seek to implement specific measures to protect sensitive and confidential customer data. We require our employees to enter into non-disclosure arrangements to limit access to and distribution of our customer’ sensitive and confidential information as well as our own trade secrets. We can give no assurance that the steps taken by us in this regard will be adequate to protect our customer’ confidential information. If our customers’ proprietary rights are misappropriated by our employees, in violation of any applicable confidentiality agreements or otherwise, our customer may consider us liable for that act and seek damages and compensation from us. However, we currently do not have any insurance coverage for mismanagement or misappropriation of such information by our employees. Any

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litigation with respect to unauthorized disclosure of sensitive and confidential information might result in substantial costs and diversion of resources and management attention.

We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing products and services.

It is critical that we use and develop our technology and products without infringing the intellectual property rights of third parties, including patents, copyrights, trade secrets and trademarks. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages, develop non-infringing technology, or re-brand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing or using products that have infringed a third party’s intellectual property rights. Protracted litigation could also result in existing or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, or could require us to indemnify our customers against infringement claims in certain instances. Also, we may be unaware of intellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology containing the allegedly infringing intellectual property. Any intellectual property litigation could have a material adverse effect on our business, results of operations or financial condition.

We have transferred intellectual property rights to a number of our customized software solutions to our customers in the past and may not own all these intellectual property rights. We may be subject to intellectual property infringement claims from these customers and others, which may force us to incur substantial legal expenses and, if determined adversely against us, may disrupt our business and materially and adversely affect our revenues and net income.

Our business involves the development and customization of software solutions for customers. While we retain ownership in the intellectual property rights underlying the core technologies required to develop our customized finished software solutions, in most cases, our contracts for custom-designed projects provided that our customers own, or share with us, intellectual property rights to the finished software solutions developed under such contracts. Under these circumstances, we may not have the right to reuse the related finished software in projects involving other customers nor can we unilaterally apply for copyright registrations, patents or other intellectual property rights for these software solutions. To the extent that we are unable to reuse the software and to the extent that the use of such software is important to the growth of our business with other customers, the inability to reuse such software could hinder the growth of our business. Furthermore, a portion of these contracts provide that our customers have ownership rights to any substantial improvements we subsequently make to the software solutions developed under these contracts. As a result, we may be subject to intellectual property infringement or profit sharing claims in the future from these customers. Any such claims could subject us to costly litigation and may require us to pay damages and develop non-infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged infringement. These could harm our reputation and materially and adversely affect our business and net income.

Our balance sheet includes a deposit for a single significant commercial real estate asset, the Kingtone Center, which is the planned future site of the company’s operations. A significant, long-term decline in the estimated fair value of this property could result in an asset impairment charge, which would be recorded as an operating expense in our Consolidated and Combined Statement of Income and could be material.

Under current accounting standards, real estate, including related improvements, is stated at cost, less any accumulated depreciation. These standards require us to evaluate real estate assets for possible impairment whenever events or circumstances indicate that their carrying value might not be recoverable and exceed the assets’ fair value. The carrying value is deemed unrecoverable if it is greater than the sum of undiscounted cash flows expected to result from the use (including rental income) and eventual disposition of the asset. An impairment loss is equal to the excess of the carrying value over the fair value of the asset. Although we plan

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to use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in impairment tests for our real estate assets, these estimates are uncertain by nature and can vary from actual results. If we determine that the fair value is less than its carrying value on our balance sheet, we will recognize an impairment charge for the difference.

In April 2008, Kingtone Information contracted to purchase the Kingtone Center, a 20,000 square meter warehouse and industrial facility in Xian, Shaanxi Province, PRC, for approximately $12 million (RMB83,417,200) in an all-cash transaction. We paid the purchase price and are currently in the process of obtaining the property ownership certificate from the provincial government. We plan to move our entire operations to this facility by the end of 2010, at which time we plan to evaluate our immediate needs for existing operations and, if feasible, we may seek to lease out a portion of any unused space. This asset is recorded on Kingtone Information’s balance sheet as of September 30, 2009 as “Deposit to purchase building” and once the certificate is received the asset will be re-characterized accordingly. At September 30, 2009, we had approximately $12,200,000 of deposits for real estate assets on our balance sheet, all of which was attributable to Kingtone Center, which represented 68% of our total assets at September 30, 2009. It is possible that we could have an impairment charge for real estate assets in future periods if the commercial real estate market in the PRC, or in our region of the PRC, suffers a general and sustained decline, which would result in a lower value for our real estate assets. Any such future impairment charge for real estate assets could have a material adverse effect on our financial position or results of operations.

The title transfer for the Kingtone Center has been delayed because certain transfer taxes and fees have not been paid by the seller. A further delay could also delay our possession of the Premises.

Kingtone Information entered into a purchase agreement on April 22, 2008 to purchase the land use right and building ownership of the premises located at No.17 Huoju Road, Beilin District, Xi’an (the “Premises”) for approximately $US12 million (RMB83,417,200) in an all-cash transaction. Kingtone Information has already paid 100% of the purchase price to the seller; however, the title transfer of the Premises has not been consummated because the seller has not yet paid transfer taxes and fees of approximately $US600,000 (RMB 4 million) to the relevant local PRC authorities. We have confirmed with the local authorities that the payment of the taxes and fees is the only outstanding requirement before the issuance of the new certificates for the Premises. Despite Kingtone Information’s efforts to compel the seller to pay such taxes and fees, it has not done so. Further delays in such payment will likely delay the consummation of the title transfer which could also delay our possession of the Premises. Furthermore, until the title transfer is completed, there exists a risk that the Premises could be subjected to competing third-party claims, liens or encumbrances, which could adversely affect the completion of the transfer process. As of the date of this Prospectus, we have no knowledge of any pending or threatened third-party claims or encumbrances relating to the Premises. If the title transfer is further delayed due to the seller’s failure to make the outstanding payment, we may be forced to pay the outstanding amount on seller’s behalf in order to complete the title transfer and take possession of the Premises. In such event, we may consider pursuing a claim for money damages against the seller, although there can be no assurance of a successful recovery.

Seasonality and fluctuations in our customers’ annual IT budget and spending cycle and other factors can cause our revenues and operating results to vary significantly from quarter to quarter and from year to year.

Our revenues and operating results will vary significantly from quarter to quarter and from year to year due to a number of factors, many of which are outside of our control. A large number of our engineers take leave around the Chinese New Year holiday, which typically falls between late January and February of each year. The lack of man-hours during this holiday period usually leads to relatively lower revenues during the first calendar quarter. We typically experience higher revenues during the fourth quarter of the year as more of our software solutions are delivered and installed close to the year-end, the timing of which delivery and installation is influenced by the calendar-year-based IT budget and spending cycle of many of our customers. Due to the annual budget cycles of most of our customers, we also may be unable to accurately estimate the demand for our solutions and services beyond the immediate calendar year, which could adversely affect our business planning. Moreover, our results will vary depending on our customers’ business needs from year to year. Due to these and other factors, our operating results have fluctuated significantly from quarter to quarter

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and from year to year. These fluctuations are likely to continue in the future, and operating results for any period may not be indicative of our future performance in any future period.

Our corporate actions are substantially controlled by our principal shareholders, who can cause us to take actions in ways you may not agree with.

Mr. Tao Li, our chairman, beneficially owns and has voting control over 60.1% of our ordinary shares, and our other officers and directors beneficially own and have voting control over an aggregate of 2.5% of our ordinary shares, pursuant to certain Call Option Agreements with Xtra Heights Management Ltd., the record holder of the shares. See the section entitled “Corporate History and Structure”. Even after the completion of this offering, our officers, directors and principal shareholders will hold approximately __% of our outstanding shares (assuming no exercise of the underwriters’ over-allotment option). These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors, amending our constitutional documents, and approving acquisitions, mergers or other business combination transactions. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares. Alternatively, our controlling shareholders may cause a merger, consolidation or change of control transaction even if it is opposed by our other shareholders, including those who purchase shares in this offering.

Risk Related to Doing Business in China

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and materially and adversely affect our competitive position.

Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China’s significant growth in the past 30 years. The reorganization of the telecommunications industry encouraged by the PRC government has directly affected our industry and our growth prospect. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of the telecommunications industry in China or our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.

Our business benefits from certain government tax incentives. Expiration, reduction or discontinuation of, or changes to, these incentives will increase our tax burden and reduce our net income.

Under the PRC Enterprise Income Tax Law passed in 2007 and the implementing rules, both of which became effective on January 1, 2008, or the New EIT Law, a unified enterprise income tax rate of 25% and unified tax deduction standard is applied equally to both domestic-invested enterprises and foreign-invested enterprises, or FIEs. Enterprises established prior to March 16, 2007 eligible for preferential tax treatment in accordance with the then tax laws and administrative regulations shall gradually become subject to the New EIT Law rate over a five-year transition period starting from the date of effectiveness of the New EIT Law. However, certain qualifying high-technology enterprises may still benefit from a preferential tax rate of 15% if they own their core intellectual properties and they are enterprises in certain State-supported high-tech industries to be later specified by the government. As a result, if our PRC subsidiaries qualify as “high-technology enterprises,” they will continue to benefit from the preferential tax rate of 15%, subject to transitional rules implemented from January 1, 2008. Furthermore, if our PRC subsidiaries, including Kingtone Information qualify as “key software enterprises,” they will enjoy a further reduction to their preferential tax

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rate to 10%. Kingtone Information has been qualified as a “high-technology enterprise” for a three year period from November 21, 2008 and therefore it has benefited from the preferential tax rate of 15%, subject to transitional rules implemented on January 1, 2008. Otherwise, the applicable tax rate of our PRC subsidiaries may gradually increase to the unified tax rate of 25% by January 1, 2013 under the New EIT Law and the Implementing Rules. Currently, the value-added taxes we pay on our software products are refunded to us by the tax authorities as part of the PRC state policies to encourage the development of the PRC software industry. If Kingtone Information ceases to qualify as a “high-technology enterprise” or “key software enterprise,” or if the refund of the value-added taxes ceases to apply, our financial condition and results of operations could be materially and adversely affected.

If we and/or Topsky were deemed a “resident enterprise” by PRC tax authorities, we and/or Topsky could be subject to tax on our global income at the rate of 25% under the New EIT Law and our non-PRC shareholders could be subject to certain PRC taxes.

Under the New EIT Law and the implementing rules, both of which became effective January 1, 2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC may be considered a PRC “resident enterprise” and will be subject to the enterprise income tax at the rate of 25% on its global income as well as PRC enterprise income tax reporting obligations. The implementing rules of the New EIT Law define “de facto management” as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. If we and/or Topsky were to be considered a “resident enterprise” by the PRC tax authorities, our and/or Topsky’s global income would be taxable under the New EIT Law at the rate of 25% and, to the extent we and/or Topsky were to generate a substantial amount of income outside of PRC in the future, we and/or Topsky would be subject to additional taxes. In addition, the dividends we pay to our non-PRC enterprise shareholders and gains derived by such shareholders or ADS holders from the transfer of our shares or ADSs may also be subject to PRC withholding tax at the rate up to 10%, if such income were regarded as China-sourced income. However, as of the date of this prospectus, no final interpretations on the implementation of the “resident enterprise” designation are available. Moreover, any such designation, when made by PRC tax authorities, will be determined based on the facts and circumstances of individual cases. As a result, we cannot determine the likelihood of our being designated a “resident enterprise” as of the date of this prospectus.

Our holding company structure may limit the payment of dividends.

We have no direct business operations, other than our ownership of our subsidiaries and our contractual control of Kingtone Information. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. As a result, there may be limitations on the ability of our PRC subsidiaries to pay dividends or make other investments or acquisitions that could be beneficial to our business, or otherwise fund and conduct our business.

In addition, under the New EIT Law and the implementing rules that became effective on January 1, 2008, dividends generated from the business of our PRC subsidiaries after January 1, 2008 and payable to us and/or Topsky may be subject to a withholding tax rate of 10% if the PRC tax authorities subsequently determine that we and/or Topsky is a non-resident enterprise, unless there is a tax treaty with China that provides for a different withholding arrangement. Topsky, the direct holder of 100% of the equity interests of Softech, is organized in Singapore. Under the Notice of the State Administration of Taxation on Delivering the Table of Negotiated Dividends and Interest Rates to Lower Levels of People’s Republic of China, such dividend withholding tax rate is reduced to 5% if a Singapore resident enterprise owns over 25% of the PRC company distributing the dividends. As Topsky is a Singapore company and owns 100% of Softech, under the

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aforesaid notice, any dividends that Softech pays to Topsky will be subject to a withholding tax at the rate of 5%, provided that Topsky is not considered to be PRC tax resident enterprises. If, however, Topsky is regarded as a resident enterprise, the dividends payable to Topsky from Softech may be exempt from the PRC income tax, and the dividends payable from Topsky to us will be subject to a 10% PRC withholding tax (unless we are considered to be a PRC tax resident enterprise). Any such taxes could thus materially reduce the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct all of our business through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are FIEs, to finance their activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE. On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used. The notice requires that RMB converted from the foreign currency-denominated capital of a foreign-invested company may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. The foreign currency-denominated capital shall be verified by an accounting firm before converting into RMB. In addition, SAFE strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-denominated capital of a foreign-invested company. To convert such capital into RMB, the foreign-invested company must report the use of such RMB to the bank, and the RMB must be used to the reported purposes. According to Circular 142, change of the use of such RMB without approval is prohibited. In addition, such RMB may not be used to repay RMB loans if the proceeds of such loans have not yet been used. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Rules.

We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce, or MOFCOM, or its local counterpart. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

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Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs or ordinary shares.

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 21.2% appreciation of the RMB against the U.S. dollar between July 21, 2005 and June 30, 2009. Provisions on Administration of Foreign Exchange, as amended in August 2008, further changed China’s exchange regime to a managed floating exchange rate regime based on market supply and demand. Since reaching a high against the U.S. dollar in July 2008, however, the RMB has traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high but never exceeding it. As a consequence, the RMB has fluctuated sharply since July 2008 against other freely-traded currencies, in tandem with the U.S. dollar. It is difficult to predict how long the current situation may continue and when and how it may change again. Substantially all of our revenues and costs are denominated in the RMB, and a significant portion of our financial assets are also denominated in RMB. We principally rely on dividends and other distributions paid to us by our subsidiaries in China. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs or ordinary shares in U.S. dollars. Any fluctuations of the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

Softech’s contractual arrangements with Kingtone Information may result in adverse tax consequences to us.

We could face material and adverse tax consequences if the PRC tax authorities determine that Softech’s contractual arrangements with Kingtone Information were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes, of adjustments recorded by Kingtone Information, which could adversely affect us by increasing Kingtone Information’s tax liability without reducing Softech’s tax liability, which could further result in late payment fees and other penalties to Kingtone Information for underpaid taxes.

We control Kingtone Information through contractual arrangements which may not be as effective in providing control over Kingtone Information as direct ownership, and if Kingtone Information or its shareholders breach the contractual arrangements, we would have to rely on legal remedies under PRC law, which may not be available or effective, to enforce or protect our rights.

We conduct substantially all of our operations, and generate substantially all of our revenues, through contractual arrangements with Kingtone Information that provide us, through our ownership of Topsky and its ownership of Softech, with effective control over Kingtone Information. We have no direct ownership interest in Kingtone Information. We depend on Kingtone Information to hold and maintain contracts with our

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customers. Kingtone Information also owns substantially all of our intellectual property, facilities and other assets relating to the operation of our business, and employs the personnel for substantially all of our business. Neither our company nor Softech has any ownership interest in Kingtone Information. Although we have been advised by Global Law Office, our PRC legal counsel, that each contract under Softech’s contractual arrangements with Kingtone Information is valid, binding and enforceable under current PRC laws and regulations in effect, these contractual arrangements may not be as effective in providing us with control over Kingtone Information as direct ownership of Kingtone Information would be. In addition, Kingtone Information may breach the contractual arrangements. For example, Kingtone Information may decide not to make contractual payments to Softech, and consequently to our company, in accordance with the existing contractual arrangements. In the event of any such breach, we would have to rely on legal remedies under PRC law. These remedies may not always be available or effective, particularly in light of uncertainties in the PRC legal system.

PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation of such PRC laws and regulations, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of Softech’s contractual arrangements with Kingtone Information. Softech is considered a foreign invested enterprise under PRC law. As a result, Softech is subject to PRC law limitations on its businesses and foreign ownership of Chinese companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

If we are required to obtain the prior approval of the China Securities Regulatory Commission, or CSRC, of the listing and trading of our ADSs on the Nasdaq Capital Market, this offering could be delayed indefinitely.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which became effective on September 8, 2006 (the “New M&A Rules”). This regulation, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for the purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process, if

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practicable at all. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.

Our PRC counsel has advised us that, based on its understanding of the current PRC laws and regulations as well as the procedures announced on September 21, 2006: (i) Softech was directly incorporated by Topsky as a foreign investment enterprise under PRC law; therefore, there was no acquisition of the equity of a “PRC domestic company” as defined under the New M&A Rules; and (ii) the contractual arrangements between Kingtone Information and Softech are not clearly defined and considered as the transaction which shall be applied to the New M&A Rules. Therefore, we did not seek prior CSRC approval for this offering.

However, if the CSRC requires that we obtain its approval prior to the completion of this offering, this offering will be delayed until we obtain CSRC approval, which may take several months, if practicable at all. If prior CSRC approval is required but not obtained, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the shares offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur.

Also, if the CSRC subsequently requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our shares.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to penalties and limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute profits to us, or otherwise adversely affect us.

On October 21, 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. According to Notice 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing such offshore company with assets or equity interests in an onshore enterprise located in the PRC, or an offshore special purpose company. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore special purpose company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore special purpose company. Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore special purpose companies that have made onshore investments in the PRC in the past are required to have completed the relevant registration procedures with the local SAFE branch by March 31, 2006. To further clarify the implementation of Circular 75, the SAFE issued Circular 106 on May 29, 2007. Under Circular 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders or beneficial owners who are PRC residents in a timely manner.

Our current shareholders and/or beneficial owners may fall within the ambit of the SAFE notice and be required to register with the local SAFE branch as required under the SAFE notice. If so required, and if such shareholders and/or beneficial owners fail to timely register their SAFE registrations pursuant to the SAFE notice, or if future shareholders and/or beneficial owners of our company who are PRC residents fail to comply with the registration procedures set forth in the SAFE notice, this may subject such shareholders, beneficial owners and/or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to

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contribute additional capital (including using the proceeds from this offering) into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to our company, or otherwise adversely affect our business.

Risks Associated with this Offering and our ADSs

The market price of our ADSsmay be highly volatile, and you may not be able to resell at or above the initial public offering price.

Prior to this offering, there has not been a public market for our ordinary shares or ADSs. We cannot assure you that an active trading market for our ADSs will develop following this offering. You may not be able to sell your ADSs quickly or at the market price if trading in our ADSs is not active. The initial public offering price for the ADSs will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market.

The trading price of our ADSs is likely to be volatile. The price of our ADSs could be subject to wide fluctuations in response to a variety of factors, including the following:

Introduction of new products, services or technologies offered by us or our competitors;
Failure to meet or exceed revenue and financial projections we provide to the public;
Actual or anticipated variations in quarterly operating results;
Failure to meet or exceed the estimates and projections of the investment community;
General market conditions and overall fluctuations in United States equity markets;
Announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
Disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
Additions or departures of key management personnel;
Issuances of debt or equity securities;
Significant lawsuits, including patent or shareholder litigation;
Changes in the market valuations of similar companies;
Sales of our ADSs by us or our shareholders in the future;
Trading volume of our ADS; and
Other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the Nasdaq Capital Market and software products and services companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ADS, regardless of our actual operating performance.

If you purchase our ADSs in this offering, you will incur immediate and substantial dilution in the book value of your ADSs.

The public offering price is substantially higher than the net tangible book value per share. Investors purchasing ADSs in this offering will pay a price per ADS that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing ADSs in this offering will incur immediate dilution of $___ per ADS, assuming an initial public offering price of $___ per ADS. Further, investors purchasing ADSs in this offering will contribute approximately __% of the total amount invested by shareholders since our inception, but will own only approximately __% of the outstanding shares.

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This dilution is due to the substantial lower price paid by our investors who purchased their ordinary shares prior to this offering as compared to the price offered to the public in this offering. As a result of the dilution to investors purchasing ADSs in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation.

Sales of a substantial number of ordinary shares or ADSs in the public market by our existing shareholders could cause the price of our ADSs to fall.

Sales of a substantial number of our ordinary shares or ADSs in the public market or the perception that these sales might occur, could depress the market price of our ADSs and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our ADSs.

Our existing shareholders holding approximately __% of our outstanding ordinary shares prior to this offering are subject to lock-up agreements with the underwriters of this offering that restrict the shareholders’ ability to transfer ordinary shares or ADSs for at least 180 days from the date of this prospectus. The lock-up agreements limit the number of ordinary shares or ADSs that may be sold immediately following the public offering. Subject to certain limitations, approximately _________ of our total outstanding shares will be eligible for sale upon expiration of the lock-up period. Sales of ordinary shares by these shareholders could have a material adverse effect on the trading price of our ADSs.

Future sales and issuances of our ordinary shares or ADSs or rights to purchase our ordinary shares or ADSs, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our shareholders and could cause the price of our ADSs to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution. We may sell ordinary shares, ADSs, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell ordinary shares, ADSs, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing shareholders, and new investors could gain rights superior to our existing shareholders.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders.

We do not intend to pay dividends on our ordinary shares so any returns will be limited to the value of our ADSs.

We have never declared or paid any cash dividend on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return shareholders will therefore be limited to the value of their ADSs.

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our memorandum of association and articles of association, the BVI Business Companies Act, 2004, or the BVI Act, of the British Virgin Islands and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority

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shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.

As a result of all of the above, holders of our ADSs may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company. For a discussion of significant differences between the provisions of the BVI Act and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital — Differences in Corporate Law.”

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our memorandum of association and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the memorandum of association and articles of association.

There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British Virgin Islands is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the company’s constituent documents. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum of association and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote;

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and (4) where the company has not complied with provisions requiring approval of a majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

Anti-takeover provisions in our memorandum of association and articles of association and our right to issue preference shares could make a third-party acquisition of us difficult.

Some provisions of our memorandum of association and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares.

You may not have the same voting rights as the holders of our ordinary shares and must act through the depositary to exercise your rights.

Except as described in this prospectus and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists, or (iii) such matter materially and adversely affects the rights of shareholders. See “Description of American Depositary Shares.” We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.

You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we may not, and under the deposit agreement for the ADSs, the depositary will not, offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to rely on an exemption from registration under the Securities Act to distribute such rights and securities. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

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We may be a passive foreign investment company, of PFIC, which could lead to additional taxes for U.S. holders of our ADSs or ordinary shares.

We do not expect to be, for U.S. federal income tax purposes, a passive foreign investment company, or a PFIC, which is a foreign company for which, in any given taxable year, either at least 75% of its gross income is passive income, or investment income in general, or at least 50% of its assets produce or are held to produce passive income, for the current taxable year and we expect to operate in such a manner so as not to become a PFIC for any future taxable year. However, because the determination of PFIC status for any taxable year cannot be made until after the close of such year and requires extensive factual investigation, including ascertaining the fair market value of our assets on a quarterly basis and determining whether each item of gross income that we earn is passive income, we cannot assure you that we will not become a PFIC for the current taxable year or any future taxable year. If we are or become a PFIC, a U.S. holder of our ADSs or ordinary shares could be subject to additional U.S. federal income taxes on gain recognized with respect to the ADSs or ordinary shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. See “Taxation — United States Federal Income Taxation — Tax Consequences to U.S. Holders — Passive Foreign Investment Company.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements include:

our expansion plans;
our anticipated growth strategy;
our plans to recruit more employees;
our plans to invest in research and development to enhance our product or service lines;
our future business development, results of operations and financial condition;
expected changes in our net revenues and certain cost or expense items;
our ability to attract and retain customers; and
trends and competition in the enterprise mobile software application market.

You should read thoroughly this prospectus with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

This prospectus also contains estimates, projections and statistical data related to the enterprise mobile software and IT services market in China. This market data, including data from IDC, speaks as of the date it was published and includes projections that are based on a number of assumptions and are not representations of fact. The enterprise mobile software and IT services market may not grow at the rates projected by the market data, or at all. The failure of the market to grow at the projected rates may materially and adversely affect our business and the market price of our ADSs. In addition, the rapidly changing nature of the software and IT services market subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data proves to be incorrect, actual results may differ from the projections based on these assumptions.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

We estimate that we will receive $27.5 million in net proceeds from our sale of ADSs sold by us in this offering. Our net proceeds from this offering represent the amount we expect to receive after paying the underwriting discounts and commissions and other expenses of the offering payable by us. For purposes of estimating our net proceeds, we have assumed that the initial public offering price of our ADSs will be $___ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus. A $1.00 increase, or decrease, in the assumed initial public offering price would increase, or decrease, net proceeds to us from this offering by approximately $____ million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Our management will have significant flexibility in applying the net proceeds of this offering. We intend to use our net proceeds from this offering as follows:

$13.6 million for product development;
$5.6 million to expand research and development center;
$5.0 million to develop customer relations management (CRM) systems; and
the balance of $3.3 million for working capital.

We pursue acquisitions of other businesses as part of our business strategy and may use a portion of the net proceeds to fund acquisitions. We have no agreement with respect to any future acquisition, although we assess opportunities on an ongoing basis and from time to time have discussions with other companies about potential transactions.

Pending their use, we will invest the net proceeds of this offering in a variety of capital preservation investments, including short-term or long-term interest-bearing, marketable securities.

DIVIDEND POLICY

We have not declared or paid any dividends on our ordinary shares and we do not anticipate paying any cash dividends in the near future. The timing, amount and form of future dividends, if any, will depend, among other things, on our future results of operations and cash flows, our general financial condition and future prospects, our capital requirements and surplus, contractual restrictions, the amount of distributions, if any, received by us from our Chinese subsidiaries, and other factors deemed relevant by our board of directors. Any future dividends on our ADSs or ordinary shares would be declared by and subject to the discretion of our board of directors.

We are a holding company incorporated in the British Virgin Islands. In order to pay dividends, if any, to our shareholders, we rely primarily on dividends from our subsidiaries in China. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside a certain amount of their accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.

In addition, under the New EIT Law and the Implementing Rules, both of which became effective on January 1, 2008, dividends generated from the business of our PRC subsidiaries after January 1, 2008 and payable to us and/or Topsky may be subject to a withholding tax rate of 10% if the PRC tax authorities subsequently determine that we and/or Topsky are a non-resident enterprise, unless there is a tax treaty with China that provides for a different withholding arrangement. Under a special treaty between China and Singapore, such dividend withholding tax rate is reduced to 5% if a Singapore resident enterprise owns over 25% of the PRC company distributing the dividends. As Topsky is a Singapore company and owns 100% of Softech, under the aforesaid treaty, any dividends that Softech pays to Topsky will be subject to a withholding tax at the rate of 5%, provided that we and Topsky are not considered to be PRC tax resident enterprises. If, however, Topsky is regarded as a resident enterprise, dividends payable to Topsky from Softech may be exempt from PRC income tax, and the dividends payable from Topsky to us will be subject to a 10% PRC

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withholding tax (unless we are considered to be a PRC tax resident enterprise). Any such taxes could thus materially reduce the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders. See “Risk Factors—Risks Related to Doing Business in China—Our holding company structure may limit the payment of dividends.”

EXCHANGE RATE INFORMATION

Our business is primarily conducted in China and all of our revenues are denominated in RMB. However, this prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this prospectus is based on the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this prospectus were made at a rate of RMB 6.8262 to $1.00, the noon buying rate in effect as of September 30, 2009. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On April 2, 2010, the noon buying rate was RMB 6.8255 to $1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Bank of New York.

       
  Noon Buying Rate
Period   Period End   Average (1)   Low   High
     (RMB per $1.00)
2004     8.2765       8.2768       8.2774       8.2764  
2005     8.0702       8.1826       8.2765       8.0702  
2006     7.8041       7.9579       8.0702       7.8041  
2007     7.2946       7.5806       7.8127       7.2946  
2008     6.8225       6.9193       7.2946       6.7800  
2009
                                   
May     6.8278       6.8235       6.8326       6.8176  
June     6.8302       6.8334       6.8371       6.8264  
July     6.8319       6.8317       6.8342       6.8300  
August     6.8299       6.8323       6.8358       6.8299  
September     6.8262       6.8277       6.8303       6.8247  
October     6.8264       6.8267       6.8292       6.8248  
November     6.8265       6.8271       6.8300       6.8255  
December     6.8259       6.8275       6.8299       6.8244  
2010
                                   
January     6.8268       6.8269       6.8295       6.8258  
February     6.8258       6.8285       6.8330       6.8258  
March     6.8258       6.8262       6.8254       6.8270  
April (through April 2, 2010)     6.8255       6.8259       6.8255       6.8263  

(1) Averages for a period are calculated by using the average of the exchange rates on the end of each month during the period. Monthly averages are calculated by using the average of the daily rates during the relevant period.

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CAPITALIZATION

The following table sets forth our capitalization as of November 30, 2009:

on an actual basis;
on a pro forma basis to reflect the corporate reorganization of our Chinese subsidiaries, including the incorporation of Kingtone Wirelessinfo Solution Holding Ltd in the British Virgin Islands, if it had occurred on November 30, 2009:
pro forma as adjusted to reflect the following events as if they had occurred on November 30, 2009:
(i) the pro forma adjustments discussed above; and
(ii) the issuance and sale of __ ordinary shares in the form of ADSs by us in this offering, at the public offering price of $__ per share, the midpoint of the range set forth on the cover of this prospectus, less estimated underwriting discounts and offering expenses payable by us.

You should read the information below in conjunction with the financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

     
  As of November 30, 2009
     Actual   Pro Forma   Pro Forma As Adjusted
     (in thousands, except per share data)
Cash and Cash Equivalent (1)   $           $           $        
Debt:
                          
Capital lease obligations (including current portion)   $     $     $  
Shareholders’ (deficiency) equity
                          
Ordinary Shares $.001 par value
100,000,000 shares authorized, 10,000,000 shares issued and outstanding, actual; __ shares authorized, __ shares issued and outstanding, pro forma; and __ shares authorized, __ shares issued and outstanding, pro forma as adjusted
                          
Additional paid-in capital                           
Accumulated deficit                           
Total shareholders’ (deficiency) equity                           
Total capitalization   $          $          $       

(1) A $1.00 increase (decrease) in the assumed initial public offering price of $__ per ADS, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $27.5 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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DILUTION

If you invest in our ADSs, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our ADSs and the pro forma net tangible book value per share of our ADSs after this offering. Dilution results from the fact that the per share offering price of our ADSs is substantially in excess of the net tangible book value per share attributable to the existing shareholders. Net tangible book value represents net book equity excluding intangible assets, if any.

Our pro forma net tangible book value before completion of this offering as of November 30, 2009, before giving effect to the sale of __ ADSs, was $__ million or $__ per ordinary share.

In addition, after giving effect to the sale of __ ADSs at an assumed initial public offering price of $__ per ADS, which is the mid-point of the price range set forth on the cover page of this prospectus, in this offering after deducting underwriting discounts and commissions, estimated offering expenses and other related transaction costs payable by us, our pro forma as adjusted net tangible book value as of November 30, 2009 would have been $__ million or $__ per ordinary share, including ordinary shares underlying our ADSs, and $__ per ADS.

The following table illustrates as of November 30, 2009 the pro forma immediate increase in book value of $__ per ordinary share for the existing shareholders and the immediate dilution of $__ per ordinary share to new shareholders purchasing ADSs in this offering, assuming the underwriters do not exercise their option to purchase additional ADSs:

   
  Ordinary Share   ADS
Assumed public offering price per share            $  
Net tangible book value per share as of November 30, 2009   $           
Increase per share attributable to new investors
                 
Pro forma net tangible book value per share as of November 30, 2009, as adjusted            $  
Dilution in net tangible book value per share to new investors            $  

A $1.00 increase (decrease) in the assumed initial public offering price of $__ per ADS, which is the mid-point of the price range set forth on the cover of this prospectus, would increase (decrease) our net tangible book value by $__ per ordinary share and $__ per ADS, our pro forma as adjusted net tangible book value per share after this offering and the dilution to new investors in this offering by $__ per ordinary share, and $__ per ADS.

The following table summarizes, on the same pro forma basis as of November 30, 2009, the differences between the existing equity holder and the new shareholders in this offering with respect to the number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting discount and estimated offering expenses:

           
  Ordinary Shares Purchased   Total Consideration   Average Price per Ordinary Share   Average Price per ADS
  Number   Percentage   Amount   Percentage
     (In Thousands)   (In Thousands)   (In Thousands)               
Existing shareholders     %     $       %     $     $           
New investors                                                        
Total                  100.0 %     $            100.0 %              

A $1.00 increase (decrease) in the assumed initial public offering price of $__ per ADS, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors in this offering and by all investors by $__ million, and would increase (decrease) the average price per share paid by new investors by $1.00, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and without deducting the estimated underwriting discounts and offering expenses payable by us in connection with this offering.

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The above discussion and tables assume no exercise of the underwriters’ option to purchase up to an additional __ ADSs.

If the underwriters' exercise their option to purchase additional ADSs in full, the pro forma net tangible book value per share as of November 30, 2009, would be approximately $__ per ADS and the dilution in pro forma net tangible book value per share to new shareholders would be $__ per ADS. Furthermore, the percentage of our ordinary shares held by existing shareholders would decrease to approximately __% and the percentage of our ordinary shares, in the form of ADSs, held by new shareholders would increase to approximately __%.

SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA

The following selected consolidated and combined financial data are presented on a combined basis with our affiliate Kingtone Information which was incorporated in Xi’an, ShaanXi province, China on December 30, 2001. We and Kingtone Information are under common control which has established the basis to consolidate and combine our selected financial data from the earliest date presented. The selected financial data are those of Kingtone information through October 27, 2009 when we were formed and, thus, are shown on a combined basis with Kingtone information from October 27, 2009 to November 30, 2009. The selected consolidated and combined statements of income and comprehensive income data for the years ended November 30, 2009 and 2008 and the selected consolidated and combined balance sheets data as of November 30, 2009 and 2008 have been derived from our audited combined and consolidated financial statements included elsewhere in this prospectus. The selected consolidated and combined statement of income and comprehensive income data for the years ended November 30, 2007, 2006 and 2005 and the selected consolidated and combined balance sheet data as of November 30, 2007, 2006 and 2005 have been derived from our books and records and are unaudited. The selected consolidated and combined financial data should be read in conjunction with our audited financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. Our consolidated and combined financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods. You should not view our historical results as an indicator of our future performance.

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Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries
Selected Consolidated and Combined Statements of Income and Comprehensive Income Data

         
  For the Years Ended November 30,
     2009
Audited
  2008
Audited
  2007 Unaudited   2006
Unaudited
  2005
Unaudited
     ($ in Thousands, Except per Share Data)
Total revenues     11,240       4,286       4,012       1,472       1,505  
Cost of revenues     3,894       1,621       2,972       775       775  
Gross margin     7,346       2,665       1,040       697       730  
Operating expenses:
                                            
Sales and marketing     350       301       239       237       199  
General and administrative     537       355       644       504       459  
Research and development     139       79       0       0       0  
Total operating expenses     1,026       735       883       740       658  
Operating (loss) profit     6,320       1,930       157       (44 )       72  
Subsidy income     307       163                    
Interest expense     (340 )       (531 )       (608 )       (506 )       (181 )  
Other income     24       16             2       2  
Other expense     (79 )       (372 )             (0 )       (112 )  
(Loss) income before income tax expense     6,232       1,206       (451 )       (547 )       (219 )  
Income tax expense     (935 )       (191 )                    
Net (loss) income     5,297       1,015       (451 )       (547 )       (219 )  
Other comprehensive income
                                            
Foreign currency translation gain     22       544       267       0       0  
Comprehensive income     5,319       1,559       (184 )       (547 )       (219 )  
Earnings (loss) per share:
                                            
Basic     0.53       0.10       (0.05 )       (0.05 )       (0.02 )  
Diluted     0.53       0.10       (0.05 )       (0.05 )       (0.02 )  
Weighted average ordinary shares:
                                            
Basic     10,000,000       10,000,000       10,000,000       10,000,000       10,000,000  
Diluted     10,000,000       10,000,000       10,000,000       10,000,000       10,000,000  

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Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries
Selected Consolidated and Combined Balance Sheets Data

         
  As of November 30
     2009
Audited
  2008
Audited
  2007
Unaudited
  2006
Unaudited
  2005
Unaudited
     ($ in Thousands)
Cash and bank deposits     344       9       7       98       1,683  
Total current assets     4,014       12,884       17,360       11,745       9,993  
Total assets     17,907       14,677       18,687       13,833       12,294  
Advances from customers     1,398       2,817       3,168       315       467  
Dividend payable     1,117                          
Total current liabilities     8,781       6,953       13,601       8,794       6,707  
Total shareholders’ equity     9,126       7,724       5,086       5,039       5,586  
Total liabilities and shareholders’ equity     17,907       14,677       18,687       13,833       12,294  

CORPORATE HISTORY AND STRUCTURE

We are a holding company and conduct our operations through a contractually-controlled entity in the PRC named Xi’an Kingtone Information Technology Co., Ltd., a PRC limited liability company (“Kingtone Information”). Kingtone Information was incorporated in Xi’an province as a company limited by stocks on December 30, 2001. When it was incorporated, it had a registered capital of RMB 50 million and its name was Xi’an TechTeam Intelligent Technology Stock Co., Ltd. Kingtone Information increased its registered capital to RMB 56,000,000 on June 16, 2008 and changed its name to the current name on November 5, 2003. Kingtone Information is majority-owned by Mr. Tao Li, our chairman.

In December 2009, we consummated a number of related transactions through which we acquired control of Kingtone Information. Xi’an Softech Co., Ltd. (“Softech”), a company incorporated on November 27, 2009 under the laws of the PRC as a wholly foreign-owned enterprise (“WFOE”), entered into a series of agreements (the “Control Agreements”) with Kingtone Information and the shareholders of Kingtone Information pursuant to which Softech was granted full managerial and economic control over Kingtone Information, effectively rendering Kingtone Information a contractual subsidiary of Softech. We entered into this contractual control relationship in order to comply with certain PRC regulations relating to the nature and sensitivity of certain aspects of Kingtone Information’s business; namely, its work on PRC government projects. See the subsection below entitled “Contractual Arrangements with Kingtone Information and Its Respective Shareholders” for further information on these contractual arrangements.

Softech is a wholly-owned subsidiary of Topsky Info-tech Holdings Pte Ltd. (“Topsky”), a company incorporated under the laws of Singapore on November 3, 2009. Topky, in turn, is our wholly-owned subsidiary. We were incorporated under the name ReiZii Capital Management Ltd. in the British Virgin Islands on October 27, 2009 and changed our name to Kingtone Wirelessinfo Solution Holding Ltd (“Kingtone Wireless”) on December 17, 2009.

Xtra Heights Management Ltd. (“Xtra”), which was incorporated in the British Virgin Islands on September 29, 2009, owns 6,806,250 shares of Kingtone Wireless, representing approximately 68.06% of the total issued and outstanding shares of Kingtone Wireless; SCGC Capital Holding Company Limited (“SCGC Capital”), which was incorporated in the British Virgin Islands on November 16, 2006, owns 1,060,714 shares of Kingtone Wireless, representing approximately 10.61% of the total issued and outstanding shares of Kingtone Wireless; Big Leap Enterprises Limited (“Big Leap”), which was incorporated in the British Virgin Islands on October 28, 2009, owns 1,060,714 shares of Kingtone Wireless, representing approximately 10.61% of the total issued and outstanding shares of Kingtone Wireless; Silver Avenue Overseas Inc. (“Silver Avenue”), which was incorporated in the British Virgin Islands on October 28, 2009, owns 972,322 shares of Kingtone Wireless representing, approximately 9.72% of the total issued and outstanding shares of Kingtone Wireless; Millennium Group Inc. (“Millennium ”), a California corporation incorporated on June 29, 1994, owns 100,000 shares of Kingtone Wireless representing approximately 1% of the total issued and outstanding shares of Kingtone Wireless. Millennium received such shares in consideration for consulting services provided to Kingtone Information.

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In exchange for causing Kingtone Information to enter into the Control Agreements, the shareholders of Kingtone Information received shares of Kingtone Wireless, through their nominee entities (Xtra, SCGC, Big Leap and Silver Avenue), in approximately the same relative amounts as they held in Kingtone Information. As part of the restructuring, certain of the shareholders of Kingtone Information entered into a Call Option Agreement dated as of December 15, 2009 with Xtra and Sha Li, Xtra’s sole shareholder, pursuant to which the shareholders of Kingtone Information are entitled to purchase up to an aggregate of 6,806,250 shares of Kingtone Wireless over time if certain conditions are satisfied. See the subsection below entitled “Call Option Agreements between Xtra Heights Management Ltd. and Shareholders of Kingtone Information” for further information on the Call Option Agreements. The remaining Kingtone Information shareholders have unwritten understandings with SCGC, Big Leap and Silver Avenue, as applicable, and their respective nominee shareholders, pursuant to which the Kingtone Information shareholders are entitled to purchase up to an aggregate of 3,093,750 of our ordinary shares upon the satisfaction of conditions similar to those set forth in the Call Option Agreements with Xtra.

Xtra is owned by Sha Li, a Singapore resident. However, pursuant to the call options agreements, the beneficial owners of our ordinary shares held by Xtra are as set forth in the table below, which share amounts are equal to each beneficial owner’s respective pro rata equity interest in Kingtone Information:

   
Name   Relationship to Kingtone Wireless   Shares
Tao Li     Chairman       6,099,107  
Peng Zhang     Chief Executive Officer       35,357  
Li Wu     Director and Chief Financial Officer       107,839  
Jun Ma     Chief Technology Officer       35,357  
Pengguo Xi     Vice President of Research and Development       35,357  
Xianying Chen     Vice President of Application Development       35,357  
Wei Pu     Softech employee       102,536  
Jian Ping Li     Softech employee       88,393  
Yu Fan Zhang     Softech employee       88,393  
Wei Zhang     Softech employee       88,393  
Xiao Bin Zhang     Softech employee       53,036  
Wei Wang     Softech employee       37,125  

SCGC Capital is owned by Shenzhen Capital (Hong Kong) Company Limited, a Hong Kong company. Big Leap is owned by Xuetao Chen, a PRC resident. Silver Avenue is owned by Hu Gao, a PRC resident. Millennium is owned by Jonathon Mork, a U.S. resident. None of our officers or directors is the beneficial owner of the ordinary shares held of record by SCGC Capital, Big Leap or Silver Avenue.

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The following diagrams illustrate our corporate structure and the place of formation and affiliation of each of our subsidiaries and affiliates before the offering and upon the consummation of the offering.

Organizational Chart — Before the Offering

[GRAPHIC MISSING]

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Organizational Chart — Upon Consummation of the Offering

[GRAPHIC MISSING]

  

Contractual Arrangements with Kingtone Information and Its Respective Shareholders

Our relationship with Kingtone Information and each of its respective shareholders is governed by a series of contractual arrangements. Some of the businesses in which Kingtone Information is engaged deal with classified government information in China. Current PRC laws and regulations do not allow companies with foreign equity holders to carry out such business activities. If we had a direct or indirect ownership in Kingtone Information, it could materially and adversely affect Kingtone Information’s ability to perform existing contracts and to win future contracts. Therefore, Softech and Kingtone Information entered into the following contractual arrangements to allow us to effectively control Kingtone Information but without violating relevant PRC laws and regulations. Under PRC laws, each of Softech and Kingtone Information is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Pursuant to the contractual arrangements between Softech and Kingtone Information, as applicable, Kingtone Information transfers any and all net profits generated from its operations to Softech. Effective December 15, 2009, Softech entered into several control agreements with Kingtone Information, which agreements are summarized below. The following is a summary of the material terms of the agreements and investors should review the terms of the actual agreements filed as exhibits to the registration statement, of which this prospectus is a part.

Entrusted Management Agreement

Pursuant to the terms of a certain Entrusted Management Agreement dated December 15, 2009 among Kingtone Information, Softech and the shareholders of Kingtone Information (the `Entrusted Management Agreement`), Kingtone Information and its shareholders agreed to entrust the operations and management of its business to Softech. According to the Entrusted Management Agreement, Softech possesses the full and exclusive right to manage Kingtone Information’s operations, assets and personnel, has the right to control all

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of Kingtone Information's cash flows through an entrusted bank account, is entitled to Kingtone Information's net profits as a management fee, is obligated to pay all of Kingtone Information’s payables and loan payments, and bears all losses of Kingtone Information. The Entrusted Management Agreement will remain in effect until (i) the parties mutually agree to terminate the agreement, (ii) the dissolution of Kingtone Information or (iii) Softech acquires all of the assets or equity of Kingtone Information (as more fully described below under “Exclusive Option Agreement”). Prior to that acquisition, Kingtone Information will continue to own all of its assets. We anticipate that Kingtone Information will continue to be the contracting party under its customer contracts, banks loans and certain other assets until such time as those may be transferred to Softech.

Exclusive Technology Service Agreement

Pursuant to the terms of a certain Exclusive Technology Service Agreement dated December 15, 2009 between Kingtone Information and Softech (“the Exclusive Technology Services Agreement”), Softech is the exclusive technology services provider to Kingtone Information. Kingtone Information agreed to pay Softech all fees payable for technologies services prior to making any payments under the Entrusted Management Agreement. Any payment from Kingtone Information to Softech must comply with applicable Chinese laws. Further, the parties agreed that Softech shall retain sole ownership of all intellectual property developed in connection with providing technology services to Kingtone Information. The Exclusive Technology Services Agreement shall remain in effect until (i) the parties mutually agree to terminate the agreement, (ii) the dissolution of Kingtone Information or (iii) Softech acquires Kingtone Information (as more fully described below under “Exclusive Option Agreement”).

Shareholders’ Voting Proxy Agreement

Pursuant to the terms of a certain Shareholders’ Voting Proxy Agreement dated December 15, 2009 among Softech and the shareholders of Kingtone Information (the “Shareholders’ Voting Proxy Agreement”), each of the shareholders of Kingtone Information irrevocably appointed Softech as their proxy to exercise on each of such shareholder’s behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of Kingtone Information, including the appointment and election of directors of Kingtone Information. Softech agreed that it shall maintain a board of directors the composition of which will be the members of the board of directors of Kingtone Wireless, except those directors that are employed solely for the purpose of satisfying listing or financing requirements of Kingtone Wireless. The Shareholders’ Voting Proxy Agreement will remain in effect until Softech acquires all of the assets or equity of Kingtone Information.

Exclusive Option Agreement

Pursuant to the terms of a certain Exclusive Option Agreement dated December 15, 2009 among Softech, Kingtone Information and the shareholders of Kingtone Information (the “Exclusive Option Agreement”), the shareholders of Kingtone Information granted Softech an irrevocable and exclusive purchase option (the “Option”) to acquire Kingtone Information’s equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. As discussed above, current PRC law does not allow foreigners to hold equity interests in a PRC entity that engages in business dealing with classified government information. Accordingly, the Option is exercisable at any time at Softech’s discretion so long as such exercise and subsequent acquisition of Kingtone Information does not violate PRC law. The consideration for the exercise of the Option is to be determined by the parties and memorialized in the future by definitive agreements setting forth the kind and value of such consideration. To the extent Kingtone Information shareholders receive any of such consideration, the Option requires them to transfer (and not retain) the same to Kingtone Information or Softech. The Exclusive Option Agreement may be terminated by mutual agreement or by 30 days written notice by Softech.

Equity Pledge Agreement

Pursuant to the terms of a certain Equity Pledge Agreement dated December 15, 2009 among Softech and the shareholders of Kingtone Information (the `Pledge Agreement`), the shareholders of Kingtone Information pledged all of their equity interests in Kingtone Information, including the proceeds thereof, to guarantee all of Softech's rights and benefits under the Entrusted Management Agreement, the Exclusive Technology Service

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Agreement, the Shareholders’ Voting Proxy Agreement and the Exclusive Option Agreement. Prior to termination of the Pledge Agreement, the pledged equity interests cannot be transferred without Softech's prior written consent. The Pledge Agreement may be terminated only upon the written agreement of the parties.

Call Option Agreements between Xtra Heights Management Ltd. and Certain Shareholders of Kingtone Information

In connection with our December 2009 reorganization, twelve individual shareholders (listed below) of Kingtone Information (individually a “Purchaser” and collectively the “Purchasers”) each entered into a Call Option Agreement (collectively the “Call Option Agreements”) with Xtra and its sole shareholder Sha Li (collectively the “Seller”) dated as of December 15, 2009. Pursuant to the terms and conditions of the Call Option Agreements, the Purchasers are entitled to purchase up to an aggregate of 6,806,250 ordinary shares of our company from the Seller at a price of $0.001 per share. Specifically, (i) if the Purchasers enter into an employment agreement to serve for Softech for a term of not less than five years, the Purchasers are entitled to purchase up to 3,403,125 ordinary shares from the Seller; (ii) if Softech achieves not less than $500,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2010, the Purchasers are entitled to purchase up to 1,361,250 ordinary shares from the Seller; (iii) if Softech achieves not less than $1,000,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2011, the Purchasers are entitled to purchase up to 1,361,250 ordinary shares from the Seller; and (iv) if Softech achieves not less than $2,000,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2012, the Purchasers are entitled to purchase up to 680,625 ordinary shares from the Seller. Under the Call Option Agreements, the Seller also irrevocably appoints each corresponding Purchaser with the exclusive right to exercise, on its behalf, all of the voting rights of the Seller’s shares. Additionally, the Call Option Agreements grant the Purchasers the right to all distributions made by us, including without limitation, dividends, in respect of the Seller’s shares.

The Purchasers entered into the Call Option Agreements upon terms substantially similar to the terms set forth in that certain Term Sheet, dated October 27, 2009, between the Purchasers and Ms. Sha Li.

The twelve Purchasers are (i) Tao Li, our chairman, Peng Zhang, our chief executive officer, (ii) Li Wu, our chief financial officer and a member of our board of directors, (iii) Jun Ma, our chief technology officer, (iv) Pengguo Xi, our vice president of research and development, (v) Xianying Chen, our vice president of application development, and (vi) Jian Ping Li, Wei Pu, Wei Wang, Wei Zhang, Xiao Bin Zhang, and Yu Fan Zhang, all of whom are employees of Softech.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition in conjunction with Selected Consolidated and Combined Financial Data and the audited consolidated and combined financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We were incorporated on October 27, 2009 under the laws of the British Virgin Islands and act as a holding company. We conduct substantially all of our operations through our contractually-controlled PRC entity, Kingtone Information, which focuses on developing mobile enterprise solutions in China. We provide a suite of applications that enable mission-specific field and long-distance information management in wireless environments.

Kingtone Information commenced its current line of business in 2001 as an industrial automation management and control software system developer. We subsequently developed a core middleware platform consisting of standardized modules. This core middleware platform allows our solutions to seamlessly integrate with our customers’ existing information management systems. The core middleware platform can host an array of standardized and scalable applications developed by us. This structured design allows us to timely and cost-effectively meet our customers’ specific requirements and respond to their operational changes. Customized packages of our middleware platform and applications are marketed as tailored solutions to business and government customers of all kinds.

Due to the recent deployment of 3G telecommunication networks in China, demand for wireless enterprise application solutions has grown exponentially. We believe we are well positioned to capitalize on this market trend to further expand our market share and grow our revenue and profits.

Background

Our consolidated financial statements are presented on a fiscal year end November 30 basis reflecting no historical operations.

In December 2009, through one of our subsidiaries, we entered into a series of agreements with Kingtone Information establishing Kingtone Information as our contractually-controlled Variable Interest Entity. Kingtone Information was formed on December 28, 2001 and its financial statements are presented on a fiscal year end September 30 basis.

We and Kingtone Information were entities under common control for all periods presented. The financial statements presented reflect the consolidation of our subsidiaries for the period ended November 30, 2009 and the combination of Kingtone Information’s financial statements for its years ended September 30, 2009 and 2008. Although we present our financial statements for years ended November 30 throughout the rest of this Prospectus, for the purpose of this management discussion and analysis, we use Kingtone Information's audited financial statements, which ends September 30, 2009 and 2008.

On March 2010, our board of directors approved a change in our fiscal year end from November 30 to September 30 in order to coincide with the fiscal year end of Kingtone Information, our contractually-controlled subsidiary.

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Results of Operations for the fiscal years ended September 30, 2009 compared to fiscal year ended September 30, 2008.

The following table sets forth key components of our results of operations for the periods indicated, in thousands of dollars and percentage of revenue and changes.

         
  For Years Ended September 30  
     2009   2008   Changes
     ($ in Thousands, Except per Share Data)     
Revenue   $ 11,240       100.0 %     $ 4,286       100.0 %       162.2 %  
Cost of sales     3,894       34.6 %       1,621       37.8 %       140.2 %  
Gross margin     7,346       65.4 %       2,665       62.2 %       175.6 %  
Operating expenses
                                            
Selling and marketing expenses     350       3.1 %       301       7.0 %       16.3 %  
General and administrative expenses     537       4.8 %       355       8.3 %       51.3 %  
Research and development expense     139       1.2 %       79       1.8 %       75.9 %  
       1,026       9.1 %       735       17.1 %       39.6 %  
Income from operations     6,320       56.2 %       1,930       45.0 %       227.5 %  
Other income(expense)
                                            
Subsidy income     307       2.7 %       163       3.8 %       88.3 %  
Interest expense     (340 )       -3.0 %       (531 )       -12.4 %       -36.0 %  
Other income     24       0.2 %       16       0.4 %       50.0 %  
Other expenses     (79 )       -0.7 %       (372 )       -8.7 %       -78.8 %  
       (88 )       0.8 %       (724 )       -16.9 %       -87.8 %  
Income before income tax expense     6,232       55.4 %       1,206       28.1 %       416.7 %  
Income tax expense     (935 )       -8.3 %       (191 )       4.5 %       389.5 %  
Net income     5,297       47.1 %       1,015       23.7 %       421.9 %  
Other comprehensive income
                                            
Foreign currency translation gain (loss)     22       0.2 %       544       12.7 %       -96.0 %  
Comprehensive income   $ 5,319       47.3 %     $ 1,559       36.4 %       241.2 %  
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING     10,000,000                10,000,000                0.0 %  
Net earnings per ordinary share:
                                            
Basic and Diluted   $ 0.53              $ 0.10                430.0 %  

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The following is a breakdown of our revenue, cost of sales and gross margin for the years indicated, in thousands of dollars, and our respective gross margin percentages and changes.

         
  For Years Ended September 30  
     2009   2008   Changes
     ($ in Thousands, Except per Share Data)     
Revenue
                                            
Software   $ 5,170       46.0 %     $ 987       23.0 %       423.8 %  
Wireless system solution     6,070       54.0 %       3,299       77.0 %       84.0 %  
Total revenue     11,240       100.0%       4,286       100.0%       162.2 %  
Cost of Sales
                                            
Software     476       12.2 %       183       11.3 %       160.1 %  
Wireless system solution     3,418       87.8 %       1,438       88.7 %       137.7 %  
Total cost of sales     3,894       100.0%       1,621       100.0%       140.2 %  
Goss Margin
                                            
Software     4,694       63.9 %       804       30.2 %       483.8 %  
Wireless system solution     2,652       36.1 %       1,861       69.8 %       42.5 %  
Total gross margin     7,346       100.0%       2,665       100.0%       175.6 %  
Gross Margin Percentage
                                            
Software              90.8 %                81.5 %           
Wireless system solution              43.7 %                56.4 %           
Blended gross margin percentage              65.4%                62.2%           

Revenue

In the past two years, we have experienced rapid growth and significantly expanded our business. Our revenue grew by 162.2% to approximately $11.2 million in the year ended September 30, 2009 from approximately $4.3 million in the year ended September 30, 2008. Excluding a related party transaction, our revenues grew to $10.1 million in the year ended September 30, 2009.

We derived our revenue from the provision of our software solutions and wireless systems. Software sales refer to sales of pure software, support contracts and services without aggregating third-party hardware or software under our contract for delivery. Our customers are responsible for purchasing and providing the necessary hardware and software to work with our software solutions to form enterprise mobile solutions. Software sales are mostly sales to our vertical industry application markets other than the automation telematics application market. These sales are usually performed during a short period of time, from 1-2 weeks to 1-2 months. Wireless system solution sales refer to sales of our software, support contacts and services aggregated with third-party hardware and software under our contract to deliver as turn-key systems. Wireless system solution sales mostly sales to our automation telematics customers. These sales are usually performed over a longer period of time, ranging from approximately two months to approximately two years. The sales process often includes purchase, integration and installation of automation equipments on behalf of our customers and finished with installation and configuration of our software solutions.

Our revenue from software solution sales grew by 423.8% to approximately $5.2 million in the year ended September 30, 2009 from approximately $1.0 million in the year ended September 30, 2008. As a percentage of total revenue, software solution sales revenue grew from 23% to 46%. The significant growth of our software solution revenue was mainly driven by accelerated adoption of mobile enterprises applications by our government agency customers and general business customers.

Our revenue from wireless system sales grew by 84% to approximately $6.1 million in the year ended September 30, 2009 from approximately $3.3 million in the year ended September 30, 2008. This growth was driven by growing mobile application demand from our industrial automation customers and demand for our Kingtone portal mobile video server system solutions. As a percentage of total revenue, wireless system revenue decreased from 77% to 54% of our total revenue.

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In the years ended September 30, 2009 and 2008, we had one significant single customer, which was engaged in the petroleum and petrochemical industry. In the year ended September 30, 2009, approximately $5.0 million revenue was derived from this customer, representing 44.7% of our total revenue, including approximately $0.8 million revenue from one contract related to this customer in software sales, representing 15.4% of our software revenue, and approximately $4.2 million revenue from three contracts related to this customer in wireless system solution sales, representing 69.6% of our wireless system solution revenue. In the year ended September 30, 2008, approximately $2.4 million of our total revenue was derived from one contract with this customer, representing 57% of our total revenue, including 0% of our software revenue and 74% of our wireless system solution revenue.

In the year ended September 30, 2009, we derived approximately $1.1 million of our total revenue from two contracts with Xi’an TechTeam Humic Acid Products Co., Ltd., an indirect subsidiary of China Green Agriculture, Inc., a company that is majority-owned by Mr. Tao Li, our chairman, and whose chairman, president and chief executive officer is Mr. Li. This revenue represented 10.2% of our total revenue and 18.9% of our revenue from wireless system solutions sales. In the year ended September 30, 2008, we did not have any sales to related parties.

Cost of Sales

Our cost of sales increased by 140.2% to approximately $3.9 million in the year ended September 30, 2009 from approximately $1.6 million in the year ended September 30, 2008. The growth in our cost of sales was driven by the growth of our revenue. As a percentage of our revenues, our cost of sales decreased to 34.6% of revenues in the year ended September 30, 2009 from 37.8% of revenues in the year ended September 30, 2008.

Cost of sales for software increased by 160.1% to approximately $0.5 million in the year ended September 30, 2009 from approximately $0.2 million in the year ended September 30, 2008, representing 12.2% and 11.3% of our total cost of sales and 9.2% and 18.5% of our software revenue in the fiscal years ended September 2009 and 2008, respectively. Our software is developed out of our core wireless application software platform with limited secondary development efforts. As a result, the growth of software cost of sales was significantly less than the growth of software revenue.

Cost of sales for wireless system solutions increased by 137.7% to approximately $3.4 million in the year ended September 30, 2009 from approximately $1.4 million in the year ended September 30, 2008, representing 87.8% and 88.7% of total cost of sales and 56.3% and 43.6% of wireless system solutions in the fiscal years ended September 2009 and 2008, respectively.

The principal component of our cost of sales for wireless system solutions is the hardware we purchase from third-party vendors on behalf of our customers. Although we principally provide software solutions to our customers, our customers, especially those using wireless industrial automation applications, expect us to combine our software solution with certain hardware and to deliver a singular complete turn-key wireless system. As a result, we quote a total contract price for both software and hardware and issue a single invoice.

Gross Margin

Our total gross margin increased by 175.6% to approximately $7.3 million in the year ended September 30, 2009 from approximately $2.7 million in the year ended September 30, 2008. Our blended gross margin percentage was 65.4% and 62.2% in the years ended September 30, 2009 and 2008, respectively. The improvement in our blended gross margin percentage was mainly caused by our increased gross margin percentage in, and our proportion of revenue from, our software solution sales in fiscal 2009, which was partially offset by the decreased gross margin percentage in our wireless system solution sales.

Our gross margin for software sales increased by 483.8% to approximately $4.7 million in the year ended September 30, 2009 from approximately $0.8 million in the year ended September 30, 2008. Our gross margin percentage for software solutions sales increased to 90.8% in the year ended September 30, 2009 from 81.5% in the year ended September 30, 2008. This increase of gross margin percentage was primarily due to the adaptability of our existing platform which we can configure and tailor without significant additional expenditure.

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Our gross margin for wireless system sales increased by 42.5% to approximately $2.7 million in the year ended September 30, 2009 from approximately $1.9 million in the year ended September 30, 2008. Our gross margin percentage for wireless system sales decreased to 43.7% in the year ended September 30, 2009 from 56.4% in the year ended September 30, 2008. The decrease in gross margin percentage was mainly attributable to the higher portion of purchased hardware included in our wireless system sales in fiscal 2009.

Operating Expenses

Selling and Marketing Expenses

Our selling and marketing expenses increased by 16.3% to approximately $0.35 million in fiscal 2009 from approximately $0.3 million in fiscal 2008, and represented 3.1% and 7.0% of our revenue for the years ended September 30, 2009 and 2008, respectively. Selling and marketing expenses consist primarily of compensation and benefit expenses relating to our sales and marketing personnel, travel and communication expenses, and selling and marketing-related office expenses.

Although our revenue increased significantly from fiscal year 2008 to fiscal year 2009, our selling and marketing expenses increased moderately because our sales and marketing team improved their efficiency while remaining roughly the same size. We expect our selling and marketing expenses to increase in the near future as we increase our business development efforts, hire additional sales personnel, target additional customers and initiate additional marketing programs to further build our brand. However, we expect our selling and marketing expenses as a percentage of revenue to decrease because we believe our revenue will grow at a faster pace.

General and Administrative Expenses

Our general and administrative expenses increased by 51.3% to approximately $0.54 million in fiscal 2009from approximately $0.36 million in fiscal 2008, and represented 4.8% and 8.3% of our revenue for the years ended September 30, 2009 and 2008, respectively. General and administrative expenses consist primarily of compensation and benefit expenses relating to personnel other than our engineers and our sales and marketing team, depreciation and amortization expenses and overhead expenses. General and administrative expenses also include legal and other professional fees and other miscellaneous administrative costs. We expect our general and administrative expenses to increase significantly from the year ended September 30, 2009 level as we incur costs to comply with the requirements imposed on a public company in the U.S. and to conduct financing and investor relations activities. As a percentage of revenue, we expect our general and administrative expenses in fiscal 2010 to remain at about the same level as in the year ended September 30, 2009.

Research and Development Expenses

Our research and development expenses increased 75.9% to approximately $0.14 million in fiscal 2009 from approximately $0.08 million in fiscal 2008, and represented 1.2% and 1.8% of our revenue for the years ended September 30, 2009 and 2008, respectively. Research and development expenses consist primarily of compensation and benefit expenses relating to engineers in our research and development center, materials cost in research and development activities, and depreciation and amortization expenses relating to our research and development center. We plan to increase the size of our research and development team and have budgeted a significant portion of our projected cash flow during the near future and a portion of the proceeds from the offering of our ADSs for developing new software solutions, as well as to better equip our research and development center to maintain our technology edge in our industry. Therefore, we expect our research and development expenses will increase in both dollar amount and as a percentage of our revenue.

Income from Operations

Income from operations grew 227.5% to approximately $6.3 million in the year ended September 30, 2009 from approximately $1.9 million in the year ended September 30, 2008. The growth of income from operations was mainly attributed to the growth in our revenue.

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Net Income

Net income grew by 421.9% to approximately $5.3 million in the year ended September 30, 2009 from approximately $1.0 million in the year ended September 30, 2008. The growth of net income was mainly attributed to the growth in our revenue.

Critical Accounting Policies

Revenue Recognition

Revenues consist primarily of sales of wireless system software service solutions and other customized software with support contracts. We recognize revenue when (1) pervasive evidence of an arrangement exists, (2) delivery has occurred and customer acceptance is reasonably assured, (3) the fee is fixed or determinable, and (4) collectability is probable.

We generally provide wireless system software service solutions and customized software under short and long-term fixed-price contracts that require significant production and customization. The contract periods range from two months to approximately two years in length. We recognizes income for these contracts following both the percentage-of-completion method, measured by contract milestones and on the basis of actual costs incurred versus the total estimated contract costs, and on the completed contract method in accordance with the AICPA’s Statement of Position (“SOP”) 81-1 (ASC No. 605-35) and 97-2 (ASC No.985-605).

Provided unapproved change orders or claims occur in the future, in accounting for contracts, we follows Paragraphs 62 and 65 of the AICPA’s Statement of Position 81-1 — Accounting for Performance of Construction-Type and Certain Production-Type Contracts (“SOP 81-1”) (ASC No. 605-35). We will recognize as revenues costs associated with unapproved change orders (Paragraph 62 of SOP 81-1) (ASC No. 605-35) or claims (Paragraph 65 of SOP 81-1) (ASC No. 605-35) to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. Contract losses are provided for in their entirety in the period that they become known, without regard to the percentage-of-completion. However, we have not experienced significant unapproved change orders in the past.

The software contracts generally provide for postcontract customer support (“PCS”) for a period of one year from delivery of the software. The value of PCS revenue is not separately reported and is accounted for as part of the entire fee under the contract accounting methods described above since the PCS meets the criteria specified in SOP 97-2 paragraph 59 (ASC No. 985-605-25-71) as follows:

PCS is included in the total contract price;
PCS is for one year or less;
estimated costs are insignificant;
upgrades and enhancements during the PCS term have historically been and are expected to continue to be minimal and infrequent; and
the contract does not include any service elements that are accounted for separately.

All other services are provided under separate agreements and fee arrangements and the related revenue is recognized over the period the services are provided.

Unbilled revenue consists of recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients as of the balance sheet date.

We present all sales revenue net of a value-added tax (“VAT”) or a sales tax.

Cost of sales .  When the criteria for revenue recognition have been met, costs incurred are recognized as cost of sales. Cost of sales (exclusive of depreciation and amortization) primarily includes the cost of the hardware purchased from the third parties, direct labor, materials and the applicable share of overhead expense directly related to the execution of services and delivery of projects.

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Liquidity and Capital Resources

Cash Flows and Working Capital

As of September 30, 2009, we had a working capital deficit of approximately $4.8 million, including cash of approximately $0.3 million. The following table sets forth a summary of our cash flow for the periods indicated, in thousands of dollars:

   
  For the Year Ended
September 30,
     2009   2008
     ($ in Thousands)
Net cash provided by operating activities   $ 4,000     $ 81  
Net cash used in investing activities     (12,210 )       (644 )  
Net cash provided by financing activities     8,335       563  
Effect of exchange rate fluctuation on cash and cash equivalents     0       2  
Net cash flow     125       2  
Cash and cash equivalents, beginning of year     9       7  
Cash and cash equivalents, end of year     134       9  

Operating Activities

Net cash provided by operating activities was approximately $4 million for the year ended September 30, 2009 as compared to approximately $0.1 million for the year ended September 30, 2008. This increase of net cash provided by operating activities was mainly attributable to the increase in cash collected from sales to our customers, reflecting increased demands for our software products and wireless system solutions and our ability to control costs and manage credit extended to our customers. During the course of operation in fiscal year 2009, we generated approximately $11.2 million in revenue and we actually collected approximately $7.8 million from our customers. Our accounts receivable and unbilled revenue from our customers as of September 30, 2009 aggregated approximately $2.5 million, or about 23.9% of our total revenue in fiscal 2009. Although this balance was a significant increase from about half a million accounts receivable as of September 30, 2008, or about 11.6% of our total revenue in fiscal year 2008, in light of our rapid growth in revenue, we consider the amount and term of credit extended to our customers were well within a healthy range. During the course of operation in fiscal 2009, we incurred approximately $3.9 million in cost of sales and we actually paid approximately $3.2 million to our suppliers, who are mainly third-party hardware suppliers and installation contractors. Our accounts payable to our suppliers as of September 30, 2009 aggregated approximately $1.4 million, or about 43.7% of our total cost of sales in fiscal 2009. This balance was a significant increase from approximately $0.3 million accounts payable as of September 30, 2008, or about 23.4% of our total cost of sales in fiscal 2008. The higher percentage of accounts payable as of September 30, 2009 as fiscal 2009 cost of sales were mainly due to a few large wireless system solution contracts completed during the second half of fiscal 2009 and the account payable was not due on September 30, 2009. We believe that in order for us to maintain a good relationship with our customers, and if the wireless system solution contracts are more evenly spread during a year, we should try to keep the long-term percentage within the range of 20-25%.

Investing Activities

Net cash used in investing activities for the year ended September 30, 2009 was approximately $12.2 million as compared to net cash used in investing activities of approximately $0.6 million for the year ended September 30, 2008. The cash used in investing activities in fiscal year 2009 was mainly attributable to a deposit paid for purchase of new office space in light of our planned expansion.

Financing Activities

Net cash provided by financing activities for the year ended September 30, 2009 totaled approximately $8.5 million as compared to net cash provided by financing activities of approximately $0.6 million for the year ended September 30, 2008. The cash provided by financing activities for the year ended September 30, 2009 was mainly attributable to loan proceeds we received from related parties.

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As a result of the total cash activities, our net cash increased approximately $0.1 million from September 30, 2008 to September 30, 2009. We believe that our cash flow generated from our ongoing operating activities should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months. However, the anticipated cash generated from operating activities, especially our available cash, may not be sufficient to fund the cash needs of our anticipated expansion. In order to meet the working capital needs for our anticipated expansion, we are actively exploring the following actions:

Raising more capital from the public or private equity markets; and/or
Borrowing short- and long-term commercial loans from local banks — As of September 30, 2009, we did not have any long-term debt, and we had short-term debt of approximately $3.4 million. We are in the process of obtaining the building ownership certificate for our new office space, which we expect will be an acceptable collateral for banks in connection with any new borrowings. We believe the existence of this collateral, when obtained, will increase our likelihood of securing new debt financing, if necessary.

There can be no assurance that we will be successful in obtaining any such debt or equity financing or that the terms of such financing will be favorable to us.

Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Also, our PRC subsidiaries must file the board resolutions authorizing the payment of dividends, the capital verification report of our PRC subsidiaries, the audit report issued by the certified public accountant company and other required materials to the banks entrusted by the local foreign exchange bureau for the examination of the remittance of the dividend. Our PRC subsidiaries can only remit dividends to us after passing the examination. Such examination requirement may limit our PRC subsidiaries’ ability to pay dividends to us which may limit our ability to pay dividends to our shareholders. If we are unable to pay dividends to our shareholders, our ability to secure equity financing in the future may be adversely affected.

Contractual Obligations

The following table sets forth our contractual obligations as of September 30, 2009:

         
  Payments Due by Period
     Total   Less Than
1 Year
  1 – 3 Years   3 – 5 Years   More Than
5 Years
     ($ in Thousands)
Short-term debt obligations (including interest)     3,437       3,437       0       0       0  
Total     3,437       3,437       0       0       0  

As of September 30, 2009, we had a one-year short-term loan due to Xi’an Commercial Banks in the approximate principal amount of $3.4 million with an initial monthly interest rate of 0.6638%, adjustable in line with the basic interest rate announced by the People’s Bank of China (PBOC). This loan is guaranteed by Xi’an Hightech Agricultural Co., Ltd. and Mr. Tao Li, our chairman, and is secured by two land use rights owned by Xi’an Yuansheng Enterprise Co., Ltd. valued at RMB 114.71 million, or approximately $16.78 million.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest

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in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest expense incurred as a result of short-term back loans maturing within 12 months. We have not used any derivative financial instruments to manage our interest risk exposure. We carry refinancing risk related to short-term interest-bearing loans. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future interest expense may be higher than expected due to changes in market interest rates.

Foreign Exchange Risk

Translation adjustments amounted to $0.02 million and $0.54 million as of September 30, 2009 and September 30, 2008, respectively. The Company translated balance sheet amounts with the exception of equity at September 30, 2009 at RMB 6.8376 to $1.00 as compared to RMB 6.8551 to US$1.00 at September 30, 2008. The Company stated equity accounts at their historical rate. The average translation rates applied to income statement accounts for the year ended September 30, 2009 and September 30, 2008 were RMB 6.8451 and RMB 7.1106 to US$1.00, respectively. So far, the PRC government has been able to manage a stable exchange rate between RMB and the U.S. Dollar. We do not anticipate material translation adjustments due to large fluctuations in exchange rates between RMB and the U.S. Dollar. However, our future downward translation adjustments may occur and can be significant due to changes in such exchange rate.

The PRC government imposes strict restrictions on PRC resident companies regarding converting RMB into foreign currencies and vice versa under capital account transactions, such as receiving equity investments from outside of the PRC, making equity investments outside of the PRC, borrowing money from or lending money outside of the PRC, and repaying debt or remitting liquidated assets and/or accumulated profits outside of the PRC. These transactions have to be approved by the relevant PRC government authorities, including but not limited to the commerce bureau, the tax bureau and the State Administration of Foreign Exchange, or SAFE, and have to be conducted at banks entrusted by the local SAFE branch. Kingtone Information has not conducted any foreign currency transactions during prior fiscal years since its inception. Softech was recently established and had not conducted any foreign currency transactions except for converting a relevantly small amount of foreign currency into RMB as registered capital pursuant to PRC regulations. In anticipation of this offering, we will invest or lend the proceeds as equity or loans into our PRC subsidiaries. As our business continues to grow, we may need to continuously finance our PRC subsidiaries by raising capital from outside of the PRC. The restriction on converting RMB into foreign currencies, and vice versa, may limit our ability to use capital resources from outside of the PRC. Such restrictions may also limit our ability to remit profits from our PRC subsidiaries outside of the PRC, therefore potentially limiting our ability to pay dividends to our shareholders. In addition, such restrictions will limit our ability to freely transfer temporary excess cash in our or our subsidiaries’ bank accounts in and out of the PRC, therefore limiting our ability to conduct cross-border cash management activities to optimize the utilization of our cash.

Inflation

Although China has experienced an increasing inflation rate, inflation has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in the consumer price index in China was 0.46%, (0.77%), and 1.16% in 2001, 2002 and 2003, respectively. However, in connection with a 3.9% increase in 2004, the PRC government announced measures to restrict lending and investment in China in order to reduce inflationary pressures in China’s economy. Following the government’s actions, the consumer price index decreased to 1.8% in 2005 and to 1.5% in 2006. In 2007, the consumer price index increased to 4.8%. In response, China’s central bank, the People’s Bank of China, announced that the bank reserve ratio would rise half a percentage point to 15.5% in an effort to reduce inflation pressures. China’s consumer price index growth rate reached 8.7% year over year in 2008. The results of the PRC government’s actions to combat inflation are difficult to predict. Adverse changes in the Chinese economy, if any, will likely impact the financial performance of a variety of industries in China that use, or would be candidates to use, our software products and services.

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Recent Accounting Announcements

In October 2009, the Financial Accounting Standards Board (FASB) issued amended revenue recognition guidance for arrangements with multiple deliverables (ASU No. 2009-13) (ASC605-25). The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. For our company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. We are currently assessing our implementation of this new guidance, but do not expect a material impact on our consolidated financial statements.

In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting (ASU No. 2009-14) (ASC985-605). Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. For the company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the reporting company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. We are currently assessing our implementation of this new guidance, but do not expect a material impact on our consolidated financial statements.

In September 2009, the FASB issued amended guidance concerning fair value measurements of investments in certain entities that calculate net asset value per share (or its equivalent) (ASU No. 2009-12) (ASC820-10). If fair value is not readily determinable, the amended guidance permits, as a practical expedient, a reporting entity to measure the fair value of an investment using the net asset value per share (or its equivalent) provided by the investee without further adjustment. The amendments are effective for interim and annual periods ending after December 15, 2009. We do not expect a material impact on our consolidated financial statements due to the adoption of this amended guidance.

In August 2009, the FASB issued guidance on the measurement of liabilities at fair value (ASU No. 2009-5) (ASC820-10). The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. We adopted this guidance in the year ended September 30, 2009 and there was no material impact on our consolidated financial statements.

In June 2009, the FASB issued Accounting Standard Update No. 2009-02. “Amendments to Various Topics for Technical corrections.” ASU No. 2009-2 is an omnibus update that is effective for financial statements issued for interim and annual periods ending after July 1, 2009. This Statement did not impact our consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASC No. 105), “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminated the GAAP hierarchy contained in SFAS No. 162 and established one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted this Statement for our year ended September 30, 2009. There was no change to our consolidated financial statements due to the implementation of this Statement.

In June 2009, the FASB issued SFAS No. 167 (ASC No. 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 166 (ASC No. 860), “Accounting for Transfers of Financial Assets — an

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amendment of FASB Statement No. 140 (ASC No. 860).” SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. We will adopt these Statements for interim and annual reporting periods beginning on January 1, 2010. We do not expect the adoption of these standards to have any material impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165 (ASC No. 855), “Subsequent Events.” This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. We adopted this Statement in the year ended September 30, 2009. This Statement did not impact our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1 (ASC No. 805), Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the accounting in SFAS 141(R) for assets and liabilities arising from contingencies in a business combination. The FSP is effective January 1, 2009, and requires pre-acquisition contingencies to be recognized at fair value, if fair value can be reasonably determined during the measurement period. If fair value cannot be reasonably determined, the FSP requires measurement based on the recognition and measurement criteria of SFAS 5 (ASC No. 450), Accounting for Contingencies. Adoption of FSP FAS 141(R)-1 did not have an impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP No. FAS 107-1 (ASC No. 825) and APB 28-1 (ASC No. 270), “Interim Disclosures about Fair Value of Financial Instruments”. This FASB staff position amends FASB Statement No. 107 to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements. The staff position also amends APB Opinion No. 28 to require those disclosures in summarized financial information at interim reporting periods. This FASB staff position becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted these standards. The adoption of these standards did not materially impact our consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 (ASC No. 320) and FAS 124-2 (ASC No. 958), “Recognition and Presentation of Other-Than-Temporary Impairments”. This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities. If an entity determines that it has an other-than-temporary impairment on a security, it must recognize the credit loss on the security in the income statement. T he credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The staff position expands disclosures about other-than-temporary impairment and requires that the annual disclosures in FASB Statement No. 115 and FSP FAS 115-1 and FAS 124-1 be made for interim reporting periods. This FSP becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted this standard. The adoption of this standard did not materially impact our consolidated financial statements.

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BUSINESS

Overview

We are a China-based developer and provider of mobile enterprise solutions. Mobile enterprise solutions allow company personnel whose work function requires mobility (as opposed to operating from a single work station) to be connected with enterprise information technology, or IT systems, including Enterprise Asset Management (EAM), Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and Customer Relationship Management (CRM). Our software enables such systems to get extended to personnel in the field using wireless devices such as smart phones, PDAs, cameras, barcode scanners, portable printers, GPS devices, and tablet computers. Mobile enterprise solutions also include custom software applications for specific industries and businesses.

Our mobile enterprise solutions are built on our proprietary core middleware platform consisting of standardized modules. This core middleware platform allows our solutions to seamlessly integrate with our customers’ existing information management systems. The core middleware platform can host an array of standardized and scalable applications developed by us or by others. This structured design allows us to timely and cost-effectively meet our customers’ specific requirements, and to respond to their changing needs.

Mobile enterprise solutions are generally aimed at reducing processing times and facilitating the flow of information among people and systems. Mobile computing allows field workers to communicate and interact more efficiently with their central operations, and vice versa. Enterprises are able to capture more accurate and timely information, and to achieve major reductions in paperwork and administration. Mobile enterprise solutions can be used to put important data in the hands of field workers, thus improving decision-making and productivity in the field. Mobile enterprise solutions improve efficiency in everyday functions including work dispatch, sales, inspections, repairs, deliveries, tracking and scheduling. Mobile enterprise solutions can also be used within factory settings, where wireless data connections are used to improve central control and monitoring of production and automations systems. For example, we designed and implemented a solution for a PRC-based petroleum company that allows plant managers to wirelessly monitor its production lines from off-site or remote locations.

The rollout of 3G wireless networks in China is increasing customer interest in mobile enterprise solutions. The increased bandwidth of 3G enables greater functionality and performance. In addition, touchscreen smart phones and other standard consumer devices that utilize 3G are able to be used for many applications that formerly required costly custom devices. These technology trends are positively affecting our business. We are also working with the three PRC telecom carriers, China Telecom, China Mobile, and China Unicom, on joint marketing and sales efforts to enterprises and government agencies. In addition, we are working with China Telecom to jointly develop and promote a custom, next-generation mobile solution for public safety agencies, including police and fire forces in certain provinces in China.

We typically act as a total solution provider, packaging our software with various third-party hardware and related equipment. We are headquartered in Xian, China and sell our products widely throughout China.

Our Industry — Mobile Enterprise Software Industry

We operate in the mobile enterprise software industry in China. We believe the mobile enterprise market in China benefits from compelling industry fundamentals such as increasing investment in IT, the country’s 3G rollout, and increasing demand for wireless applications within working environments.

Information Technology Development in China

Information technology has become an integral part of Chinese society and an important engine of growth for the economy. According to an IDC article dated October 22, 2009, IT spending by the PRC government in 2009 was expected to total RMB 53.65 billion, and is predicted to reach RMB 73.36 billion in 2013. Furthermore, according to an article published by the China Computer Newspaper dated March 3, 2010, government departments and sectors such as transportation, energy, healthcare, and environmental protection are among those with high growth rates in IT investment. IDC states that as the IT hardware market has become more fully developed, the focus of IT investment has gradually shifted from hardware infrastructure to software applications. From 2008 to 2013, the annual compound growth rate of IT hardware is projected to

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be 5.6%, compared to the annual compound growth rates of software and IT services of 13.2% and 14%, respectively, during the same period, according to IDC.

This supports our belief that market acceptance of enterprise mobility applications, solutions and systems usually accelerates when potential customers’ back-end information technology systems are fairly developed and they start to invest in applications. By indentifying sectors with high growth rates of IT investment, we can exploit opportunities to expand our business by capturing the growth in targeted vertical industry markets.

3G Rollout in China

On December 31, 2008, the State Council of the PRC, or the State Council, announced the approval of 3G license issuances to the three telecom operators, namely China Telecom, China Mobile and China Unicom, and the Ministry of Industry and Information Technology (MIIT) officially issued 3G licenses to those entities on January 7, 2009. Third generation wireless standard, or 3G, is a family of standards for mobile telecommunication. 3G communications allow simultaneous use of speech and data services at higher data rates than services developed under prior generation standards.

According to a January 2009 report by CITIC Jiantou Securities, it is estimated that investment in 3G between 2009 and 2011 by the three Chinese telecom carriers will total $44.0 billion. According to the MIIT, the 3G industry is expected to generate RMB 1 trillion, or $146.5 billion, in demand in the next three years. As mobile carriers further invest in applications and content, we believe the demand for enterprise mobile software/middleware will experience significant growth.

We believe the issuance of 3G licenses is expected to drive the growth of an enterprise wireless chain comprised of telecommunications service providers/carriers, converged mobile device providers, IT vendors, and software/middleware providers. Mobile software/middleware provides key platforms across which managed enterprise mobility services are deployed. We believe the 3G rollout and the upcoming commercial deployment will both inspire and facilitate new and diversified customer applications for mobile enterprise software.

Mobile Enterprise Solutions in China

We believe that China's enterprise mobility market is experiencing rapid development, driven primarily by the development of the mobile industry. In its January 2008 report, IDC forecasted the enterprise mobility market in China to reach $15.56 billion in 2011 with a forecasted compound annual growth rate of 6.0% from 2007 to 2011.

The growth of mobile enterprise solutions is driven by the demand for increased business efficiencies and new functionalities. In many modern businesses, operations are distributed over a large area, with individual operating elements. Mobile enterprise solutions allow organizations to enable mission-specific field and long-distance information management on a real-time basis. Mobile enterprise solutions consist of packaged, mission-specific and industry-specific applications and software designed especially for enterprise using wireless connectivity.

Enterprise wireless applications can be tailored to meet the specific needs of many industry sectors, such as manufacturing, energy, transportation, logistics, utilities, healthcare, and government agencies (such as police and emergency services). These custom software solutions include production control automation, sales force automation, field force automation, customer relationship management, enterprise resource planning, supply chain management, operations management, inventory management, time and expense, logistics, and other collaborative items.

Wireless enablement for an enterprise and its many activities is now a prominent trend according to the IDC report. With the rapid growth of the domestic economy, improvements in bandwidth, and increased mobility in working environments, enterprises and government agencies are increasing spending on the construction of mobile platforms and applications to extend their functionality outside of stationary locations. Mobile enterprise solutions including mobile middleware software, mobile security software, mobile device management software, and mobile enterprise applications have fueled the growth of both business data and video/voice usage, which are also major driving factors in communication spending.

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Our Strengths

We believe the following strengths differentiate us from our competitors:

Proprietary suite of mobile enterprise solutions offerings

We are among the first of Chinese companies to focus predominantly on developing mobile enterprise solutions. Since we began our operations in 2001, we have completed many successful client installations (approximately 130) and have accumulated special knowledge and expertise that has directly resulted in the creation and development of our proprietary adaptable middleware platform, and an array of software applications. A client installation is considered “successful” when we have developed the solutions/systems according to the customer’s contractual specifications and have otherwise fulfilled all other material terms set forth in the sales contract, including installing, configuring and making the solutions/systems operational within the specified time periods. Additionally, to be considered “successful”, a customer must have test run the solutions/systems and indicated its satisfaction by signing the acceptance letter.

We believe our mobile enterprise software is superior in breadth of application. Our middleware platform and software applications can be selectively packaged to create tailored solutions that can be installed on both new systems and existing frameworks.

Strong development capability

We have taken advantage of the significant talent pool within the universities and research institutes in Xi’an China, where our operations are located, to establish a dedicated research and development team. As of September 30, 2009, we had 60 engineers dedicated to technology development and customer implementations. Our development engineers have diverse technical background and are led by experienced development practitioners. We have been able to track and incorporate the latest technologies into our software to continuously improve our core middleware platform and applications, and to develop new functionalities.

Industry knowledge

We work closely with our customers to build upon our understanding of our customers’ operational processes and requirements. Our sales teams coordinate closely with our development teams to reflect those requirements in our solutions. As a result, our mobile enterprise solutions fit smoothly into our customers’ operations. In addition, our presence in the mobile enterprise solution market since its inception provides us with domain knowledge which we use to help position us for future growth. We are continually receiving feedback from this evolving market to anticipate emerging sectors and future product requirements.

Growing track record

In its January 2008 report, IDC forecasts the enterprise mobility market in China will reach $15.6 billion in 2011. Virtually all businesses and public service operations have the potential to experience efficiencies and new functionalities with mobile enterprise solutions. We have successfully completed projects for clients, such as the Central Government Security Bureau and Beijing Emergency Respond Center, from many verticals. These serve as high-profile case studies and enhance our reputation in the marketplace and, thus, — providing key endorsement for the quality and stability of our product offerings. Moreover, by having our main corporate office in Xi’an, China, we have benefited from the continued surge in IT investment by the Western provinces.

Joint efforts with Chinese wireless telecom carriers

We benefit from joint business development efforts with China Telecom, China Mobile and China Unicom. These wireless telecom carriers have a strategic interest in the advancement of the mobile enterprise in China. Our sales professionals work closely with those companies to access their large pools of corporate customers. Together we make joint presentations to candidate customers, where the carrier will provide the wireless network and we will provide the mobile enterprise solution. We have unwritten cooperative relationships with all three telecom carriers to co-promote next-generation mobile solutions for various other applications in China. In addition we have a formal co-marketing agreement with China Telecom to co-promote next-generation mobile solutions for law enforcement applications in Shaanxi province. For the

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year ended September 30, 2009, we completed a total of eight customer projects with the three telecom carriers. Typically under these arrangements, we jointly market our products and services for customer applications. Customers contract with the telecom carrier and we provide our solutions to the customer and receive our remuneration from the telecom carrier.

Our Strategy

Seize the opportunity presented by 3G adoption in China

China’s legacy wireless networks (2G, 2.5G and 2.75G) have limited bandwidth and consequently limit the functional potential of mobile enterprise applications. Since the issuance of 3G licenses in January 2009, we have been working with wireless telecom carriers on joint marketing initiatives aimed at increasing the enterprise utilization of 3G. Our telecom partners are seeking new revenue streams to offset the diminishing opportunity for voice services, and we are offering solutions to enable wider forms of mobile computing that take advantage of the 3G bandwidth.

Recruit, train and retain engineering professionals

To sustain our high rate of growth, we must continue to add to our technical and business development teams through selective recruiting of university graduates and qualified lateral hires. Once employed, we provide our technical employees with a comprehensive training program to understand our technologies, market and product offerings.

Expand Operations

We are in the process of completing our purchase of a six-story building in Xi’an to house anticipated expansion of our headcount and business activities. This building, which we plan to name “Kingtone Center”, will house our headquarters and development teams, and provide dedicated facilities for customer demonstrations of our products and abilities. We believe Chinese customers have more confidence in the financial strength of businesses that have their own building. We expect Kingtone Center to have a positive effect on our marketing and expansion activities.

Invest more in research and development to create more successful software products

To keep our competitive edge, we are launching a new research and development program to keep abreast of the latest developments in wireless standards and information management technologies and to anticipate future customer needs. We also plan to invest in developing new applications for anticipated high-growth, vertical industry markets. Spending will be focused on testing equipment, including laboratories and 3G simulation systems, as well as expendable materials used during experiments. We plan to allocate a large portion of space in our new Kingtone Center facility to house our enlarged development team and increased research and development activities.

Pursue strategic acquisition opportunities

We will from time to time consider acquisitions or alliances that enable us to acquire talented and experienced software development personnel, enhance our technological capabilities and competitive advantages or provide licensing or recurring revenue opportunities, and propel our expansion.

Our Products and Solutions

We use various combinations of our existing middleware software modules, together with custom application software that we develop, to create a complete mobile enterprise software solution. For some customers, we provide the mobile enterprise software solution only. For other customers, we provide a complete wireless system solution, including mobile enterprise software and all hardware (our own plus third party hardware such as servers and wireless devices).

An example of our mobile enterprise software products is an insurance industry application that we developed with China Mobile. Our mobile enterprise software for this application enables an insurance company’s field personnel to receive their dispatch information and do accident reporting and claim processing while in the field. Form data is inputted electronically and high-resolution photos can be collected and filed over wireless, from the accident site. For this application, we provide the software only, while China Mobile provides hardware and the network services.

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An example of our complete wireless systems (software and hardware) is a mobile video surveillance system that we developed for the Beijing Emergency Response Center. Using servers and cameras combined with our mobile enterprise software, we provided a complete wireless system that enables the Beijing Emergency Response Center to collect and monitor video from its patrol cars. This system can improve the speed and quality of the emergency response by enabling supervisors to more quickly and completely understand an emergency situation.

Our mobile enterprise software consists of core middleware and a broad array of software applications. Our middleware serves as an intelligent platform that operates on top of our customers’ operating systems and management information systems. Our software applications can be integrated onto our middleware platform as well as attached mobile devices (mobile phones, PDAs, laptops, etc.) to perform essential tasks or extend our customers’ existing applications over wireless to fixed or mobile nodes. We have combined elements of both browser/server and client/server frameworks in our software design to allow for both reliable and flexible access by authorized personnel, virtually at anytime and from anywhere.

Core Middleware Platform

Our core middleware platform resides on the customers’ servers. It is comprised of two layers of modules. The General Purpose Layer consists of mandatory software modules required to support the application software plugged into the middleware platform. The Basic Layer modules are also mandatory components that perform basic functions, such as communicating with a variety of hardware and software platforms, computer operating systems, networking and database products, coordinating and synchronizing the tasks performed by our solutions, and adding information security to data transmission.

The following table summarizes the modules in our middleware:

  

 
General Purpose Layer Modules
•     Information Processing and Distribution
•     Messaging
•     Flow Engine
•     Stream Media (Video and Audio processing)
•     Reporting
 

 
 
Basic Layer Modules
•     Unified Data Center
•     Information Security (authentication, rights approval, encryption & signature)
•     Signal Dispatch
•     Information Exchange
•     Integration Interface

Software Applications

We have developed two types of software applications that can be selectively overlaid with the middleware to complete a packaged solution, namely, Information and Communication-Technology Converged, or ICT-converged, and Vertical Industry Applications.

ICT-converged applications perform generic functionalities that may be applied across multiple industries. Vertical Industry Applications, on the other hand, are non-generic and perform a specific task required by a particular industry. Both types of applications can reside on converged mobile devices (“Terminal-end Applications”), or on computer servers (“Server-end Applications”). Our Terminal-end Applications work on a variety of mobile devices and mobile operating systems.

ICT-converged applications are software products that combine both information processing technologies, or often referred to as computing technologies, and information transmission technologies, or often referred to as telecommunication technologies, to perform desired tasks. In our case, we combine mobile computing technologies with wireless telecommunication technologies. ICT-converged applications often command the available hardware of a system or device, such as various signal collection, processing and transmission chips or peripherals to complete these tasks. ICT-converged applications usually have application programmers’ interfaces, or APIs, which are relatively short pieces of programming codes. By embedding APIs into vertical industry applications, vertical industry applications can invoke, or call, the performance of ICT-converged applications.

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In the terminal-end, we have information security, RFID, location-based service, steam media, information exchange, and management and configuration applications. The information security application encrypts or decrypts the information to ensure sensitive or classified information of our vertical industry customers’ can be transmitted over the public wireless telecommunication network safely. Installed with our RFID application and appropriate chips, mobile phone can be turned into a RFID reader and writer for faster information input in certain vertical industry customers, such as the police and administration of industry and commerce. RFID application can also be used by automation telematics customers in industries such as warehouse management and logistics. Our location-based service application enables a mobile phone to receive information relevant to its location. This application can greatly improve the operating efficiency of the mobile workforce of some of our vertical industry customers’ by pushing timely information to them. Our steam media application turns mobile phone into a moveable video monitor and collector to facilitate decision-making by delivering live pictures anywhere anytime to the decision-maker. The information exchange application automatically synchronizes information in mobile phone and in back-end database. The management and configuration application can configure the application management and control of mobile phones to perform multiple tasks running multiple applications, fully optimizing a phone’s voice and data communication features.

In the server-end, we have stream media service, resource planning, gateway service, location-based service, RFID service and statistics and analysis applications. Our stream media service application at the server-end acts as a video command center. It not only can process and record video signal from sources, selectively display them in smaller windows on the screen, control the remote cameras like most other video surveillance systems do, but also can manage the mobile phones registered with the system, such as automatically detecting the specifications of the phone and distributing selected and correctly-formatted video streams to those mobile phones, working with terminal-end stream media application to take control of the video function of the phone to turn it into a mobile camera.

Our resource planning application stores relevant information about resources available to respond to an issue, such as a crisis or public safety event. When such an issue occurs, our resource planning application automatically provides relevant information at the server-end as well as relevant decision-makers’ mobile devices.. For example, in a sudden emergency response event, a list of specialists who can respond to the emergency may be displayed, including their name, experience, whereabouts, and contact information, etc. Our gateway service application acts as a bridge between our customers’ back-end information system and the mobile workforce. It pulls information from the back-end information system, distributes the information to remote mobile phones or devices in compatible formats and also receives information from mobile phones and devices and input the information into the back-end information system. Our server-end location-based service application detects the location of registered mobile phones and devices, and centrally manages the relevant information to be pushed to those mobile phones and devices installed with terminal-end location-based service applications. Our server-end RFID service application centrally manages and processes information collected from RFID devices. Our statistics and analysis application is mainly used by our automation telematics customers and increasingly by other customers. It processes continuously data flow collected from remote sensors or devices, give real-time statistics and trend prediction, take actions or give warnings if the results reaches a preset critical value.

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The following table summarizes our software applications:

   
  ICT-Converged Applications   Vertical Industry Applications
Terminal-end   Information Security   Police
     RFID   Emergency Response
     Location-Based Service   Administration of Industry and Commerce
     Stream Media   Environmental Protection
     Information Exchange   Automation Telematics
     Management & Configuration*
Server-end   Stream Media Service   Police
     Resource Planning   Emergency Response
     Gateway Service   Administration of Industry and Commerce
     Location-Based Service   Environmental Protection
     RFID Service   Automation Telematics
     Statistics and Analysis     

* Through its management and configuration application, our software can configure the application management and control of mobile phones to perform multiple tasks running multiple applications, fully optimizing a phone’s voice and data communication features.

Our Hardware Products

Portable Video Server

Our portable video server for vehicles or individuals can be integrated into the overall solution or purchased separately to add live mobile video surveillance or transmission functions to our customers’ existing systems.

We design the server, including the breadboard, the layout of internal structures, the specifications of the electronic components, and the I/O specifications. We currently outsource the production of our hardware to third-party manufacturers. We program the embedded software and write the software into the portable video servers. We also program the software loaded on our customers’ central servers to work with our portable video servers. By using our portable video server solution, our customers enjoy higher quality video and experience better transmission compared to the generic webcam solutions available in the marketplace. Many industries and applications require this superior quality.

Tailoring Our Solutions

Our engineers in our internal solution implementation department develop the tailored mobile enterprise solution according to our customer’s requirements. The tailored solution includes our core middleware platform and a selected combination of our software applications, and sometimes hardware developed by ourselves or sourced from third-party vendors. The tailored solution is delivered as a turn-key package. Currently, we do not sell or license our core middleware platform or our mobile enterprise applications separately to our customers to use. Nor do we currently provide software development kit, or SDK, to other software developers or our customers to develop mobile enterprise solution based on our core middleware platform.

We identify our customers by and divide them into vertical industry markets. Our current vertical markets include different industries, such as petrochemical, insurance, transportation and logistics, etc. Our government customers are agencies in different public administrative areas, such as police, emergency response centers and administrative bureaus of industries and commerce. Since each public service area has its own distinctive work flow and information application requirements, we treat each public service area as a vertical industry market. Finally, manufacturers with a high degree of automation are increasingly implementing integrated telecommunication, information and mechanic technologies, or telematics, into their production management and control. We treat these automation customers as a single vertical industry. Customers in each vertical industry market have same or similar work flow and often require same or similar mobile enterprise applications. Our products are delivered as vertical industry specific solutions. Each vertical industry solution has been copyright registered, giving us greater specialist recognition in the marketplace.

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For the automation telematics vertical industry market, we typically integrate our mobile enterprise solution software with automation hardware (sensors, programmable logic controllers, data acquisition systems and mechatronics) purchased from third-party vendors to produce and sell an integrated automation telematics system. We usually contract out the installation work to third-party installers, but perform the software installation and configuration by ourselves. The integrated solution allows our customers to monitor and control variables in their industrial production processes from wireless devices at any time, with authorized control as an option.

Research and Development

At September 30, 2009, we had 60 engineers devoted to developing our software products. They are currently all located in our main corporate office in Xi’an, China.

Our research and development center is responsible for conducting all of our basic research and development activities. The focus of our research and development personnel is on developing and improving our core middleware platform, our CIT-converged applications and our hardware products. Currently, there are 18 professionals in our research and development center, including two with doctorate degrees and two with other post-graduate degrees, with diverse backgrounds in computer science and technology, telecommunication engineering, software engineering and physical electronics.

We believe our professionals are adept at utilizing the latest technical developments in our industry to create new products and functionality. They also receive customer feedback from the sales and marketing team to develop applications demanded by our customers in certain sectors.

We have 28 engineers in our Vertical Industry Application Development Department, which is responsible for developing vertical industry applications. We have 14 engineers in our Automation Telematics Application Development Department, which is responsible for developing automation telematics applications, and which is a sub-group of vertical industry applications required by customers in manufacturing sectors with high degree of automation in their operations. Engineers in these two departments are also responsible for implementing the solutions for our customers.

Sales and Marketing

We sell our products and services mainly through our sales and marketing team, which is primarily based at our headquarters in Xi’an, China and our branch office in Beijing, China. We had 25 professionals in sales and marketing as of September 30, 2009.

To date, we have sold our mobile enterprise solutions to customers in 30 provinces, municipalities and autonomous regions in the PRC. In addition to those in Xi’an and Beijing, we have local sales teams that maintain close contact with our business partners and customers. We ensure that most of our sales and marketing professionals also have a technical background to make them competent for specialized IT sales, such as mobile enterprise solutions. Our sales and marketing professionals are organized into two teams:

Vertical Industry Application team
Automation Telematics team

The Vertical Industry Application sales force targets general business and government customers. They work closely with sales professionals at China’s wireless telecommunication carriers (China Telecom, China Mobile and China Unicom), under general cooperation framework agreements to develop new customers. We believe the carriers are motivated to improve their average revenue per user, or APRU, by selling integrated services to enterprise customers. However, they generally lack the ability to develop applications to overlay on their basic data communication network. In most cases, the carriers directly contract us to provide the wireless application solution. In other cases, we sell directly to our enterprise customers or are engaged as a sub-contract by other IT companies having the customer relationship.

Our Automation Telematics Application sales team focuses on industrial automation projects. These are mainly factory-specific wireless solutions that enable an automated or semi-automated factory production lines, using our proprietary middleware and wireless capability. Automation Telematics utilizes wireless over short distances in a wide variety of usages that enable great automation control and production line monitoring

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and management. For such projects, typically we are contracted directly by the project owners or sub-contracted by the general contractors to provide automation telematics solutions. In most cases, building our software into large and complex physical systems (such as automated production lines) enable us to make a greater profit than if we sold our software independently.

Sales Process

Our sales process begins by explaining to our potential customers the benefit of our wireless application products to the customer’s particular business. Some companies seek mobile functionality for their sales force, others seek cross-company, real-time networking across all fixed and mobile nodes, while others seeks a particular functionality specific by their own trade or business. Our team first seeks to understand each company’s particular needs and then develops a product design proposal. For each project or mandate, we will typically compete against several other companies in an open bid invitation process.

Major Customers

In the years ended September 30, 2009 and 2008, we derived a material portion of our revenues from a small number of customers. In particular, a single customer, Shanxi Yanchang Petroleum Group, provided approximately $5.0 million of our revenue, representing 44.7% of our total revenue in the year ended September 30, 2009. The material terms of our two largest contracts with such customer are summarized below.

On October 15, 2008, Kingtone Information entered into an Installation and Construction Subcontract, to act as a subcontractor with The Refine Chemical Company of Shanxi Yanchang Petroleum Group, as construction party and Shanxi Chemical Construction Co., Ltd., as general contract party. Pursuant to the agreement, Kingtone Information was subcontracted to contribute to the project named “HuiJiaHe Petroleum Product Adjusting Supply Renovation Instrument and Control System and Control System Full Installation and System Adjusting of Yangzhuanghe Refine Chemical Project System.” The term of the project, as set forth in the agreement, is from October 15, 2008 through January 31, 2009 for a fixed amount payable to Kingtone Information of RMB 21,600,000 (approximately $3.2 million) before the deduction of administrative fees, tax and utility fees (2.5% of the fixed amount). The project was completed and all sums were paid.

On April 30, 2009, Kingtone Information, as the supplier, entered into a Material Purchase Contract with Xi’an Product Petroleum Pipe Transportation Project Management Department of Shanxi Huajian Yelian, as the purchaser. Pursuant to the agreement, Kingtone Information supplied a series of software and facilities to the purchaser for a total price of RMB12,200,000 (approximately $1.8 million). According to the agreement, Kingtone Information was required to deliver the subject items by June 25, 2009. The agreement has a one year warranty period. The project was completed and all sums were paid.

In the year ended September 30, 2009, we derived $1.1 million of our revenue, or 10.2% of our total revenue from Xi’an TechTeam Humic Acid Productions Co., Ltd., which is a related party. For a summary of the material terms of our agreements with such related party, see the section entitled “Related Party Transactions”.

Competition

The wireless applications software market is currently a highly-fragmented industry with many players offering industry-specific solutions. We compete with a variety of different companies, some of which do not have a proprietary wireless platform and must therefore outsource and/or do more development and testing. Other companies have developed a wireless system for a single application that is not widely adaptable to usages across many industries. We believe one of our competitive advantages is the versatility of our platform, which allows it to be applied across numerous industries without significant ground-up redevelopment for each customer.

Our main competitors in the wireless application market in China are:

International IT consulting and service providers that have a strong foothold in customized enterprise software and information system design and implementation, such as IBM, Fujitsu, Syclo and Accenture;

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International mobile enterprise software and solution providers that have a significant presence in China, such as Sybase and CDC Software; and
Domestic mobile enterprise solution developers, such as Beijing Silu Innovation Technology Co., Ltd., a mobile application provider that focuses solely on environmental protection areas, and Cyber Technologies (Suzhou) Co., Ltd., a wireless application software and IT service provider that focuses solely on the public securities areas.

We believe we have a superior understanding of our vertical industry markets compared to our international competitors and that our software products have much wider application areas than those of our domestic competitors. We also bring mobile applications to industrial automation management and control. We believe none of our competitors currently has a similar level of sophistication in wireless application in this area.

Intellectual Property

We have registered the following software copyrights, patent and trademark for our business operations. We believe this intellectual property forms an integral part of our competitive strength.

Patent:

Through Kingtone Information, we have been granted one invention patent by the State Intellectual Property Office (“SIPO”) of PRC on September 23, 2009. This patent is “wireless video transmission system based on BREW platform”. The patent code is ZL 200710018138.4. We enjoy a 20-year protection period starting from patent issuance date.

We have also applied for a number of invention patents with SIPO. We have received letters of substantive examination of patent for invention application from SIPO, which is the last step before patents can be issued. The following table summarizes these pending patents:

     
Name of Invention   Application Number   Publication Number   Publication Date
BREW platform based audio-video collection and wireless transmission system   200710018505.0   101159864   April 9, 2008
WINCE platform based audio-video collection and wireless transmission system   200710018506.5   101159865   April 25, 2008
Wireless video transmission system based on Arena platform   200810150745.0   101420597   April 29, 2009
Multilink wireless mobile industrial management and control integrated data transmission system   200810150072.9   101345764   January 14, 2009
Video monitoring information interaction system based on Symbian platform   200810150746.5   101420598   April 29, 2009

We also have applied for a utility model patent with SIPO (application number: 200820228566.X) and have received the notice from SIPO to grant us this patent on September 4, 2009. The name of this utility model invention is “Multi-business Data Collection Equipment”.

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Software Copyrights:

Through Kingtone Information, we have received the following software copyrights from the National Copyright Administration (“NCA”) of PRC:

   
Name of Software   Registration Number   Date of Issuance
Wireless video monitoring system V1.0   2007SR12909   August 28, 2007
RFID based wireless transportation administration monitoring system V1.0   2007SR17240   November 1, 2007
Wireless emergency command and management system V1.0   2008SR04120   February 26, 2008
Mobile industry management and control integrated system V1.0   2008SR18892   September 10, 2008
Wireless mobile news dispatches system V1.0   2008SR18893   September 10, 2008
Wireless police affairs system V1.0   2009SR04756   November 10, 2009
Wireless OA system V1.0   2009SR07729   February 25, 2009

Trademarks:

We have registered the following trademarks with the Trademark Office, State Administration for Industry and Commerce in the PRC:

     
Registered Trademark   Registration
Number
  Classification
Number
  Valid Period
联合寻呼   1639871   38*   September 21, 2001 to September 20, 2011
KingTone   3559772   9*   November 28, 2004 to November 27, 2014
KingTone   4392291   42*   July 28, 2008 to July 27, 2018

* See the footnotes to the table below for an explanation of each classification number used in the table above.

We have submitted applications for the following trademarks to the Trademark Office of State Administration for Industry and Commerce in the PRC:

       
Pending Trademark   Application Number   Classification
Number
  Application Date   Date of Acceptance
for Application
联合信息   6484024   38*   December 29, 2007   January 17, 2008
联合   6484025   38*   December 29, 2007   January 17, 2008
[GRAPHIC MISSING]   7402901   9*   May 18, 2009   June 4, 2009
联合信息   7402911   35*   May 18, 2009   June 4, 2009
联合信息   7402912   37*   May 18, 2009   June 4, 2009
联合信息   7402913   42*   May 18, 2009   June 4, 2009
联合信息   7402914   9*   May 18, 2009   June 4, 2009
[GRAPHIC MISSING]   7402915   41*   May 18, 2009   June 4, 2009
[GRAPHIC MISSING]   7402916   45*   May 18, 2009   June 4, 2009

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Pending Trademark   Application Number   Classification
Number
  Application Date   Date of Acceptance
for Application
[GRAPHIC MISSING]   7402917   35*   May 18, 2009   June 4, 2009
[GRAPHIC MISSING]   7402918   37*   May 18, 2009   June 4, 2009
[GRAPHIC MISSING]   7402919   42*   May 18, 2009   June 4, 2009
[GRAPHIC MISSING]   7402920   38*   May 18, 2009   June 4, 2009
“KINGTONE
INFORMATION”
  7402925   41*   May 18, 2009   June 4, 2009
“KINGTONE
INFORMATION”
  7402926   45*   May 18, 2009   June 4, 2009
“KINGTONE
INFORMATION”
  7402927   37*   May 18, 2009   June 4, 2009
“KINGTONE
INFORMATION”
  7402928   9*   May 18, 2009   June 4, 2009
联合信息   7402929   41*   May 18, 2009   June 4, 2009
联合信息   7402930   45*   May 18, 2009   June 4, 2009

* See below for an explanation of each classification number used in the table above.

Classification No. 9:  data processing apparatus, couplers (data processing equipment), computer software (recorded), monitors (computer programs), smart cards (integrated circuit cards), electro-dynamic apparatus for the remote control of signals, alarms, and electric installations for the remote control of industrial operations.

Classification No. 35:  auctioneering, sales promotion for others, marketing analysis, marketing research, import-export agencies, advisory services for business management, business management for franchise, personnel management consultancy, relocation services for businesses, and systemization of information into computer databases.

Classification No. 37:  building construction supervision, electric appliance installation and repair, installation, maintenance and repair of computer hardware, interference suppression in electrical apparatus, machinery installation, maintenance and repair, burglar alarm installation and repair, and telephone installation and repair.

Classification No. 38:  message sending, telephone communication, cellular telephone communication, communications by computer terminals, computer aided transmission of messages and images, electronic mail, information about telecommunication, and providing telecommunications connections to a global computer network.

Classification No. 41:  instruction services, teaching, education information, tuition, arranging and conducting of colloquiums, publication of electronic books and journals on-line, amusements, and vocational guidance.

Classification No. 42:  technical research, studies (technical project), computer software design, updating of computer software, recovery of computer data, computer systems analysis, installation of computer software, computer anti-virus protection, and research and development for others.

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Classification No. 45:  security consultancy, monitoring of burglar and security alarms, computer software permit (legal service), factory security inspection, household service security consultancy, copyright management, and baggage examination for safety.

Business Certificates and Qualifications

We have obtained all necessary regulatory certifications to conduct our business, including the following: Software Enterprise Recognition Certificate, Computer Information System Integration Qualification Certificate, Construction Enterprise Qualification Certificate, Security Technology & Protection Enterprise Certificate. We have also been properly certified as a high-tech enterprise and met the ISO 9001:2000 qualification management system.

Properties

We operate out of the office located at 3/F, Area A, Block A, No. 181 South Taibai Road in Xi’an. We own our office space, which covers a floor space of 3,022.94 square meters.

Our Beijing branch office is located at Room 2208 and 2209 at Building 16, An Hui Dong Li, Chaoyang District, Beijing. It covers a floor space of 184.81 square meters. Our chairman Mr. Tao Li owns this space. We pay no consideration for the use of this space.

We are currently completing the purchase of a 20,000 square meter warehouse and industrial facility in Xi’an, which we plan to name “Kingtone Center”. We have paid the entire purchase price and are currently in the process of obtaining the property ownership certificate from the provincial government. We intend to move our entire operations in Xi’an to Kingtone Center by the end of 2010, at which time we plan to further evaluate our immediate and projected space needs. If feasible, we may seek to lease out a portion of any unused space. Kingtone Center is planned to be a key feature in our customer marketing.

Employees

As of September 30, 2009, we had a total of 112 full-time employees, of which three were in executive management, five were in accounting, 60 were in research and development including 18 responsible for developing our core middleware, 28 responsible for developing vertical industry applications, 14 responsible for developing automation telematics applications, 14 were in vertical industry application sales and 11 were in automation telematics application sales, six were in procedure and quality control, three were in human resources and three were in administration. None of our employees is currently represented by a union and/or collective bargaining agreements. We believe that we have good relations with these employees and since our inception we have had no history of work stoppages or union organizing campaigns.

Legal Proceedings

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we do not believe that we are a party to any litigation that will have a material adverse impact on our financial condition or results of operations. We are not aware of any significant legal or governmental proceedings against us, or contemplated to be brought against us.

Principal Legal Advisors

Our principal legal advisor in the United States is Pryor Cashman LLP, located at 7 Times Square, New York, NY 10036. Our principal legal adviser in the British Virgin Islands is Harney Westwood & Riegels, located at 1507 The Center, 99 Queen’s Road Central, Central, Hong Kong. Our principal legal adviser in the People’s Republic of China is Global Law Office, located at 15/F Tower 1, China Central Place, No. 81 Jianguo Road, Chaoyang District, Beijing 100025, China, PRC.

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PRC GOVERNMENT REGULATIONS

This section sets forth a summary of the most significant regulations or requirements that affect our business activities in China or our shareholders’ right to receive dividends and other distributions from us.

Regulations of the Software Industry

The software industry in the PRC is regulated pursuant to two primary policies — the Measures Concerning Software Products Administration (the “Software Products Measures”) and the Recognition Standard and Management measures of Software Enterprises (the “Standards and Measures”). As further discussed below, Kingtone Information as a registered software enterprise with registered software products can take advantage of certain favorable tax, investment, government and other programs and policies that are designed to encourage development of the software industry in the PRC.

Software Products Registration and Administration

On March 1, 2009, the Ministry of Industry and Information Technology of the People’s Republic of China (the “MIIT”) promulgated the Software Products Measures which became effective on April 10, 2009. Under the Software Products Measures, software products developed in China (including those developed in China on the basis of imported software) can enjoy certain favorable policies when the products have been registered and recorded pursuant to the “Certain Policies to Encourage the Development of Software and Integrated Circuit Industries” issued by the State Council on June 24, 2000 (the “2000 Software Encouragement Policies”). Kingtone Information has registered its software products, including its “Wireless emergency command and management system V1.0,” with Shaanxi Provincial Department of Information Technology through Kingtone Information. Please refer to the specific favorable polices under the sub-section below entitled “Policies to Encourage the Development of Software and Integrated Circuit Industries.”

Software Enterprise Registration and Administration

On October 16, 2000, the Ministry of Information Industry, the Ministry of Education, the Ministry of Science and Technology and the State Tax Bureau issued the “Standard and Measures” to encourage the development of the software industry in China and to enhance the competitiveness of the PRC information technology industry in the international market. The Standard and Measures provide strict conditions and standards, including but not limited to, the requirement of ownership of the software products, technical employees proportion, independent software technology and product research to recognize a company as a “software enterprise”. Such recognized software enterprises can enjoy the favorable policies pursuant to the 2000 Software Encouragement Policies. Kingtone Information has been recognized as a software enterprise since January 6, 2009. A software enterprise is subject to annual inspection, failure of which in a given year shall cause the enterprise to be disqualified for the relevant benefits.

Policies to Encourage the Development of Software and Integrated Circuit Industries

The 2000 Software Encouragement Policies encourage the development of the software and integrated circuit industries in China and to enhance the competitiveness of the PRC information technology industry in the international market. The 2000 Software Encouragement Policies encourage such development through various methods, including:

Encouraging venture capital investment in the software industry and providing or assisting software enterprises to raise capital overseas;
Providing tax incentives, including an immediate tax rebate for taxpayers who sell self-developed software products, before 2010, of the amount of the statutory value-added tax that exceeds 3% and a number of exemptions and reduced enterprise income tax rates;
Providing government support, such as government funding in the development of software technology;
Providing preferential treatment, such as credit facilities with low interest rates to enterprises that export software products;
Taking various strategies to ensure that the software industry has sufficient expertise; and
Implementing measures to enhance intellectual property protection in China.

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As discussed above, to qualify for favorable treatment, an enterprise must be recognized as a software enterprise by governmental authorities and must have registered software products. Because Kingtone Information is recognized as a software enterprise, it can enjoy the above favorable polices. For example, Kingtone Information currently receives an immediate tax rebate on the sale of software products that it creates equal to the amount of the statutory value-added tax that exceeds 3%.

Relevant Laws and Regulations of the Computer Information System

Management Measures on the Computer Information System Integration

On February 13, 2001, the MIIT promulgated the Management Measures on the Computer Information System Integration Qualification (trial) or the Management Measures, which commenced to be enforced on February 13, 2001. The Management Measures provides that enterprises involved in providing the computer information system integration services shall apply for the qualification recognition to the MIIT or its provincial branch pursuant to the conditions required in the Management Measures and obtain the qualification certificate to provide information system integration service. The computer information system integration means the engagement in the overall plan, design, development, execution, protection of the computer application system projects and network system projects. Kingtone Information has obtained the computer information system integration certificate and we are qualified to provide the computer information system integration services.

Regulations for Safety Protection of Computer Information System

The State Security Bureau of PRC issued the “Administration of the Maintenance of Secrets in the International Networking of Computer Information Systems Provisions of the People’s Republic of China” to protect the safety of national secrets on January 25, 2000. Under the Administration, the computer system which are involved in the national secrets are forbidden to directly or indirectly connected to the international networking or other public information network. The State Security Bureau of PRC and its branch handle the secret maintenance work of the international networking of computer information system. The company has the obligation to safeguard the national secrets of governmental authorities that it learns through the company’s services to such governmental authorities.

Relevant Regulations of the High-tech Enterprise

The Ministry of Information Industry, the Ministry of Science and Technology and the State Tax Bureau collectively promulgated and issued the “Certifying Standard and Managing Measures for High-tech Enterprises” and “the High-tech Areas of Main National Support ” on April 14, 2008 to certify the High-tech enterprise and encourage and support the development of the Chinese High-tech enterprises. Under the High-tech Enterprises Measures, the enterprise can enjoy the favorable tax policy when it is certified as the High-tech enterprise by the Ministry of Information Industry, the Ministry of Science and Technology and the State Tax Bureau or with its provincial branch according to the stipulated standard. The software and computer and network technology are recognized as the main national supported High-tech field. Kingtone Information is a High-tech enterprise and enjoys a favorable income tax rate of 15%.

Laws and Regulations of Intellectual Property Rights

China has adopted legislation governing intellectual property rights, including patents, copyrights and trademarks. China is a signatory to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the WTO in December 2001.

Patents

The “Patent Law of the People’s Republic of China” promulgated by the Standing Committee of the National People's Congress, adopted in 1985 and revised in 1992, 2001 and 2008, protects registered patents. The State Intellectual Property Office of PRC handles granting patent right and a term of twenty years to patent for invention and ten years for utility model and designs. As we disclosed under Business/Intellectual Property/Patent section of our prospectus, through Kingtone Information, we have been granted one invention

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patent “wireless video transmission system based on BREW platform” by the State Intellectual Property Office (“SIPO”) of PRC on September 23, 2009 and therefore such invention is entitled to all the protections provided under the Patent Law for twenty years.

Computer Software Copyright and Administration

On December 20, 2001, the State Council of PRC issued the “Regulation for Computer Software Protection of the People’s Republic of China” (the “Regulation for Computer Software Protection”) which became effective on January 1, 2002 to protect the interests of copyright owners, to promote the research and application and to encourage the development of the Chinese software industry. Under the Regulation for Computer Software Protection, natural person, legal person or any other organization shall have a copyright on the software developed by such person no matter whether such software has been published. The protection period of software copyright owned by the legal person or other organization is fifty years and expires on December 31 of the fiftieth year from the initial publication date of such computer software. Currently, Kingtone Information has seven registration certificates for software copyrights.

Trademarks

The “Trademark Law of the People’s Republic of China” promulgated by the State Council of PRC, adopted in 1982 and revised in 1993 and 2001, protects registered trademarks. The Trademark Office under the Chinese State Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks which are renewable for another ten years after the application to the Trademark Office by the owners of the trademarks. Trademark license agreements must be filed with the Trademark Office for record. China has a “first-to-register” system that requires no evidence of prior use or ownership. Kingtone Information has its registered trademarks as described under Business/Intellectual Property/Trade Mark of our prospectus. Accordingly, such trademarks are entitled to the protection under the Trademark Law.

Foreign Currency Exchange

On August 29, 2008, the SAFE issued the Notice of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-funded Enterprises, or Circular 142. Under the Circular 142, it requires that RMB converted from the foreign currency-denominated capital of a foreign-invested company may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. The use of such Renminbi capital may not be changed without SAFE’s approval and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used.

See “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business”.

Dividend Distribution

We are a British Virgin Islands holding company and substantially all of our operations are conducted through Kingtone Information. We rely on dividends and other distributions from our PRC subsidiary and Kingtone Information to provide us with our cash flow and allow us to pay dividends on the shares underlying our ADSs and meet our other obligations. The principal regulations governing distribution of dividends paid by wholly foreign-owned enterprises include:

Wholly Foreign-Owned Enterprise Law (1986), as amended; and
Implementation Rules on Wholly Foreign-Owned Enterprise Law (1990), as amended.

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Under these regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

In October 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Notice 75, which became effective as of November 1, 2005, and was further supplemented by two implementation notices issued by the SAFE on November 24, 2005 and May 29, 2007, respectively. Under Circular 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshore enterprise located in the PRC. An amendment to the registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any other material change with respect to the offshore company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment, debt investment, or creation of any security interest over any assets located in the PRC.

Under SAFE Notice 75, PRC residents are further required to repatriate into the PRC all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under SAFE Notice 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction. Therefore, failure to comply with such registration may subject us to certain restrictions on, including but not limited to, the increase of the registered capital of our PRC subsidiary, making loans to our PRC subsidiary, and making distributions to us from our on-shore companies.

Regulations of Overseas Investments and Listings

On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly adopted the New M&A Rule, which became effective on September 8, 2006. This regulation, among other things, includes provisions that purport to require that an offshore SPV formed for purposes of overseas listing of equity interest in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange.

On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by SPVs. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process.

The application of the New M&A Rule with respect to overseas listings of SPVs remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.

Our PRC counsel, Global Law Office, has advised us that, based on their understanding of the current PRC laws, regulations and rules and the procedures announced on September 21, 2006, there is no requirement in this regulation that would require an application to be submitted to the MOFCOM or the CSRC for the approval of the listing and trading of our ADSs on the Nasdaq Capital Market.

See “Risk Factors — Risks Related to Doing Business in China — If we are required to obtain the prior approval of the China Securities Regulatory Commission, or CSRC, of the listing and trading of our ADSs on the Nasdaq Capital Market, this offering could be delayed.”

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MANAGEMENT

Executive Officers and Directors

The following table sets forth the names and ages as of the date of this prospectus of each of our executive officers and directors:

   
Name   Age   Position
Tao Li   44   Chairman
Peng Zhang   42   Chief Executive Officer
Li Wu   47   Chief Financial Officer, Director
Jun Ma   44   Chief Technology Officer
Pengguo Xi   43   Vice President, Research and Development
Xianying Chen   34   Vice President, Application Development
Lili Dong (1) (2) (3)   49   Independent Director
Melody Shi (1) (2) (3)   36   Independent Director
Ian M. Oades (1) (2) (3)   42   Independent Director

(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating and Corporate Governance Committee

Set forth below is biographical information concerning our executive officers and directors.

Tao Li is our chairman of the board of directors. Since December 26, 2007, Mr. Li has served as the chairman of the board of directors, Chief Executive Officer and President of China Green Agriculture, Inc., a producer of humic acid based fertilizer products. Currently, Mr. Li devotes approximately 70% of his professional time to China Green Agriculture, Inc. Mr. Li has served as the President and CEO of Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd., the wholly-owned subsidiary of China Green Agriculture, Inc., since 2000. Mr. Li established Xi’an TechTeam Industry (Group) Co., Ltd. in 1996 and established TechTeam in 2000. He graduated from Northwest Polytechnic University and obtained his Master’s degree in heat and metal treatment. Mr. Li is the current Vice Chairman of the China Green Food Association. Previously, he has held positions at the World Bank Loan Office of China Education Commission, National Key Laboratory for Low Temperature Technology, and Northwest Polytechnic University. Mr. Li is active in Shaanxi Province business and trade organizations including as a member of the CPPCC Shaanxi Committee, the Shaanxi Provincial Decision-Making Consultation Committee, Vice Chairman of the Shaanxi Provincial Federation of Industry and Commerce, Vice President of the Shaanxi Overseas Friendship Association, Vice Chairman of the Shaanxi Provincial Credit Association, Vice Chairman of the Shaanxi Provincial Youth Entrepreneurs Association, Vice Chairman of the Xi’an Municipal Federation of Industry and Commerce and Vice Chairman of the Xi’an Municipal Youth Entrepreneurs Association.

Peng Zhang has served as our Chief Executive Officer since December 2009. Mr. Zhang has served as the president and chief executive officer of Kingtone Information, our contractually-controlled PRC operating company, since March 2009. Mr. Zhang joined Kingtone Information in August 2001 as an engineer and subsequently worked as the manager of the automation department, deputy manager and manager of the management and control department, and the vice president. Prior to joining Kingtone Information, Mr. Zhang was the deputy general manager of Lanzhou Hualong Gardening Co., Ltd. from January 2000 to July 2001. Prior to that, Mr. Zhang worked as a technician, assistant engineer, engineer and deputy department head at the material supply department of Yumen Petroleum Administration Bureau of China National Petroleum Corporation (“CNPC”) from 1988 to 1999. Mr. Zhang graduated from Chongqing Petroleum Technical School with an Associate degree in mining mechanics in 1988. He continued his education at the Open College of the Communist Party of China (“CPC”) University, Gansu Campus and graduated in 2000 with a Bachelor’s degree in Business Administration.

Li Wu has served as our Chief Financial Officer since December 2009. Since 2004, Ms. Wu was the finance director of Kingtone Information, our contractually-controlled PRC operating company. Prior to this position, she worked as the Deputy Finance Director at the state-owned Xi’an Metalforming Machine Factory

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from 1981 to 2003. Ms. Wu graduated from Shaanxi Finance and Economics College and obtained her Bachelor’s degree in 1990. She is a Certified Public Account in PRC.

Jun Ma has served as our chief technology officer since December 2009. In this position, Mr. Ma is responsible for overall product and product development procedure quality control and assurance. Mr. Ma serves as a vice president for quality assurance at Kingtone Information. Mr. Ma joined Kingtone Information in October 2007 as the general manager of R&D center. Prior to that, Mr. Ma was the chief engineer of Shaanxi Digital Certification Center from 2006 to 2007. Prior to that, Mr. Ma served as the project director of Xi’an Xinli Software Technology Co., Ltd. since 2003 to 2006. Prior to that, Mr. Ma served as a senior computer engineer at Xi’an Satellite Observing and Controlling Center. Mr. Ma graduated from Xi’an Jiaotong University and obtained his Ph.D degree in computer science in 2006 and his Master’s degree in computer science in 2003. He obtained his Bachelor’s degree in information processing in 1988 from Xi’an Electronic Technology University. Mr. Ma is a certified senior project manager and senior software engineer. He is also a CSAI expert consultant. Mr. Ma has received 6 software achievement awards from the National Defense Science and Technology Commission and the People’s Liberation Army (“PLA”) and has published several papers in the national key periodicals such as Computer System Application and Micro-computer and Application , etc.

Pengguo Xi has served as our vice president of research and development of since December 2009. In this position, Mr. Xi oversees the development efforts of our core middleware platform, CIT-converged applications and hardware products. Mr. Xi has served as a senior programmer at Kingtone Information since 2003. Since then, he served as the manager of platform technology department of the R&D center, deputy manager of the R&D center, general manager of the project implementation department, and has been serving the vice president and general manager of the R&D center since December 2008. Prior to joining Kingtone Information, Mr. Xi worked at Shaanxi Shengfang Science & Technology Co., Ltd, Xi’an Innovation Software Company, Beijing NTT DATA Integration Co., Ltd, and Beijing Dashou Co., Ltd. Mr. Xi graduated from Xi’an Electronic Technology University and obtained his Master’s degree in computer science in 2003 and his Bachelor’s degree in computer information management in 2000.

Xianying Chen has served as our vice president of application development since December 2009. In this position, Mr. Chen oversees the development efforts of our vertical industry applications. Mr. Chen has served as a software system analyst for Kingtone Information since 2001. He has subsequently served as manager of software development department, senior project manager of industrial control department, general manager of R&D center, general manager of product planning center. Now he serves as the general manager of project implementation department, since 2008 Prior to joining Kingtone Information, Mr. Chen was an assistant engineer at Shaanxi Electric Power Design Institute from 1997 to 2001. Mr. Chen graduated from Shanghai Jiaotong University and obtained his Master’s degree in computer science in 2000 and his Bachelor’s degree in electric system and automation in 1997.

Dr. Lili Dong serves as an independent director of our company. Dr. Dong has over 20 years experience in the computing distributed system, computer network application and data mining research. She has been a professor of Xin’an Construction Science & Technology University since December 2007. Dr. Dong has led several important research projects, including Distributed Object Computing Models and Multimedia Digital Watermarking Application projects funded by Shanxi Province Fund, Peer to Peer Network Communication Technology project funded by Xi’an Science & Technology Bureau.

Melody Shi serves as an independent director of our company. Ms. Shi is currently serving as chief financial officer at China Infrastructure Construction Inc. since December 2009. Previously, she served as chief financial officer at Shengtai Pharmaceutical Inc. from 2008 to December 2009. Prior to that, Ms. Shi served as Audit Manager at Kabani & Co. Inc. from 2005 to 2008. Ms. Shi graduated from the University of California, Irvine with a MBA degree in 2003 and Beijing Polytechnic University in 1997 with a Bachelor’s degree in Computer Science and International Trade and Business. Ms. Shi is a CPA in the United States and is fluent in English and Chinese.

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Ian M. Oades serves as an independent director of our company. Mr. Oades studied finance at WBS Warwick Business School, Warwick, UK and CEIBS China Europe International Business School. Shanghai. PRC and graduated with MBA degree. Ian worked at Stramark Capital Group Ltd. (China) (a Financial Consultancy foreign affiliate of a USA FINRA registered Investment Bank) and served as Managing Director.

Employment Agreements

We have entered into employment agreements with each of our senior executive officers. We may terminate a senior executive officer’s employment for cause, at any time, without prior notice or remuneration, for certain acts of the officer, including, but not limited to, material violation of our regulations, failure to perform agreed duties or embezzlement that cause material damage to us and conviction of a crime. A senior executive officer may terminate his or her employment at any time by 60-days prior written notice. Each senior executive officer is entitled to certain benefits upon termination, including a severance payment equal to a certain specified number of months of his or her then salary, if he or she resigns for certain good reasons specified by the agreement or the relevant rules or if we terminate his or her employment without any of the above causes.

Compensation of Directors and Executive Officers

For the fiscal year ended September 30, 2009, we paid an aggregate of approximately RMB396,000 ($58,014) in cash compensation and no share-based compensation to our executive officers. For the fiscal year ended September 30, 2009, we paid no compensation to our directors for serving on our board of directors.

Board of Directors

Our board of directors consists of five members being Mr. Tao Li, Ms. Li Wu, Dr. Lili Dong, Ms. Melody Shi, and Mr. Ian M. Oades. Our directors hold office until our annual meeting of shareholders, where their successor will be duly elected and qualified, or until the directors’ death, resignation or removal, whichever is earlier. Our directors are not subject to a term of office and hold office until their resignation, death or incapacity or until their respective successors have been elected and qualified in accordance with our fourth amended and restated memorandum of association and articles of association. A director will be removed from office if, among other things, the director (1) becomes bankrupt, (2) dies or becomes of unsound mind, or (3) is absent from meetings of our board of directors for six consecutive months without leave and our board of directors resolves that the office is vacated. A director is not entitled to any special benefits upon termination of service with the company.

Director Independence

Our board of directors consists of five members, three of whom have been determined by us to be independent directors within the meaning of the independent director guidelines of the Nasdaq Rules.

Committees of Our Board of Directors

To enhance our corporate governance, we established three committees under our board of directors: an audit committee, a compensation committee, and a nominating and corporate governance committee. We have adopted a charter for each of these committees. The committees have the following functions and members.

Audit Committee

Our audit committee reports to our board of directors regarding the appointment of our independent public accountants, the scope and results of our annual audits, compliance with our accounting and financial policies and management’s procedures and policies relating to the adequacy of our internal accounting controls. Our audit committee consists of Lili Dong, Melody Shi, and Ian M. Oades. Ms. Shi, having accounting and financial management expertise, serves as the chairman of the audit committee. Our board of directors has determined that each of these persons meet the definition of “independent director” under the applicable Nasdaq rules and under Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Our audit committee is responsible for, among other things:

the appointment, evaluation, compensation, oversight and termination of the work of our independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting);
an annual performance evaluation of the audit committee;
establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing matters or potential violations of law, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters or potential violations of law;
ensuring that it receives an annual report from our independent auditor describing our internal control procedures and any steps taken to deal with material control deficiencies and attesting to the auditor’s independence and describing all relationships between the auditor and us;
reviewing our annual audited financial statements and quarterly financial statements with management and our independent auditor;
reviewing and approving all proposed related party transactions;
reviewing our policies with respect to risk assessment and risk management;
meeting separately and periodically with management and our independent auditor; and
reporting regularly to our board of directors.

Compensation Committee

Our compensation committee assists the board of directors in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. In addition, the compensation committee reviews share compensation arrangements for all of our other employees. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer is not permitted to be present at any committee meeting during which his or her compensation is deliberated. Our compensation committee consists of Lili Dong, Melody Shi, and Ian M. Oades, with Dr. Dong serving as the chairman of the compensation committee. Our board of directors has determined that each of these persons meet the definition of “independent director” under the applicable requirements of the Nasdaq Rules.

Our compensation committee is responsible for, among other things:

reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives and setting the compensation level of our chief executive officer based on this evaluation;
reviewing and making recommendations to the board with respect to the compensation of our executives, incentive compensation and equity-based plans that are subject to board approval; and
providing annual performance evaluations of the compensation committee.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee assists the board of directors in identifying and selecting or recommending individuals qualified to become our directors, developing and recommending corporate governance principles and overseeing the evaluation of our board of directors and management. Our nominating and corporate governance committee consists of Lili Dong, Melody Shi, and Ian M. Oades, with Mr. Oades serving as the chairman of the nominating and corporate governance committee. Our board of directors has determined that each of these persons meet the definition of “independent director” under the applicable requirements of the Nasdaq Rules.

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Our nominating and corporate governance committee is responsible for, among other things:

selecting and recommending to our board nominees for election or re-election to our board, or for appointment to fill any vacancy;
reviewing annually with our board the current composition of the board of directors with regards to characteristics such as independence, age, skills, experience and availability of service to us;
selecting and recommending to our board the names of directors to serve as members of the audit committee and the compensation committee, as well as the nominating and corporate governance committee itself;
advising our board of directors periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any remedial action to be taken; and
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Code of Business Conduct and Ethics

Our board of directors adopted a code of business conduct and ethics applicable to our directors, officers and employees.

Duties of Directors

Under British Virgin Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. See “Description of Share Capital — Differences in Corporate Law” for additional information on our directors’ fiduciary duties under British Virgin Islands law. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum of association and articles of association. We have the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

appointing officers and determining the term of office of the officers;
authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable;
exercising the borrowing powers of the company and mortgaging the property of the company;
executing cheques, promissory notes and other negotiable instruments on behalf of the company; and
maintaining or registering a register of mortgages, charges or other encumbrances of the company.

Interested Transactions

A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. After becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into, a director must promptly disclose such interest to all other directors. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.

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Remuneration and Borrowing

The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors.

Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.

Qualification

A director is not required to hold shares as a qualification to office.

Limitation on Liability and Other Indemnification Matters

British Virgin Islands law does not limit the extent to which a company’s memorandum of association and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

Under our memorandum of association and articles of association, we may indemnify our directors, officers and liquidators against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator. To be entitled to indemnification, these persons must have acted honestly and in good faith with a view to the best interest of the company and, in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Equity-Based Arrangements

From time to time, we anticipate adopting equity-based incentive arrangements to compensate management, employees and directors. Such plan will allow for awards of stock option, restricted stock grants and shareholder appreciation rights.

Incentive-Based Arrangements

From time to time, we anticipate adopting incentive-based cash arrangements to compensate our management and other employees.

Director Compensation

We have not historically compensated our directors for serving on our board of directors or any of its committees.

Following the completion of this offering, we intend to pay our non-employee directors an annual stipend, plus a fee for each meeting of the board of directors that they attend. We also may from time to time issue ordinary shares of to our non-employee directors or grant our non-employee directors options to purchase ordinary shares, in each case, in amounts and upon terms to be determined by our board of directors or a committee thereof. Other than non-employee directors, we do not intend to compensate directors for

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serving on our board of directors or any of its committees. We do, however, intend to reimburse each member of our board of directors for out-of-pocket expenses incurred by each director in connection with attending meetings of the board of directors and its committees.

The following table sets forth the compensation for future services expected to be paid to our non-employee directors following the completion of this offering.

 
  Compensation
Annual Stipend   $         
Attendance Fee (per meeting)         

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of April 12, 2010, the names, addresses and number of ordinary shares beneficially owned by (i) all shareholders known to us to be the beneficial owner of more than 5% of our ordinary shares, (ii) each member of our board of directors, and each of our executive officers who beneficially own our ordinary shares, and (iii) all directors and executive officers as a group.

Beneficial ownership of shares is determined under the rules of the Securities and Exchange Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. For purposes of the following table, a person is deemed to have beneficial ownership of any ordinary shares of that such person has the right to acquire within 60 days after the date of this prospectus. For purposes of computing the percentage of outstanding shares held by each person, any shares that such person has the right to acquire within 60 days after the date of this prospectus are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise noted, the persons named in the table have sole voting and investment power with respect to all of the ordinary shares beneficially owned by them. Unless otherwise indicated, the address of each person listed is c/o Xi’an Kingtone Information Co., Ltd., 3rd Floor, Borough A, Block A. No. 181, South Taibai Road, Xi’an, Shaanxi Province, People’s Republic of China 710065.

Percentage ownership in the following table is based on (i) 10,000,000 ordinary shares outstanding on April 12, 2010, and (ii) the issuance of ____________ ordinary shares by us in this offering, as assuming the underwriters do not exercise their option to purchase additional ADSs in this offering.

Beneficial Ownership

     
Name and Address of Beneficial Owner   Ordinary
Shares
  Percentage
Before Offering
  Percentage
After Offering
Officers and Directors
                          
Tao Li     6,099,107 (1)       60.99 %       ___%  
Peng Zhang     35,357 (2)       *       *  
Li Wu     107,839 (3)       *       *  
Jun Ma     35,357 (4)       *       *  
Pengguo Xi     35,357 (5)       *       *  
Xianying Chen     35,357 (6)       *       *  
Lili Dong           *       *  
Melody Shi           *       *  
Ian M. Oades           *       *  
All directors and executive officers as a group
(9 persons)
    6,348,374       63.48 %       ___%  
5% Shareholders
                          
SCGC Capital Holding Company Limited (7)     1,060,714       10.61 %       ___%  
Xuetao Chen     883,928 (8)       8.84 %       ___%  
Hu Gao     530,357 (9)       5.30 %       ___%  

* Less than 1%.

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(1) Represents ordinary shares held of record by Xtra Heights Management Ltd., a British Virgin Islands company (“Xtra”), which are beneficially owned by Mr. Li pursuant to a certain Call Option Agreement, dated December 15, 2009, between Mr. Li, Xtra and Ms. Sha Li, a Singapore resident (“Sha Li”). Additionally, pursuant to such agreement, Mr. Li has vested options to purchase 3,049,554 ordinary shares from Xtra and unvested options to purchase 3,049,554 ordinary shares from Xtra. There is no relationship between Mr. Li and Ms. Sha Li other than pursuant to the transactions disclosed herein. Xtra is the record holder of an aggregate of 6,806,250 shares, of which the remaining shares are beneficially owned by Kingtone Information shareholders other than Mr. Li, some of whom are officers of our company. See notes (2) through (6).
(2) Represents ordinary shares held of record by Xtra, which are beneficially owned by Mr. Zhang pursuant to a certain Call Option Agreement, dated December 15, 2009, between Mr. Zhang, Xtra and Sha Li. Additionally, pursuant to such agreement, Mr. Zhang has vested options to purchase 17,679 ordinary shares from Xtra and unvested options to purchase 17,678 ordinary shares from Xtra.
(3) Represents ordinary shares held of record by Xtra, which are beneficially owned by Ms. Wu pursuant to a certain Call Option Agreement, dated December 15, 2009, between Ms. Wu, Xtra and Sha Li. Additionally, pursuant to such agreement, Ms. Wu has vested options to purchase 53,920 ordinary shares from Xtra and unvested options to purchase 53,919 ordinary shares from Xtra.
(4) Represents ordinary shares held of record by Xtra, which are beneficially owned by Mr. Ma pursuant to a certain Call Option Agreement, dated December 15, 2009, between Mr. Ma, Xtra and Sha Li. Additionally, pursuant to such agreement, Mr. Ma has vested options to purchase 17,679 ordinary shares from Xtra and unvested options to purchase 17,678 ordinary shares from Xtra.
(5) Represents ordinary shares held of record by Xtra, which are beneficially owned by Mr. Xi pursuant to a certain Call Option Agreement, dated December 15, 2009, between Mr. Xi, Xtra and Sha Li. Additionally, pursuant to such agreement, Mr. Xi has vested options to purchase 17,679 ordinary shares from Xtra and unvested options to purchase 17,678 ordinary shares from Xtra.
(6) Represents ordinary shares held of record by Xtra, which are beneficially owned by Mr. Chen pursuant to a certain Call Option Agreement, dated December 15, 2009, between Mr. Chen, Xtra and Sha Li, an individual, pursuant to which Mr. Chen has the right to receive ordinary shares from Xtra upon the occurrence of certain events.
(7) SCGC Capital Holding Company Limited, a British Virgin Islands company (“SCGC”), is owned by Shenzhen Capital (Hong Kong) Company Limited. The registered address of SCGC is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Shenzhen Capital Group Co., Ltd and Xi’an Hongtu Capital Co., Ltd., both shareholders of Kingtone Information, share dispositive power with respect to the shares held by SCGC.
(8) Represents ordinary shares held of record by Big Leap Enterprises Limited, a British Virgin Islands company (“Big Leap”), which are beneficially owned by Mr. Chen. Big Leap is the record holder of an aggregate of 1,060,714 shares, of which the remaining shares are beneficially owned by Kingtone Information shareholders other than Mr. Chen.
(9) Represents ordinary shares held of record by Silver Avenue Overseas Inc., a British Virgin Islands company (“Silver Avenue”), which are beneficially owned by Mr. Gao. Big Leap is the record holder of an aggregate of 972,322 shares, of which the remaining shares are beneficially owned by Kingtone Information shareholders other than Mr. Gao.

As of the date of this prospectus, none of our ordinary shares are held by record holders in the United States. None of our existing shareholders have voting rights that will differ from the voting rights of other shareholders after the closing of this offering.

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RELATED PARTY TRANSACTIONS

Members of our management team and our principal shareholders currently hold majority equity interests in Kingtone Information, our contractually-controlled entity in the PRC from which we derive substantially all of our revenues. We are party to a series of control agreements with Kingtone Information. See “Corporate History and Structure-Contracts with Kingtone Information and its Shareholders”. In addition, certain of our officers, directors and principal shareholders serve as officers and directors of Kingtone Information and/or are shareholders of Kingtone Information. The following table sets forth the relationship of such officers, directors and principal shareholders with Kingtone Information and their respective ownership interest in Kingtone Information:

     
Name   Relationship with
Kingtone Wireless
  Relationship with
Kingtone Information
  Percentage
Ownership
Interest in
Kingtone
Information
Tao Li     Chairman       Chairman       61.61 % (1)  
Peng Zhang     Chief Executive Officer       Vice President       0.36 %  
Li Wu     Director and Chief
Financial Officer
      Chief Financial Officer       1.09 %  
Jun Ma     Chief Technology
Officer
      Vice President of
Quality Control
      0.36 %  
Pengguo Xi     Vice President of
Research and
Development
      Vice President of
Research and
Development
      0.36 %  
Xianying Chen     Vice President of
Application Development
      Shareholder       0.36 %  
Lili Dong     Independent Director       Independent Director        
Xuetao Chen     Shareholder       Shareholder       8.93 %  
Shenzhen Capital Group Co., Ltd.     Indirect Shareholder (2)       Shareholder       7.42 %  
Xi’an Hongtu Capital Co., Ltd.     Indirect Shareholder (2)       Shareholder       3.30 %  

(1) Consists of (i) 36.61% of the shares of Kingtone Information owned of record by Mr. Li, and (ii) 25% of the shares of Kingtone Information owned of record by Xi’an TechTeam Investment Holding Group Company (“TechTeam Investment”). Mr. Li, as the majority shareholder of TechTeam Investment, has dispositive power over the shares of Kingtone Information owned by TechTeam Investment.
(2) Shenzhen Capital Group Co., Ltd. and Xi’an Hongtu Capital Co., Ltd. share dispositive power with respect to the 1,060,714 ordinary shares of our company held of record by SCGC Capital Holding Company Limited.

On June 19, 2008, Kingtone Information signed an agreement to produce the fertilizer processing equipment for Xi’an TechTeam Humic Acid Products Co., Ltd. (“Techteam”), an indirect subsidiary of China Green Agriculture, Inc., a company that is majority owned by Mr. Tao Li, our chairman, and whose chairman, president and chief executive officer is Mr. Li. The total contracted value, including value-added taxes (VAT) and other taxes, was RMB 4 million, or approximately $586,000. The project was performed from May 2009 to June 2009. Pursuant to the agreement, Kingtone Information provided certain services including designing, manufacturing, installing and adjusting the production facilities for Techteam’s compound fertilizer for drip irrigation (the “Project”). Kingtone Information was also responsible for debugging the system and training Techteam employees to operate the production line. The agreement required Kingtone Information to complete the Project within 25 days unless there were causes for delay beyond its control. The agreement sets forth an eighteen month warranty period during which Techteam is entitled to receive certain spare parts for the facilities and to receive maintenance and repair services for free.

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On October 20, 2008, Kingtone Information signed an agreement to construct the phase II expansion of an integrated pipeline control project for TechTeam. The total contracted value, including VAT and other taxes, was RMB 5.2 million, or approximately $760,000. The project was performed from December 2008 to June 2009. The term of the agreement is from the date of its signing until one year after the operation of the subject project. Pursuant to the agreement, Kingtone Information provided services in order to develop and install the automation system solution for Techteam’s phase II production line and to upgrade the automation system solution for its phase I production line. Work related to the phase II production line included the development of automation system software, setup of integrated automation management and control computer network to realize relevant data collection, and automatic management and control of the production process. Work related to the phase I production line included upgrading the existing automation system so that phase I and phase II automation systems become integrated into the same management and control system. In addition to the wired automation system, Kingtone Information also developed and installed a wireless system solution for Techteam. This wireless system solution integrates into Techteam’s production automation system and the plant video surveillance system.

Our Beijing branch office is located in office space leased to us by Mr. Tao Li, our Chairman, who owns this space. We lease it from him for no consideration.

During our fiscal years ended September 2009 and during prior fiscal years, Kingtone Information loaned in the aggregate approximately $8.3 million to Xi’an Xingrong Tech Enterprise Co., Ltd. (“Xi’an Xingrong”), a company that is majority-owned by Mr. Tao Li. At September 30, 2009, all outstanding loan amounts had been repaid in full. The loan proceeds were used for Xi’an Xingrong’s working capital and general corporate purposes. The loans did not bear interest, were payable on demand and were not documented pursuant to a written agreement.

During our fiscal year ended September 2009 and during prior fiscal years, Kingtone Information loaned in the aggregate approximately $8.3 million to Xi’an TechTeam Investment Holding Group Ltd. (“TechTeam Investment”), which owns a 25% interest in Kingtone Information. At September 30, 2009, all outstanding loan amounts had been repaid in full. The loan proceeds were used for TechTeam Investment’s working capital and general corporate purposes. The loans did not bear interest, were payable on demand and were not documented pursuant to a written agreement.

During our fiscal year ended September 2009 and during prior fiscal years, Kingtone Information loaned in the aggregate approximately $48,000 to Shaanxi WeiDong Plant Biochemical Stock Co., Ltd. (“Shaanxi WeiDong”). The principal shareholders of Shaanxi WeiDong are Xi’an Xingrong and TechTeam Investment. At September 30, 2009, all outstanding loan amounts had been repaid in full. The loan proceeds were used for Shaanxi WeiDong’s working capital and general corporate purposes. The loans did not bear interest and were payable on demand.

On November 16, 2009 and December 12, 2009, Mr. Tao Li, our chairman, loaned $200,000 and $800,000, respectively, to Topsky to register Softech in the PRC. There is no formal agreement between Mr. Li and Topsky regarding terms of this $1 million loan, though it is generally understood that the funds will be returned to Mr. Li when available and appropriate.

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DESCRIPTION OF SHARE CAPITAL

General

We are a British Virgin Islands company incorporated with limited liability and our affairs are governed by the provisions of our memorandum of association and articles of association, as amended and restated from time to time, and by the provisions of applicable British Virgin Islands law.

Our memorandum of association and articles of association authorize the issuance of up to 100,000,000 shares of a single class. As of the date of this prospectus, 10,000,000 ordinary shares were issued, fully paid and outstanding. Upon the completion of this offering, we will have _________ ordinary shares issued and outstanding, assuming the underwriters do not elect to exercise their over-allotment for additional ADSs.

We have applied to list our ADSs, each representing ___ of our ordinary shares, on the Nasdaq Capital Market under the symbol “KONE”. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system.

Initial settlement of our ADSs will take place on the closing date of this offering through The Depository Trust Company, or DTC, in accordance with its customary settlement procedures for equity securities. See “Description of American Depositary Shares” below for a description of the rights of ADS holders. Each person owning a beneficial interest in our ADSs held through DTC must rely on the procedures thereof and on institutions that have accounts therewith to exercise any rights of a holder of our ADSs. Persons wishing to obtain certificates for their ADSs must make arrangements with DTC.

The following is a summary of the material provisions of our ordinary shares and our memorandum of association and articles of association.

Ordinary Shares

As of the date of this prospectus, (i) 6,806,250 of our ordinary shares are owned by Xtra Heights Management Ltd., a British Virgin Islands company (“Xtra”), of which one share was issued to Sha Li on October 27, 2009 and then transferred to Xtra on December 14, 2009, and the other 6,806,249 ordinary shares were issued to Xtra on December 14, 2009, (ii) 1,060,714 of our ordinary shares are owned by SCGC Capital Holding Company Limited, a British Virgin Islands company, which shares were issued on December 14, 2009, (iii) 1,060,714 of our ordinary shares are owned by Big Leap Enterprises Limited, a British Virgin Islands company, which shares were issued on December 14, 2009, (iv) 972,322 of our ordinary shares are owned by Silver Avenue Overseas Inc., a British Virgin Islands company, which shares were issued on December 14, 2009, and (v) 100,000 of our ordinary shares are owned by Millennium Group Inc., a California corporation, which shares were issued on December 14, 2009.

In addition, the shareholders of Kingtone Information, including certain officers and directors of our company, have entered into call option agreements to purchase up to an aggregate of 9,900,000 ordinary shares of our company, representing 99.0% of our outstanding shares, from the record holders named above. See “Corporate History and Structure”.

All of our issued and outstanding ordinary shares are, and the ordinary shares to be issued immediately prior to this offering will be, fully paid and non-assessable. Holders of our ordinary shares who are non-residents of the British Virgin Islands may freely hold and vote their shares.

The following summarizes the rights of holders of our ordinary shares:

each holder of ordinary shares is entitled to one vote per share on all matters to be voted on by shareholders generally, including the election of directors;
there are no cumulative voting rights;
the holders of our ordinary shares are entitled to share ratably in dividends and other distributions as may be declared from time to time by our board of directors out of funds legally available for that purpose, if any;

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upon our liquidation, dissolution or winding up, the holders of ordinary shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and the payment of the liquidation preference of any outstanding preference shares; and
the holders of ordinary shares have no preemptive or other subscription rights to purchase shares, nor are they entitled to the benefits of any redemption or sinking fund provisions.

Limitation on Liability and Indemnification Matters

Under British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with a view to our best interests and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Our memorandum of association and articles of association provide that, to the fullest extent permitted by British Virgin Islands law or any other applicable laws, our directors will not be personally liable to us or our shareholders for any acts or omissions in the performance of their duties. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws.

We may indemnify any of our directors or anyone serving at our request as a director of another entity against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings. We may only indemnify a director if he or she acted honestly and in good faith with the view to our best interests and, in the case of criminal proceedings, the director had no reasonable cause to believe that his or her conduct was unlawful. The decision of our board of directors as to whether the director acted honestly and in good faith with a view to our best interests and as to whether the director had no reasonable cause to believe that his or her conduct was unlawful, is in the absence of fraud sufficient for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entry of no plea does not, by itself, create a presumption that a director did not act honestly and in good faith and with a view to our best interests or that the director had reasonable cause to believe that his or her conduct was unlawful. If a director to be indemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with the proceedings.

We may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors or officers and incurred by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify the directors or officers against the liability as provided in our memorandum of association and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors or officers under the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable as a matter of United States law.

Differences in Corporate Law

We were incorporated under, and are governed by, the laws of the British Virgin Islands. The corporate statutes of the State of Delaware and the British Virgin Islands are similar, and the flexibility available under British Virgin Islands law has enabled us to adopt memorandum of association and articles of association that will provide shareholders with rights that do not vary in any material respect from those they would enjoy if we were incorporated under the Delaware General Corporation Law, or Delaware corporate law. Set forth below is a summary of some of the differences between provisions of the BVI Act applicable to us and the laws application to companies incorporated in Delaware and their shareholders.

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Director’s Fiduciary Duties

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its stockholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to stockholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its stockholders take precedence over any interest possessed by a director, officer or controlling stockholder and not shared by the stockholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

British Virgin Islands law provides that every director of a British Virgin Islands company in exercising his powers or performing his duties, shall act honestly and in good faith and in what the director believes to be in the best interests of the company. Additionally, the director shall exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account the nature of the company, the nature of the decision and the position of the director and his responsibilities. In addition, British Virgin Islands law provides that a director shall exercise his powers as a director for a proper purpose and shall not act, or agree to the company acting, in a manner that contravenes British Virgin Islands law or the memorandum association or articles of association of the company.

Amendment of Governing Documents

Under Delaware corporate law, with very limited exceptions, a vote of the stockholders is required to amend the certificate of incorporation. Under British Virgin Islands law and our memorandum of association and articles of association, our board of directors may amend our memorandum of association and articles of association by a resolution of directors without a requirement for a resolution of shareholders so long as the amendment does not:

restrict the rights of the shareholders to amend the memorandum of association and articles of association;
change the percentage of shareholders required to pass a resolution of shareholders to amend the memorandum of association and articles of association;
amend the memorandum of association and articles of association in circumstances where the memorandum of association and articles of association cannot be amended by the shareholders; or
amend the provisions of memorandum of association or the articles of association pertaining to “rights attaching to shares,” “rights not varied by the issue of the shares pari passu,” “variation of rights” and “amendment of memorandum and articles”.

Written Consent of Directors

Under Delaware corporate law, directors may act by written consent only on the basis of a unanimous vote. Under British Virgin Islands law, directors’ consents need only a majority of directors signing to take effect.

Written Consent of Shareholders

Under Delaware corporate law, unless otherwise provided in the certificate of incorporation, any action to be taken at any annual or special meeting of stockholders of a corporation, may be taken by written consent of the holders of outstanding stock having not less than the minimum number of votes that would be necessary to take such action at a meeting. As permitted by British Virgin Islands law, shareholders’ consents need only a majority of shareholders signing to take effect. Our memorandum of association and articles of

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association provide that shareholders may approve corporate matters by way of a resolution consented to at a meeting of shareholders or in writing by a majority of shareholders entitled to vote thereon.

Shareholder Proposals

Under Delaware corporate law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. British Virgin Islands law and our memorandum of association and articles of association provide that our directors shall call a meeting of the shareholders if requested in writing to do so by shareholders entitled to exercise at least 30% of the voting rights in respect of the matter for which the meeting is requested.

Sale of Assets

Under Delaware corporate law, a vote of the stockholders is required to approve the sale of assets only when all or substantially all assets are being sold. In the British Virgin Islands, shareholder approval is required when more than 50% of the company’s total assets by value are being disposed of or sold.

Dissolution; Winding Up

Under Delaware corporate law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware corporate law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. As permitted by British Virgin Islands law and our memorandum of association and articles of association, we may be voluntarily liquidated under Part XII of the BVI Act by resolution of directors and resolution of shareholders if we have no liabilities and we are able to pay our debts as they fall due.

Redemption of Shares

Under Delaware corporate law, any stock may be made subject to redemption by the corporation at its option or at the option of the holders of such stock provided there remains outstanding shares with full voting power. Such stock may be made redeemable for cash, property or rights, as specified in the certificate of incorporation or in the resolution of the board of directors providing for the issue of such stock. As permitted by British Virgin Islands law, and our memorandum of association and articles of association, shares may be repurchased, redeemed or otherwise acquired by us. Our directors must determine that immediately following the redemption or repurchase we will be able to satisfy our debts as they fall due and the value of our assets exceeds our liabilities.

Variation of Rights of Shares

Under Delaware corporate law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. As permitted by British Virgin Islands law, and our memorandum of association and articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class only with the consent in writing of holders of not less than three-fourths of the issued shares of that class and holders of not less than three-fourths of the issued shares of any other class of shares which may be affected by the variation.

Removal of Directors

Under Delaware corporate law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate provides otherwise. As permitted by British Virgin Islands law and our memorandum of association and articles of association, directors may be removed by resolution of directors or resolution of shareholders.

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Mergers

Under the BVI Act, two or more companies may merge or consolidate in accordance with the statutory provisions. A merger means the merging of two or more constituent companies into one of the constituent companies, and a consolidation means the uniting of two or more constituent companies into a new company. In order to merger or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation which must be authorized by a resolution of shareholders.

Shareholders not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum association or articles of association, would entitle them to vote as a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation.

Inspection of Books and Records

Under Delaware corporate law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of shareholders and other books and records. Holders of our shares have no general right under British Virgin Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide holders of our shares with annual audited financial statements. See “Where You Can Find Additional Information.”

Conflict of Interest

The BVI Act provides that a director shall, after becoming aware that he is interested in a transaction entered into or to be entered into by the company, disclose that interest to the board of directors of the company. The failure of a director to disclose that interest does not affect the validity of a transaction entered into by the director or the company, so long as the director’s interest was disclosed to the board prior to the company’s entry into the transaction or was not required to be disclosed (for example where the transaction is between the company and the director himself or is otherwise in the ordinary course of business and on usual terms and conditions). As permitted by British Virgin Islands law and our memorandum of association and articles of association, a director interested in a particular transaction may vote on it, attend meetings at which it is considered, and sign documents on our behalf which relate to the transaction.

Transactions with Interested Shareholders

Delaware corporate law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or that owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction that resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

British Virgin Islands law has no comparable provision. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although British Virgin Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

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Independent Directors

There are no provisions under Delaware corporate law or under the BVI Act that require a majority of our directors to be independent.

Cumulative Voting

Under Delaware corporate law, cumulative voting for elections of directors is not permitted unless the company’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions to cumulative voting under the laws of the British Virgin Islands, but our memorandum of association and articles of association do not provide for cumulative voting.

Anti-takeover Provisions in Our Memorandum of association and articles of association

Some provisions of our memorandum of association and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares.

History of Securities Issuances and Transfers

The following table provides a summary of our securities issuances and share transfers among our existing shareholders during the past three years:

       
Date of Sale or Issuance   Title   Number of
Securities
  Consideration   Purchaser
October 27, 2009     Ordinary Shares       1     $ 1.00       Sha Li  
December 14, 2009     Ordinary Shares       6,806,249     $ 6,806.25       Xtra Heights Management Ltd.  
December 14, 2009     Ordinary Shares       1,060,714     $ 1,060.71       SCGC Capital Holding Company
  Limited
 
December 14, 2009     Ordinary Shares       1,060,714     $ 1,060.71       Big Leap Enterprises Limited  
December 14, 2009     Ordinary Shares       972,322     $ 972.32       Silver Avenue Overseas Inc.  
December 14, 2009     Ordinary Shares       100,000       *       Millennium Group Inc.  

* Millennium received such shares in consideration for consulting services provided to Kingtone Information.

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

The Bank of New York Mellon, as depositary, will register and deliver ADSs. Each ADS will represent __ shares (or a right to receive __ shares) deposited with principal Hong Kong office of The Hong Kong and Shanghai Banking Corporation Limited, as custodian for the depositary. Each ADS will also represent any other securities, cash or other property that may be held by the depositary. The depositary’s corporate trust office at which the ADSs will be administered is located at 101 Barclay Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.

You may hold ADSs either (A) directly (i) by having ADSs registered in your name in the Direct Registration System, or (ii) by having an American depositary receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

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The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership will be confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.

As an ADS holder, you will not be treated as one of our registered shareholders and you will not have direct shareholder rights. British Virgin Island’s law governs our direct shareholders’ rights. The depositary will be the holder of the shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A Deposit Agreement among us, the depositary and you, as an ADS holder, and all other persons indirectly holding ADSs, sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the Deposit Agreement and the ADSs.

The following is a summary of the material provisions of the Deposit Agreement. For more complete information, you should read the entire Deposit Agreement and the form of ADS, which contains the terms of the ADSs. The Deposit Agreement is filed as an exhibit to the registration statement that includes this prospectus. You may obtain the registration statement and the attached Deposit Agreement from the SEC’s website at http://www.sec.gov . You may also obtain a copy of the Deposit Agreement at the SEC’s Public Reference Room, which is located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330.

Dividends and Other Distributions

How will you receive dividends and other distributions on the shares?

The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent.

Cash .  The depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the Deposit Agreement will permit the depositary to distribute the RMB or other foreign currency only to those ADS holders to whom it is possible to do so. The depositary will hold the RMB or other foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the RMB or other foreign currency and it will not be liable for any interest.

Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. The depositary will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If exchange rates fluctuate during a time when the depositary cannot convert the RMB or other foreign currency, you may lose some or all of the value of the distribution.

Shares .  The depositary may distribute additional ADSs representing any ordinary shares we distribute as a dividend or other distribution. The depositary will only distribute whole ADSs. It will try to sell shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed shares sufficient to pay its fees and expenses in connection with that distribution.

Rights to Purchase Additional Shares .  If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to ADS holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

If the depositary makes rights available to ADS holders, it will exercise the rights and purchase the shares on your behalf upon your instruction. The depositary will then deposit the shares and deliver ADSs to the persons entitled to them. The depositary will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.

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U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In such a case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.

Other Distributions .  The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed for cash and distribute the net proceeds, in the same way as it does with cash dividends. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution.

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you .

Deposit, Withdrawal and Cancellation

How are ADSs issued?

The depositary will deliver ADSs if you or your broker deposits shares or evidence of rights to receive shares from us or from our registrar, transfer agent or other entity recording share ownership as our agent with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.

How can ADS holders withdraw the deposited securities?

You may surrender your ADSs at the depositary’s corporate trust office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, if feasible.

Voting Rights

How do you vote?

ADS holders may instruct the depositary to vote the number of deposited shares their ADSs represent. The depositary will notify ADS holders of shareholders’ meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary.

Otherwise, you won’t be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.

The depositary will try, as far as practical, subject to the laws of the British Virgin Islands and of our memorandum of association and articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed by ADS holders. The depositary will only vote or attempt to vote as instructed or as described below.

We can not assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.

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If we timely asked the depositary to solicit your instructions and the depositary does not receive voting instructions from you by the specified date, it will consider you to have authorized and directed it to give a discretionary proxy to a person designated by us to vote the number of deposited securities represented by your ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions at to be voted upon unless we notify the depositary that:

we do not wish to receive a discretionary proxy;
we think there is substantial shareholder opposition to the particular question; or
we think the particular question would have an adverse impact on our shareholders.

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 45 days in advance of the meeting date.

Fees and Expenses

 
Persons depositing or withdrawing shares or ADS holders must pay:   For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)  

•  

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

 

•  

Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates

$.05 (or less) per ADS  

•  

Any cash distribution to ADS holders

A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs  

•  

Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders

$.05 (or less) per ADSs per calendar year  

•  

Depositary services

Registration or transfer fees  

•  

Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares

Expenses of the depositary  

•  

Cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement)

    

•  

converting foreign currency to U.S. dollars

Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, share transfer taxes, stamp duty or withholding taxes  

•  

As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities  

•  

As necessary

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.

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Reclassifications, Recapitalizations and Mergers

 
If we:   Then:

•  

Change the nominal or par value of our shares

 

•  

The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities.

•  

Reclassify, split up or consolidate any of the deposited securities

•  

Distribute securities on the shares that are not distributed to you

 

•  

The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADRs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

•  

Recapitalize, reorganize, merge, consolidate, sell all or substantially all of our assets, or take any similar action

Amendment and Termination

How may the Deposit Agreement be amended?

We may agree with the depositary to amend the Deposit Agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the Deposit Agreement as amended .

How may the Deposit Agreement be terminated?

The depositary will terminate the Deposit Agreement at our direction by mailing notice of termination to the ADS holders then outstanding at least 30 days prior to the date fixed in such notice for such termination. The depositary may also terminate the Deposit Agreement by mailing notice of termination to us and the ADS holders if 60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment. On and after the date of termination, the ADSs holders will, upon (i) surrender of their ADSs, (ii) payment of the fee of the depositary for the surrender of their ADSs and (iii) payment of any applicable taxes or governmental charges, be entitled to delivery of the amount of deposited securities represented by those surrendered ADSs.

After termination, the depositary and its agents will do the following under the Deposit Agreement but nothing else: collect distributions on the deposited securities, sell rights and other property, and deliver shares and other deposited securities upon cancellation of ADSs. Four months after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the Deposit Agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.

Limitations on Obligations and Liability

Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs

The Deposit Agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. Specifically:

we and the depositary are only obligated to take the actions specifically set forth in the Deposit Agreement without negligence or bad faith; are not liable if we are or it is prevented or delayed by law or circumstances beyond our control from performing our or its obligations under the Deposit Agreement;

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we and the depositary have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the Deposit Agreement on your behalf or on behalf of any other person;
we and the depositary may rely upon any advice of or information from legal counsel, accountants, any person presenting ordinary shares for deposit, any person in whose name the ADSs are registered on the books of the depositary or any other person believed by us or it in good faith to be competent to give such advice or information.
the depositary is not liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary, provided that in connection with the issue out of which such potential liability arises the depositary performed its obligations without negligence or bad faith while it acted as depositary.
the depositary is not be liable for the acts or omissions of any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of deposited securities or otherwise.
the depositary is not be responsible for any failure to carry out any instructions to vote any of the deposited Securities, or for the manner in which any such vote is cast or the effect of any such vote, provided that any such action or nonaction is in good faith.
we and the depositary are not liable if we or it exercises discretion permitted under the Deposit Agreement;
we and the depositary are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the Deposit Agreement, or for any special, consequential or punitive damages for any breach of the terms of the Deposit Agreement;

In the Deposit Agreement, we and the depositary agree to indemnify each other under certain circumstances.

Requirements for Depositary Actions

Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:

payment of share transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;
satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
compliance with regulations it may establish, from time to time, consistent with the Deposit Agreement, including presentation of transfer documents.

The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.

Your Right to Receive the Shares Underlying your ADRs

ADS holders have the right to cancel their ADSs and withdraw the underlying shares at any time except:

When temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares.
When you owe money to pay fees, taxes and similar charges.
When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.

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Pre-release of ADSs

The Deposit Agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release of the ADSs. The depositary may also deliver shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive ADSs instead of shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions: (i) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the shares or ADSs to be deposited, (ii) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; (iii) the depositary must be able to close out the pre-release on not more than five business days’ notice; and (iv) such further indemnities and credit regulations as the depositary deems appropriate. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.

Direct Registration System

In the Deposit Agreement, all parties to the Deposit Agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.

In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the Deposit Agreement understand that the depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the Deposit Agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System and in accordance with the Deposit Agreement, shall not constitute negligence or bad faith on the part of the depositary.

Shareholder Communications; Inspection of Register of Holders of ADSs

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.

Listing

We intend to apply to list our ADSs on the Nasdaq Capital Market under the symbol “KONE”.

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SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has not been a public market for our ordinary shares or our ADSs, and while we intend to apply to have our ADSs listed on the Nasdaq Capital Market, we cannot assure you that a significant public market for the ADSs will develop or be sustained after this offering. We do not expect that an active trading market will develop for our ordinary shares not represented by the ADSs. Future sales of substantial amounts of our ADSs in the public markets after this offering, or the perception that such sales may occur, could adversely affect market prices prevailing from time to time. As described below, only a limited number of our ordinary shares currently outstanding will be available for sale immediately after this offering due to contractual and legal restrictions on resale. Nevertheless, after these restrictions lapse, future sales of substantial amounts of our ADSs, including ADSs representing ordinary shares issued upon exercise of outstanding options, in the public market in the United States, or the possibility of such sales, could negatively affect the market price in the United States of our ADSs and our ability to raise equity capital in the future.

Upon completion of this offering, we will have ________ outstanding ordinary shares, including ordinary shares represented by ADSs, assuming no exercise of the underwriters’ over-allotment option. Upon completion of this offering, we will have ________ ADSs outstanding representing approximately ____% of our issued and outstanding ordinary shares, assuming no exercise of the underwriters’ over-allotment option. All of the ADSs sold in this offering will be freely transferable by persons other than our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amount of additional ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs, and while we intend to make an application for our ADSs to be listed on the Nasdaq Capital Market, we cannot assure you that a regular trading market will develop in our ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by our ADSs.

Ordinary shares or ADSs purchased by one of our “affiliates” may not be resold in the United States, except pursuant to an effective registration statement or an exemption from registration, including an exemption under Rule 144 of the Securities Act described below. All of the ordinary shares held by existing shareholders are “restricted securities,” as that term is defined in Rule 144 of the Securities Act. These restricted securities may be sold in the United States only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 of the Securities Act. These rules are described below.

Rule 144

In general, under Rule 144 under the Securities Act, as in effect on the date of this Prospectus, persons who became the beneficial owner of restricted shares prior to the completion of this offering may not sell their shares until the earlier of (i) the expiration of a six-month holding period, if we have been subject to the reporting requirements of the Exchange Act and have filed all required reports for at least 90 days prior to the date of the sale, or (ii) a one-year holding period.

At the expiration of the six-month holding period, a person who was not one of our affiliates at any time during the three months preceding a sale would be entitled to sell an unlimited number of shares provided current public information about us is available, and a person who was one of our affiliates at any time during the three months preceding a sale would be entitled to sell within any three-month period only a number of shares that does not exceed the greater of either of the following:

1% of the number of ordinary shares then outstanding (in the form of ADSs or otherwise), which will equal approximately __ shares immediately after this offering, based on the number of ordinary shares outstanding as of __; or
the average weekly trading volume of ADSs on the Nasdaq Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

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At the expiration of the one-year holding period, a person who was not one of our affiliates at any time during the three months preceding a sale would be entitled to sell an unlimited number of shares without restriction. A person who was one of our affiliates at any time during the three months preceding a sale would remain subject to the volume restrictions described above.

Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases ordinary shares from us in connection with a compensatory share or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.

The Securities and Exchange Commission has indicated that Rule 701 will apply to typical share options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and beginning 90 days after the date of this prospectus, may be sold by persons other than “affiliates,” as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by “affiliates” under Rule 144 without compliance with its one-year minimum holding period requirement.

Lock-Up Agreements

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, to file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any ADSs or ordinary shares, or publicly announce the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of ROTH Capital Partners for a period of 180 days after the date of this prospectus.

Of our outstanding ADSs or ordinary shares not being offered in this offering, __ ordinary shares are subject to the 180-day lock-up period and all of our shares will be subject to the volume and other restrictions of Rule 144 after expiration of the lock-up period. Pursuant to the lock-up agreement, our directors, executive officers, significant shareholders and employees thereto have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any ADSs or ordinary shares or securities convertible into or exchangeable or exercisable for any ADSs or ordinary shares, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our ADS or ordinary shares, whether any of these transactions are to be settled by delivery of our ADSs or ordinary shares, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of ROTH Capital Partners for a period of 180 days after the date of this prospectus.

The 180-day lock-up period is subject to adjustment under certain circumstances. If in the event that either (1) during the last 17 days of the lock-up period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, then in either case the expiration of the lock-up will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless ROTH Capital Partners waives, in writing, such an extension.

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TAXATION

The following discussion sets forth the material British Virgin Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs and the ordinary shares represented by our ADSs, sometimes referred to collectively as the “securities”. It is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in the securities, such as the tax consequences under state, local and other tax laws. As used in this discussion, “we,” “our” and “us” refers only to Kingtone Wirelessinfo Solution Holding Ltd.

British Virgin Islands Taxation

Under the law of the British Virgin Islands as currently in effect, a holder of the securities who is not a resident of the British Virgin Islands is not liable for British Virgin Islands tax on dividends paid with respect to the securities and all holders of the securities are not liable to the British Virgin Islands for tax on gains realized during that year on the sale or disposal of such ordinary shares. The British Virgin Islands does not impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Act.

There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated under the BVI Act. In addition, shares of companies incorporated under the BVI Act are not subject to transfer taxes, stamp duties or similar charges.

There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands or between China and the British Virgin Islands.

People’s Republic of China Taxation

In 2007, the PRC National People’s Congress enacted the new Enterprise Income Tax Law (the “EIT Law”), which became effective on January 1, 2008. The new EIT Law imposes a single uniform income tax rate of 25% on all Chinese enterprises, including foreign-invested enterprises, and levies a withholding tax rate of 10% on dividends payable by Chinese subsidiaries to their foreign shareholders unless any such foreign shareholders’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding agreement. Under the new EIT Law, enterprises established outside China but deemed to have a “de facto management body” within the country may be considered “resident enterprises” for Chinese tax purposes and, therefore, may be subject to an enterprise income tax rate of 25% on their worldwide income. Pursuant to the implementation rules of the new EIT Law, a “de facto management body” is defined as a body that has material and overall management control over the business, personnel, accounts and properties of the enterprise. Although substantially all members of our management are located in China, it is unclear whether Chinese tax authorities would require (or permit) us to be treated as PRC resident enterprises. If we and/or Topsky are deemed a Chinese tax resident enterprise, we and/or Topsky may be subject to an enterprise income tax rate of 25% on our worldwide income, excluding dividends received directly from another Chinese tax resident enterprise, as well as PRC enterprise income tax reporting obligations. If we and/or Topsky are not deemed to be a Chinese tax resident enterprise, we and/or Topsky may be subject to certain PRC withholding taxes. See “Risk Factors — Risks Related to Doing Business in China — Our holding company structure may limit the payment of dividends.” As a result of such changes, our and Topky’s historical tax rates may not be indicative of our and Topky’s tax rates for future periods and the value of our ADSs may be adversely affected. See “Risk Factors — Risks Related to Doing Business in China — If we and/or Topsky were deemed a “resident enterprise” by PRC tax authorities, we could be subject to tax on our global income at the rate of 25% under the New EIT Law and our non-PRC shareholders could be subject to certain PRC taxes.” If we are deemed a PRC resident enterprise and investors’ gain from the sales of the securities and dividends payable by us are deemed sourced from China, such gains and dividends payable by us may be subject to PRC tax. See “Risk Factors — Risks Related to Doing Business in China — If we and/or Topsky were deemed a “resident enterprise” by PRC tax authorities, we and/or Topsky could be subject to tax on our global income at the rate of 25% under the New EIT Law and our non-PRC shareholders could be subject to certain PRC taxes.”

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United States Federal Income Taxation

General

The following is a discussion of the material U.S. federal income tax consequences to an investor of purchasing, owning and disposing of the securities purchased by the investor pursuant to this offering. This discussion does not address any aspects of U.S. federal gift or estate tax or the state, local or non-U.S. tax consequences of an investment in the securities.

YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE SECURITIES IN YOUR PARTICULAR SITUATION.

This discussion applies only to those investors that purchase the securities in this offering and that hold the securities as capital assets within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). This section does not apply to holders that may be subject to special tax rules, including but not limited to:

dealers in securities or currencies;
traders in securities that elect to use a mark-to-market method of accounting;
banks, insurance companies or certain financial institutions;
tax-exempt organizations;
governments or agencies or instrumentalities thereof;
partnerships or other entities treated as partnerships or other pass-through entities for U.S. federal income tax purposes or persons holding the securities through such entities;
regulated investment companies or real estate investment trusts;
holders subject to the alternative minimum tax;
holders that actually or constructively own 10% or more of the total combined voting power of all classes of our shares entitled to vote;
holders that acquired the securities pursuant to the exercise of employee stock options, in connection with employee stock incentive plans or otherwise as compensation;
holders that hold the securities as part of a straddle, hedging or conversion transaction; or
holders whose functional currency is not the U.S. dollar.

This section is based on the Code, its legislative history, existing and proposed U.S. Treasury regulations, published rulings and other administrative guidance of the U.S. Internal Revenue Service (the “IRS”) and court decisions, all as in effect on the date hereof. These laws are subject to change or different interpretation by the IRS or a court, possibly on a retroactive basis.

We have not sought, and will not seek, a ruling from the IRS as to any U.S. federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulation, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.

The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of the securities that is for U.S. federal income tax purposes:

a citizen or resident of the United States;
a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) under the laws of the United States, any state thereof or the District of Columbia;
an estate whose income is subject to U.S. federal income tax regardless of its source; or

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a trust if (a) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (b) if the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a beneficial owner of the securities is not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder.” The material U.S. federal income tax consequences applicable specifically to Non-U.S. Holders are described below under the heading “Tax Consequences to Non-U.S. Holders.”

If a partnership (including for this purpose any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of the securities, the U.S. tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder of the securities that is a partnership or partners in such a partnership should consult their own tax advisors about the U.S. federal income tax consequences of holding and disposing of the securities.

This discussion assumes that any distributions made (or deemed made) on the securities and any consideration received by a holder in consideration for the sale or other disposition of the securities will be in U.S. dollars. This discussion also assumes that the representations contained in the Deposit Agreement are true and that the obligations in the Deposit Agreement and any related agreement will be complied with in accordance with their terms. Finally, this discussion assumes that each ADS will only represent ordinary shares in us, and will not represent any other type of security, such as a bond, cash or other property.

For U.S. federal income tax purposes, a holder of an ADS will be treated as the beneficial owner of the shares represented by such ADS and an exchange of an ADS for ordinary shares will not be subject to U.S. federal income tax. The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released, or intermediaries in the chain of ownership between holders of ADSs and the issuer of the securities underlying the ADSs may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders, as described below under “Tax Consequences to U.S. Holders — Taxation of Distributions.” Accordingly, the availability of foreign tax credits or the reduced tax rate for dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders, could be affected by actions taken by parties to whom the ADSs are released, or by future actions by the U.S. Treasury.

Tax Consequences to U.S. Holders

Taxation of Distributions

Subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any cash distributions we make with respect to a U.S. Holder in respect of such U.S. Holder’s ADSs or shares will generally be treated as dividend income if the distributions are made from our current or accumulated earnings and profits, calculated according to U.S. federal income tax principles. Cash dividends will generally be subject to U.S. federal income tax as ordinary income on the day the U.S. Holder actually or constructively receives such income. With respect to non-corporate U.S. Holders for taxable years beginning before January 1, 2011, dividends may be taxed at the lower applicable long-term capital gains rate provided that (a) our ADSs or shares are readily tradable on an established securities market in the United States, or, in the event we are deemed to be a Chinese “resident enterprise” under the EIT Law (as described above under “People’s Republic of China Taxation”), we are eligible for the benefits of the income tax treaty between the United States and the PRC (the “U.S.-PRC Tax Treaty”), (b) we are not a PFIC, as discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (c) certain holding period requirements are met. Under published IRS authority, ADSs are considered for purposes of clause (a) above to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges, which presently includes the Nasdaq Capital Market. Although we have applied to list our ADSs on the Nasdaq Capital Market, we cannot guarantee that our application will be approved. U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for any dividends paid with respect to our ADSs or shares.

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Dividends will not be eligible for the dividends-received deduction allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Generally, if we distribute non-cash property as a dividend (other than pro rata distributions of our shares) out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), a U.S. Holder generally will include in income an amount equal to the fair market value of the property, on the date that it is distributed.

Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in its shares or ADSs and thereafter as capital gain. However, we do not plan on calculating our earnings and profits in accordance with U.S. federal income tax principles. U.S. holders therefore should generally assume that any distributions paid by us will be treated as dividends for U.S. federal income tax purposes.

If PRC taxes apply to dividends paid by us to a U.S. Holder (see “People’s Republic of China Taxation,” above), such taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations), and a U.S. Holder may be entitled to certain benefits under the U.S.-PRC Tax Treaty. The rules relating to the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

Taxation of Dispositions of ADSs or Shares

Subject to the PFIC rules discussed below, a U.S. holder that sells or otherwise disposes of its shares or ADSs will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and such U.S. Holder’s tax basis in its shares or ADSs. Prior to January 1, 2011, capital gains of a non-corporate U.S. holder are generally taxed at a maximum rate of 15% where the property is held for more than one year (and 20% thereafter). The ability to deduct capital losses is subject to limitations.

If PRC taxes apply to any gain from the disposition of our ADSs or shares by a U.S. Holder, such taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations), and a U.S. Holder may be entitled to certain benefits under the U.S.-PRC Tax Treaty. U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

Passive Foreign Investment Company

We do not expect to be a PFIC for U.S. federal income tax purposes for our current tax year or in the foreseeable future. The determination of whether or not we are a PFIC in respect of any of our taxable years is a factual determination that cannot be made until the close of the applicable tax year and that is based on the types of income we earn and the value and composition of our assets (including goodwill), all of which are subject to change. Therefore, we can make no assurances that we will not be a PFIC in respect of our current taxable year or in the future.

In general, we will be a PFIC in any taxable year if either:

at least 75% of our gross income for the taxable year is passive income; or
at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income.

Passive income includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), the excess of gains over losses from certain types of transactions in commodities, annuities and gains from assets that produce passive income. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.

If we are treated as a PFIC in any year during which a U.S. Holder owns the securities, and such U.S. Holder did not make a mark-to-market election, as described below, the U.S. Holder will be subject to special rules with respect to:

any gain recognized by the U.S. Holder on the sale or other disposition of its shares or ADSs; and

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any excess distribution that we make to the U.S. Holder (generally, the excess of the amount of any distributions to such U.S. Holder during a single taxable year of such U.S. Holder over 125% of the average annual distributions received by such U.S. Holder in respect of the shares or ADSs during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder holding period for the shares or ADSs).

Under these rules:

the gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the shares and ADSs;
the amount allocated to the U.S. Holder’s taxable year in which it realized the gain or excess distribution or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC will be taxed as ordinary income;
the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year; and
the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of the U.S. Holder.
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.

Alternatively, if a U.S. Holder, at the close of its taxable year, owns ordinary shares or ADSs in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. Our ADSs or shares will be “marketable” to the extent that they remain regularly traded on a national securities exchange, such as the Nasdaq Capital Market. If a U.S. Holder makes this election in a timely fashion, it will not be subject to the PFIC rules described above. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its shares or ADSs at the end of the taxable year over its adjusted basis in its shares or ADSs. Any ordinary income resulting from this election would generally be taxed at ordinary income tax rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. The U.S. Holder will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its shares or ADSs over the fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in the shares or ADSs will be adjusted to reflect any such income or loss amounts. U.S. Holders should consult their own tax advisor regarding potential advantages and disadvantages of making a mark-to-market election with respect to their ADSs or shares.

Alternatively, a U.S. Holder of stock in a PFIC may avoid the PFIC tax consequences described above in respect to our ADSs or shares by making a timely “qualified electing fund” election to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. However, the qualified electing fund election is available only if the PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not intend to furnish the information that a U.S. Holder would need in order to make a qualified electing fund election. Therefore, U.S. Holders will not be able to make or maintain such election with respect to their ADSs or shares.

If a U.S. Holder owns our shares or ADSs during any year that we are a PFIC, such holder must file U.S. Internal Revenue Service Form 8621 regarding such holder’s shares or ADSs and the gain realized on the disposition of the shares or ADSs. The reduced tax rate for dividend income, discussed in “Taxation of Distributions,” is not applicable to dividends paid by a PFIC. U.S. Holders should consult with their own tax advisors regarding reporting requirements with respect to their shares or ADSs.

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Tax Consequences to Non-U.S. Holders

Dividends paid to a Non-U.S. Holder in respect of our ADSs or shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).

In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our ADSs or shares unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a 30% rate or a lower applicable tax treaty rate).

Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.

Information Reporting and Backup Withholding

In general, information reporting for U.S. federal income tax purposes generally should apply to distributions made on the securities within the United States to a non-corporate U.S. Holder and to the proceeds from sales and other dispositions of the securities by a non-corporate U.S. Holder to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States generally should be subject to information reporting in limited circumstances.

Dividend payments made to U.S. Holders and proceeds paid from the sale or other disposition the securities may be subject to information reporting to the IRS and possible U.S. federal backup withholding at a current rate of 28%. Certain exempt recipients, such as corporations, are not subject to these information reporting requirements. Backup withholding will not apply to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification, or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status must provide a duly executed IRS Form W-9.

A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.

Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS.

PROSPECTIVE PURCHASERS OF OUR SECURITIES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY ADDITIONAL TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR NON-U.S. JURISDICTION, INCLUDING ESTATE, GIFT, AND INHERITANCE LAWS AND APPLICABLE TAX TREATIES.

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ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the British Virgin Islands with limited liability. We are incorporated in the British Virgin Islands because of certain benefits associated with being a British Virgin Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, the British Virgin Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, British Virgin Islands companies may not have standing to sue before the federal courts of the United States.

Substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such persons or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

We have appointed Corporation Service Company as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any State of the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Global Law Office, our counsel as to Chinese law, has advised us that there is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or (2) be competent to hear original actions brought in each respective jurisdiction, against us or such persons predicated upon the securities laws of the United States or any state thereof.

Global Law Office has advised us that the recognition and enforcement of foreign judgments are provided for under the Chinese Civil Procedure Law. Chinese courts may recognize and enforce foreign judgments in accordance with the requirements of the Chinese Civil Procedure Law based either on treaties between China and the country where the judgment is made or in reciprocity between jurisdictions. China does not have any treaties or other agreements with the British Virgin Islands or the United States that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it is uncertain whether a Chinese court would enforce a judgment rendered by a court in either of these two jurisdictions.

We have been advised by Harney Westwood & Riegels, our counsel as to British Virgin Islands law, that the United States and the British Virgin Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters and that a final judgment for the payment of money rendered by any general or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be automatically enforceable in the British Virgin Islands. We have also been advised by Harney Westwood & Riegels that a final and conclusive judgment obtained in U.S. federal or state courts under which a sum of money is payable as compensatory damages (i.e., not being a sum claimed by a revenue authority for taxes or other charges of a similar nature by a governmental authority, or in respect of a fine or penalty or multiple or punitive damages) may be the subject of an action on a debt in the court of the British Virgin Islands under the common law doctrine of obligation.

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UNDERWRITING

ROTH Capital Partners, LLC, with an address at 24 Corporate Plaza Drive, Newport Beach, CA 92660, is acting as the sole book-running manager for this offering and as a representative for the underwriters. We have entered into a firm commitment underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and the underwriters have agreed to purchase the number of ADSs listed next to its name.

 
Underwriters   Number of
ADSs
ROTH Capital Partners, LLC         
Total             

The underwriters have advised us that they propose to offer the ADSs to the public at $___ per ADS. The underwriters propose to offer the ADSs to certain dealers at the same price less a concession of not more than $___ per ADS. The underwriters may allow, and the dealers may re-allow, a concession of not more than $___ per ADS on sales to certain other brokers and dealers. After this offering, these figures may be changed by the underwriters.

We have granted to the underwriters an option to purchase up to an additional _____ ADSs from us at the same price to the public, and with the same underwriting discount, as set forth above. The underwriters may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover over-allotments, if any. To the extent the underwriters exercise the option, the underwriters will become obligated, subject to certain conditions, to purchase additional ADSs as it was obligated to purchase under the purchase agreement.

We estimate that the total fees and expenses payable by us, excluding underwriting discounts and commissions, will be approximately $____.

The following table shows the underwriting fees to be paid to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the over-allotment option.

   
  No Exercise   Full Exercise
Per ADS   $          $       
Total   $     $  

We have agreed to indemnify the underwriters against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

We have agreed that for a period of six months after the successful completion of this offering to grant to ROTH Capital Partners LLC the first right to provide investment banking services to us on an exclusive basis in all matters for which investment banking services are sought by us on the terms contained in this paragraph (such right, the “Right of First Refusal”). For these purposes, investment banking services shall include, without limitation, (i) acting as lead, book-running manager for any underwritten public offering; (ii) acting as exclusive placement agent or financial advisor in connection with any private offering of our securities; and (iii) acting as financial advisor in connection with any sale or other transfer by us, directly or indirectly, of a majority or controlling portion of our capital stock or assets to another entity, any purchase or other transfer by another entity, directly or indirectly, of a majority or controlling portion of our capital stock or assets, and any merger or consolidation of our company with another entity. In the event we determine to undertake a transaction of the type described in (i), (ii) or (iii) above, we shall promptly send notice thereof to ROTH Capital Partners LLC. ROTH Capital Partners LLC may exercise the Right of First Refusal by sending written notice to us of its desire to serve as our investment banking firm in connection with such transaction not later than 15 calendar days following its receipt of our notice. Any decision by ROTH Capital Partners LLC to act in any such capacity shall be contained in separate agreements, which agreements would contain, among other matters, provisions for customary fees for transactions of similar size and nature, as may be mutually agreed upon, and indemnification of ROTH Capital Partners LLC and its affiliates and shall be subject to general market conditions. If ROTH Capital Partners LLC declines or otherwise fails to exercise the Right of First

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Refusal within the prescribed period (which it may do in its sole and absolute discretion), we shall have the right to retain any other person or persons to provide such services on terms and conditions which are not materially more favorable (taken as a whole) to such other person or persons than the terms offered to ROTH Capital Partners LLC.

ROTH Capital Partners, LLC has informed us that neither it, nor any other underwriter participating in the distribution of this offering, will make sales of ADSs offered by this prospectus to accounts over which it exercises discretionary authority without the prior specific written approval of the customer.

We and each of our directors, executive officers, certain employees and the selling shareholders are subject to lock-up agreements that prohibit us and them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any ADSs, ordinary shares, options or warrants to acquire ADSs, ordinary shares or any security or instrument related to such ADSs, ordinary shares, option or warrant for a period of at least 180 days following the date of this prospectus without the prior written consent of ROTH Capital Partners LLC. The lock-up agreements provide exceptions for sales to ROTH Capital Partners LLC pursuant to the purchase agreement and certain other exceptions.

The 180-day lock-up period in all of the lock-up agreements is subject to extension if (1) during the last 17 days of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, or (2) we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions imposed in these lock-up agreements shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless ROTH Capital Partners LLC waives the extension in writing.

Prior to this offering, there has been no established trading market for the shares. We have applied for listing of our ADS on the Nasdaq Capital Market under the symbol “KONE”. In connection with the listing, the underwriters have undertaken that it will sell our ADSs so that (1) our ADSs will have a price per ADS of at least $__ at the time of listing and (2) we will have at least __ U.S. shareholders of 100 shares or more, at least __ publicly held ADSs outstanding in the United States, and an aggregate market value of publicly held ADSs of at least $___ million in the United States.

The initial public offering price for the ADSs offered by this prospectus was negotiated by us and the underwriters. The factors considered in determining the initial public offering price include the history of and the prospects for the industry in which we compete, our past and present operations, our historical results of operations, our prospectus for future earnings, the recent market prices of securities of generally comparable companies and the general condition of the securities markets at the time of this offering and other relevant factors. There can be no assurance that the initial public offering price of the ADSs will correspond to the price at which the ADSs will trade in the public market subsequent to this offering or that an active public market for the ADSs will develop and continue after this offering.

To facilitate this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the ADSs during and after this offering. Specifically, the underwriters may over-allot or otherwise create a short position in the ADSs for their own account by selling more ADSs than we have sold to them. Short sales involve the sale by the underwriters of a greater number of shares than it is required to purchase in this offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares in this offering. The underwriters may close out any covered short position by either exercising its option to purchase additional ADSs or purchasing ADSs in the open market. In determining the source of ADSs to close out the covered short position, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which it may purchase ADSs through the over-allotment option. “Naked” short sales are sales in excess of this option. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in this offering.

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In addition, the underwriters may stabilize or maintain the price of the ADSs by bidding for or purchasing ADSs in the open market and may impose penalty bids. If penalty bids are imposed, selling concessions allowed to syndicate members or other broker-dealers participating in this offering are reclaimed if ADSs previously distributed in this offering are repurchased, whether in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price of the ADSs at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the ADSs to the extent that it discourages re-sales of the ADSs. The magnitude or effect of any stabilization or other transactions is uncertain. These transactions may be effected on the Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time. The underwriters may also engage in passive market making transactions in our ADSs. Passive market making consists of displaying bids on Nasdaq Capital Market limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the Securities and Exchange Commission limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of the ADSs at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.

This prospectus in electronic format may be made available on the websites maintained by the underwriters, if any, in this offering and the underwriters in this offering may distribute prospectuses and prospectus supplements electronically.

From time to time in the ordinary course of its businesses, the underwriters and their affiliates may in the future engage in investment banking transactions with us and our affiliates.

Millennium Group Inc. (“Millennium”), a California corporation incorporated on June 29, 1994, owns 100,000 of our ordinary shares representing approximately 1% of the total of our issued and outstanding shares. Millennium received such shares in consideration for consulting services provided to Kingtone Information.

Certain Selling Restrictions

Hong Kong

The ADSs may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

PRC

This prospectus has not been and will not be circulated or distributed in the PRC, and ADSs may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purpose of this paragraph, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.

By accepting this Prospectus, the recipient hereof represents and warrants that he is entitled to receive it in accordance with the restrictions set forth above and agrees to be bound by limitations contained herein. Any failure to comply with these limitations may constitute a violation of law.

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British Virgin Islands

This prospectus does not constitute an invitation or offer to the public in the British Virgin Islands of the ADSs, whether by way of sale or subscription. The underwriters may not offer or sell, directly or indirectly, any ADSs in the British Virgin Islands.

LEGAL MATTERS

The validity of the securities offered in this prospectus is being passed upon for us by Harney Westwood & Riegels, located at 1507 The Center, 99 Queen’s Road Central, Central, Hong Kong.

EXPERTS

The consolidated and combined financial statements of our company and subsidiaries for the years ended November 30, 2008 and 2009, have been included herein and in the registration statement in reliance upon the report of Bernstein & Pinchuk, LLP, independent registered public accounting firm, appearing elsewhere herein, and upon authority of said firm as experts in accounting and auditing. The offices of Bernstein & Pinchuk, LLP are located at Seven Penn Plaza, Suite 830, New York, NY 10001.

The statements included in this prospectus, including without limitation statements under the captions “Risk Factors”, “Dividend Policies”, “Corporate History and Structure”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, “PRC Government Regulations”, “Taxation” and “Enforcement of Civil Liabilities”, to the extent they constitute matters of PRC law, have been reviewed and confirmed by Global Law Offices, PRC counsel to us, as experts in such matters, and are included in this prospectus in reliance upon such review and confirmation. The offices of Global Law Offices are located at 15/F Tower 1, China Central Place, No. 81 Jianguo Road, Chaoyang District, Beijing 100025, China, PRC.

EXPENSES RELATED TO THIS OFFERING

The following table sets forth the costs and expenses, other than the underwriting discount, payable by us in connection with the sale of the ADSs being registered. All amounts are estimated except the SEC registration fee, the FINRA filing fees and the Nasdaq listing fee.

 
  Amount
SEC registration fee   $       
FINRA filing fee         
Nasdaq listing fee         
Printing and engraving costs         
Legal fees and expenses         
Accountants' fees and expenses         
Blue sky qualification fees and expenses         
Transfer agent fees         
Miscellaneous           
Total   $       

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement, of which this prospectus is a part, on Form F-1 with the SEC relating to this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and financial statements included with the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents. You may read and copy the registration statement, the related exhibits and other material we file with the SEC at the SEC's public reference room in Washington, D.C. at 100 F Street, Room 1580, N.E., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The website address is http://www.sec.gov . You may also request a copy of these filings, at no cost, by writing us at 3rd Floor, Borough A, Block A. No. 181, South Taibai Road, Xi’an, Shaanxi Province, People’s Republic of China 710065 or telephoning us at +86-29-88266368

Immediately upon completion of this offering, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Additional information may also be obtained over the Internet at the SEC’s website at www.sec.gov .

As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements under the federal proxy rules contained in Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 2008 AND 2009

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  Pages
Report of Independent Registered Public Accounting Firm     F-2  
Consolidated and Combined Balance Sheets     F-3  
Consolidated and Combined Statements of Income and Comprehensive Income     F-4  
Consolidated and Combined Statements of Shareholders’ Equity     F-5  
Consolidated and Combined Statements of Cash Flows     F-6  
Notes to the Consolidated and Combined Financial Statements     F-7 – F-24  

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[GRAPHIC MISSING]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries

We have audited the accompanying consolidated and combined balance sheets of Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries (“the Company”) as of November 30, 2009 and November 30, 2008, and the related consolidated and combined statements of income and comprehensive income, stockholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2009 and November 30, 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The name of the Company was changed from Reizii Capital Management Limited on December 17, 2009. Please refer to Note 1 paragraph 7 and Note 22 paragraph 1 to the financial statements.

/s/ Bernstein &Pinchuk LLP

New York, New York
December 16, 2009, except for Note 1 paragraph 7 and Note 22 paragraph 1 to the financial statements, as to which the date is December 17, 2009

 
 

[GRAPHIC MISSING]

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
CONSOLIDATED AND COMBINED BALANCE SHEETS

(Expressed in thousands of U.S. dollars, except shares and per share amount)

   
  As of November 30,
     2009   2008
ASSETS
                 
Current assets
                 
Cash   $ 344     $ 9  
Accounts receivable, net of allowance     2,353       499  
Unbilled revenue     178        
Amounts due from related companies           11,319  
Inventories     127       276  
Other receivables and prepayments     1,012       781  
Total Current Assets     4,014       12,884  
Deposit to purchase building     12,200        
Property and Equipment, net     1,693       1,793  
     $ 17,907     $ 14,677  
LIABILITIES AND STOCKHOLDERS' EQUITY
                 
Current Liabilities
                 
Accounts payable   $ 1,409     $ 313  
Advances from customers     1,398       2,817  
Other payables and accruals     559       97  
Taxes payable     601        
Amounts due to shareholder     200        
Short-term bank loan     3,437       3,676  
Deferred government grant           50  
Dividend payable     1,177        
Total Current Liabilities     8,781       6,953  
Commitments and contingencies
                 
KINGTONE WIRELESSINFO SOLUTION HOLDING LTD
                 
STOCKHOLDERS' EQUITY
                 
Common Stock ($.001 par value, 100,000,000 shares authorized, and 10,000,000 shares issued and outstanding)     10        
XI'AN KINGTONE INFORMATION TECHNOLOGY CO., LTD.
                 
STOCKHOLDERS' EQUITY
                 
Paid-in capital     6,897       6,897  
Additional paid-in capital     216       216  
Appropriated retained earnings     231       62  
Unappropriated retained earnings     657       (544 )  
Accumulated other comprehensive income     1,115       1,093  
       9,116       7,724  
Total Stockholders' Equity     9,126       7,724  
     $ 17,907     $ 14,677  

 
 
See notes to the consolidated and combined financial statements

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Expressed in Thousands of U.S. Dollars, Except Shares and Per Share Amount)

   
  For the Years Ended November 30,
     2009   2008
Revenue
                 
Software solution   $ 5,170     $ 987  
- Related party            
- Third party     5,170       987  
Wireless system solution     6,070       3,299  
- Related party     1,148        
- Third party     4,922       3,299  
       11,240       4,286  
Cost of sales
                 
Software solution     476       183  
- Related party            
- Third party     476       183  
Wireless system solution     3,418       1,438  
- Related party     765        
- Third party     2,653       1,438  
       3,894       1,621  
Gross margin     7,346       2,665  
Operating expenses
                 
Selling and marketing expenses     350       301  
General and administrative expenses     537       355  
Research and development expense     139       79  
       1,026       735  
Income from operations     6,320       1,930  
Other income(expense)
                 
Subsidy income     307       163  
Interest expense     (340 )       (531 )  
Other income     24       16  
Other expenses     (79 )       (372 )  
       (88 )       (724 )  
Income before income tax expense     6,232       1,206  
Income tax expense     935       191  
Net income     5,297       1,015  
Other comprehensive income
Foreign currency translation gain
    22       544  
Comprehensive income   $ 5,319     $ 1,559  
Net earnings per common share
Basic and diluted
  $ 0.53     $ 0.10  
Weighted average number of common shares outstanding
Basic and diluted
    10,000,000       10,000,000  

 
 
See notes to the consolidated and combined financial statements

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
CONSOLIDATED AND COMBINED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Expressed in Thousands of U.S. Dollars, Except Shares and Per Share Amount)

  

               
               
  Kingtone Wirelessinfo Solution Holding Ltd   Xi’an Kingtone Information Technology Co., Ltd.
     Common Stock   Paid-in Capital   Additional Paid-in Capital   Appropriated Retained Earnings   Unappropriated Retained Earnings   Comprehensive Income   Total Stockholders’ Equity
     Shares   Amount
Balance at
November 30, 2007
        $     $ 6,034     $     $ 30     $ (1,527 )     $ 549     $ 5,086  
Net income for the year                                      1,015             1,015  
Capital contribution                    863       216                         1,079  
Transfer to statutory reserves                                32       (32 )              
Foreign currency
translation gain
                                           544       544  
Balance as of
November 30, 2008
                6,897       216       62       (544 )       1,093       7,724  
Share contribution     10,000,000       10                                     10  
Net income for the year                                      5,297             5,297  
Payment of dividends                                      (4,096 )             (4,096 )  
Addition in statutory reserves                                169                   169  
Foreign currency
translation gain
                                           22       22  
Balance as of
November 30, 2009
    10,000,000     $ 10     $ 6,897     $ 216     $ 231     $ 657     $ 1,115     $ 9,126  

 
 
See notes to the consolidated and combined financial statements

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Expressed in Thousands of U.S. Dollars, Except Shares and Per Share Amount)

   
  For the Years Ended November 30,
     2009   2008
Cash flows from operating activities
                 
Net income   $ 5,297     $ 1,015  
Depreciation and amortization     129       121  
Disposal of fixed assets           197  
Subsidy income recognized from deferred government grant     (50 )        
Changes in operating assets and liabilities
                 
Accounts receivable     (1,851 )       (391 )  
Other receivables and prepayments     (234 )       (50 )  
Unbilled revenue     (177 )        
Inventories     150       (43 )  
Accounts payable     1,092       30  
Advances from customers     (1,424 )       (633 )  
Other payables and accruals     467       (54 )  
Taxes payable     601       (159 )  
Deferred government grant           48  
Net cash provided by operating activities     4,000       81  
Cash flows from investing activities
                 
Purchases of property and equipment     (24 )       (644 )  
Deposit to purchase building     (12,186 )        
Net cash used in investing activities     (12,210 )       (644 )  
Cash flows from financing activities
                 
Increase in short-term bank loan     3,432       3,544  
Repayment of short-term bank loan     (3,681 )       (6,779 )  
Collection from due to related-party companies     11,335       4,249  
Repayment of loan from non-related companies           (2,088 )  
Collection from loan to non related-party companies           582  
Cash received from the capital contribution     10       1055  
Amounts due to shareholder     200        
Dividend paid     (2,751 )        
Net cash provided by financing activities     8,545       563  
Effect of exchange rate fluctuation on cash and cash equivalents           2  
Net increase in cash and cash equivalents     335       2  
Cash and cash equivalents at beginning of year     9       7  
Cash and cash equivalents at end of year   $ 344     $ 9  
Supplemental disclosure of cash flow information
                 
Interest paid   $ 340     $ 531  
Income taxes paid   $ 215     $ 495  

 
 
See notes to the consolidated and combined financial statements

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Kingtone Wirelessinfo Solution Holding Ltd (“the Company”) was incorporated in the British Virgin Islands on October 27, 2009 under the name of Reizii Capital Management Limited. Its wholly owned subsidiaries include: Topsky Info-tech Holdings Pte Ltd. (“Topsky”) which was established in Singapore on November 3, 2009, Xi’an Softech Co., Ltd. (“Softech”) which was established on November 27, 2009 in Xi’an, ShaanXi Province, China by Topsky.

The financial statements include its affiliate Xi’an Kingtone Information Technology Co., Ltd. (“Kingtone Information”) on a combined basis which was incorporated in Xi’an, ShaanXi province, China on December 30, 2001.

The Company’s controlling shareholder since its inception, October 27, 2009, also owned more than 50% of Kingtone Information since its inception, December 30, 2001. The Company and Kingtone Information were considered under common control since October 27, 2009 and therefore the financial statements include both companies presented on a combined basis from October 27, 2009 to November 30, 2009.

The financial statements are solely those of Kingtone Information for the fiscal year ended November 30, 2008 and for the subsequent period ended October 26, 2009.

In December 2009, the Company through one of its subsidiaries, entered into a series of agreements with Kingtone Information for it to qualify as a Variable Interest Entity and to meet foreign ownership limitations established by the People Republic of China. Therefore subsequent financial statements will present Kingtone Information on a consolidated Basis.

The Company is principally involved in developing and implementing mobile enterprise solutions for its customers in a broad variety of sectors and industries to improve its operating efficiency by facilitating mission-specific field and long-distance information management in wireless environments through its combined operating company Kingtone Information. Kingtone Information is included in the Consolidated and Combined Financial Statements for its year ended September 30. The Company and its wholly owned subsidiaries balance sheets are as of November 30, the Company has had no operations, except for its initial capitalization and its preparation for its initial public offering.

On December 17, 2009, the Company changed its name to Kingtone Wirelessinfo Solution Holding Ltd.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

The consolidated and combined financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United Stateds of America (“U.S. GAAP”).

(b) Foreign currency transaction

The functional currency of the Company is United States dollars (“US$”), and the functional currency of Topsky is Singapore dollars (“SG$”). The functional currency of the Company’s PRC subsidiary, Softech and Kingtone Information, is the Renminbi (“RMB’), and PRC is the primary economic environment in which the Company operates

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company’s PRC subsidiary which are prepared using the RMB, are translated into Company’s reporting currency, the United States Dollar (“U.S. dollar”). Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and stockholders’ equity is

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in stockholders’ equity.

The exchange rates applied are as follows:

   
  2009   2008
RMB exchange rate at November 30,     6.8376       6.8551  
Average RMB exchange rate     6.8451       7.1106  

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

(c) Use of estimation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made. Significant estimates and judgments made by our management include: (i) estimates of profits and losses on contracts in process; (ii) accrual of estimated liabilities; and (iii) contingencies and litigation. However actual results could differ from those estimates.

(d) Cash and cash equivalents

Cash and cash equivalents represent cash on hand and deposits held at call with banks. The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

(e) Accounts receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company did not have any off-balance-sheet credit exposure related to its customers. As of November 30, 2009 and 2008, the allowance for doubtful accounts was $48 thousands (“k”). No additional provision was required.

(f) Inventories

Inventories consist mainly of raw materials, finished goods, and work-in-progress, which includes the direct labor, direct materials and overhead costs related to projects. Inventories are stated at the lower of first in first out cost or market value.

(g) Property and equipment

The Company states plant and equipment at cost less accumulated depreciation. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets with 5% residual value. The depreciation expense for the years ended November 30, 2009 and 2008 amounted to $129 k and $121 k, respectively.

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Estimated useful lives of property and equipment:

 
  Useful Life
Property and improvements     20 years  
Transportation equipment     5 years  
Office equipment     5 years  
Furniture     5 years  

The Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of income. The Company charges maintenance, repairs and minor renewals directly to expenses as incurred, and it capitalizes major additions and betterment to buildings and equipment.

Impairment of long-lived assets

The Company applies the provisions of Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS No. 144”), (ASC No. 360 Sub topic 10) issued by the Financial Accounting Standards Board (“FASB”). FAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

The Company tests long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There were no impairment losses in the years ended November 30, 2009 and 2008.

(h) Statutory surplus reserve

The Company is required to set aside 10% of its income after income taxes prepared in accordance with PRC accounting regulations to the statutory surplus reserve until the balance reaches 50% of the paid-in capital or registered capital, after which further appropriation will be at the directors’ recommendation.

(i) Revenue recognition

Revenues consist primarily of sales of wireless system software service solutions and other customized software with support contracts. The Company recognizes revenue when (1) pervasive evidence of an arrangement exists, (2) delivery has occurred and customer acceptance is reasonable assured (3) the fee is fixed or determinable, and (4) collectability is probable.

The Company generally provides wireless system software service solutions and customized software under short and long-term fixed-price contracts that require significant production and customization. The contract periods range from two months to approximately two years in length. The Company recognizes

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

income for these contracts following both the percentage-of-completion method, measured by contract milestones and on the basis of actual costs incurred versus the total estimated contract costs, and on the completed contract method in accordance with the AICPA’s Statement of Position (“SOP”) 81-1 (ASC No. 605-35) and 97-2 (ASC No. 985-605).

Provided unapproved change orders or claims occur in the future, in accounting for contracts, the Company follows Paragraphs 62 and 65 of the AICPA’s Statement of Position 81-1 — Accounting for Performance of Construction-Type and Certain Production-Type Contracts (“SOP 81-1”) (ASC No. 605-35). The Company will recognize as revenues costs associated with unapproved change orders (Paragraph 62 of SOP 81-1) (ASC No. 605-35) or claims (Paragraph 65 of SOP 81-1) (ASC No. 605-35) to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. Contract losses are provided for in their entirety in the period that they become known, without regard to the percentage-of-completion. However, the Company has not experienced significant unapproved change orders in the past.

The software contracts generally provide for postcontract customer support (“PCS”) for a period of one year from delivery of the software. The value of PCS revenue is not separately reported and is accounted for as part of the entire fee under the contract accounting methods described above since the PCS meets the criteria specified in SOP 97-2 paragraph 59 (ASC No. 985-605-25-71) as follows:

PCS is included in the total contract price
PCS is for one year or less
estimated costs are insignificant
upgrades and enhancements during the PCS term have historically been and are expected to continue to be minimal and infrequent
the contract does not include any service elements that are accounted for separately

All other services are provided under separate agreements and fee arrangements and the related revenue is recognized over the period the services are provided.

Unbilled revenue consists of recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients as of the balance sheet date.

The Company presents all sales revenue net of a value-added tax (“VAT”) or a sales tax.

Cost of Sales

When the criteria for revenue recognition have been met, costs incurred are recognized as cost of sales. Cost of sales (exclusive of depreciation and amortization) primarily includes the cost of the hardware purchased from the third parties, the labor costs of those responsible for the software development and project implementation and the applicable share of overhead expense directly related to the execution of services and delivery of projects.

The Company is responsible for cost of providing a warranty. In the past warranty costs have been insignificant.

(j) Operating expenses

Operating expenses include: salaries, bonus, and social insurance of management, administrative and sales personal, traveling cost, entertainment expenses, depreciation of equipment, office rental expenses, professional service fee, office supply, R&D expenses, bad debt provision, etc. Advertising costs are expensed as incurred.

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

(k) Research and development expense

Research and development expense include salaries, consultant fees, supplies and materials, as well as costs related to other overhead expenses such as depreciation, facilities, utilities and other R&D departmental expenses. Research and development costs are expensed as incurred in performing research and development activities in accordance with FAS 2 (ASC No. 730-10-5), Accounting for Research and Development Costs.

Research and development costs were $139 k and $79 k during the years ended November 30, 2009 and 2008, respectively. No research and development expenses were capitalized in the years ended November 30, 2009 and 2008.

(l) Taxation

a) Income tax
i). The Company is incorporated in the BVI. Under the current law of the BVI, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no BVI withholding tax will be imposed.
ii). Topsky was incorporated in Singapore and does not conduct any substantial operations of its own. No provision for Singapore profits tax has been made in the financial statements as Topsky has no assessable profits for the year ended November 30, 2009. Additionally, upon payments of dividends by Topsky to its shareholders, no Singapore withholding tax will be imposed.
iii). The Company’s PRC subsidiary and combined entity, Kingtone Information, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). Effective from January 1, 2008, the EIT rate of PRC was changed from 33% of to 25%, and applies to both domestic and foreign invested enterprises.

According to an approval document from Xi’an State Tax authorities of the High-technology zone, Kingtone Information was granted an income tax reduced income tax rates of 15% from January 2007 to December 2009 on the basis of being a high-tech company.

   
  For the years ended
November 30,
     2009   2008
     US$(’000)   US$(’000)
PRC federal statutory tax rate     25 %       25 %  
Taxable income     6,232       1,206  
Computed expected income tax expense     1,558       302  
Non-deductible expenses           4  
Effect of tax holidays     (623 )       (115 )  

    935       191  
b) Value-added tax and business tax

PRC Value-added Tax

Our Company’s products that are sold in the PRC are generally subject to a Chinese VAT at a rate of 17% except for certain proprietary software sales, which will only be subject to a tax at an effective rate of 3%. The VAT may be offset by VAT we pay on raw materials and other materials included in the cost of producing their finished product. Accrued VAT payables are subject to a 10% surtax, which includes urban maintenance and construction taxes and additional education fees.

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

PRC Business Tax

Revenues from services provided by the Kingtone Information is subject to a PRC business tax of 5% for software solution and 3% for wireless system solution, with a surtax of 0.5%. Kingtone Information pay business tax on gross revenues.

c) Deferred tax

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided to reduce the amount of deferred tax asset if it is considered more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

d) Uncertain tax positions

The Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) (ASC No. 740-10) , on January 1, 2007. FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. For the year ended November 30, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions and the Company did not have any significant unrecognized uncertain tax positions.

(m) Comprehensive income

Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets are the cumulative foreign currency translation adjustments.

(n) Commitments and contingencies

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, product and environmental liability, and tax matters. In accordance with Statement of Financial Accounting Standards (“SFAS”) No.5 (ASC No. 450-10), “ Accounting for Contingencies” , the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Historically, the Company has not experienced any material service liability claims.

(o) Fair value of financial instruments

The carrying amounts of cash and cash equivalents, accounts receivable from third and related parties, amounts due from and due to related parties, accounts payable, other payables and short-term borrowings approximate their fair values due to their short term nature.

The fair value is estimated by discounting the future cash flow using an interest rate which approximated the rate for which the financial institution would charge borrowers with similar credit ratings and remaining maturities.

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

(p) Recently issued accounting standards

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU No. 2010-06 — Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated and combined financial statements.

In January 2010, FASB issued ASU No. 2010-02 — Accounting and Reporting for Decreases in Ownership of a Subsidiary — a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The adoption of this ASU did not have a material impact on the Company’s consolidated and combined financial statements.

In January 2010, FASB issued ASU No. 2010-01 — Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this ASU did not have a material impact on the Company’s consolidated and combined financial statements.

In December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in this Accounting Standards Update replace the quantitative-based risks and rewards

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. This ASU is effective for fiscal years beginning on or after November 15, 2009, and interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU.

In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140. The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated and combined financial statements.

In October 2009, FASB issued amended revenue recognition guidance for arrangements with multiple deliverables (ASU No. 2009-13) (ASC605-25). The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. For the Company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. The Company is currently assessing its implementation of this new guidance, but does not expect a material impact on the Company’s consolidated and combined financial statements.

In October 2009, FASB issued guidance which amends the scope of existing software revenue recognition accounting (ASU No. 2009-14) (ASC985-605). Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. For the Company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the Company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. The Company is currently assessing its implementation of this new guidance, but does not expect a material impact on the Company’s consolidated and combined financial statements.

In September 2009, FASB issued amended guidance concerning fair value measurements of investments in certain entities that calculate net asset value per share (or its equivalent) (ASU No. 2009-12) (ASC820-10). If fair value is not readily determinable, the amended guidance permits, as a practical expedient, a reporting entity to measure the fair value of an investment using the net asset value per share (or its equivalent) provided by the investee without further adjustment. The amendments are effective for interim and annual

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

periods ending after December 15, 2009. The Company does not expect a material impact on the Company’s consolidated and combined financial statements due to the adoption of this amended guidance.

In August 2009, FASB issued guidance on the measurement of liabilities at fair value (ASU No. 2009-5) (ASC820-10). The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted this guidance in the year ended November 30, 2009 and there was no material impact on the Company’s consolidated and combined financial statements.

In June 2009, FASB issued Accounting Standard Update No. 2009-02. “Amendments to Various Topics for Technical corrections.” ASU No. 2009-2 is an omnibus update that is effective for financial statements issued for interim and annual periods ending after July 1, 2009. This Statement did not impact the Company’s consolidated and combined financial statements.

In June 2009, FASB issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASC No. 105), “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted this Statement for its year ended November 30, 2009. There was no change to the Company’s consolidated and combined financial statements due to the implementation of this Statement.

In June 2009, FASB issued SFAS No. 167 (ASC No. 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 166 (ASC No. 860), “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (ASC No. 860).” SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The Company will adopt these Statements for interim and annual reporting periods beginning on January 1, 2010. The Company does not expect the adoption of these standards to have any material impact on the Company’s consolidated and combined financial statements.

In May 2009, FASB issued SFAS No. 165 (ASC No. 855), “Subsequent Events.” This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

annual periods ending after June 15, 2009. The Company adopted this Statement in the year ended November 30, 2009. This Statement did not impact on the Company’s consolidated and combined financial statements.

In April 2009, FASB issued FASB Staff Position (FSP) FAS 141(R)-1 (ASC No. 805), Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the accounting in SFAS 141(R) for assets and liabilities arising from contingencies in a business combination. The FSP is effective January 1, 2009, and requires pre-acquisition contingencies to be recognized at fair value, if fair value can be reasonably determined during the measurement period. If fair value cannot be reasonably determined, the FSP requires measurement based on the recognition and measurement criteria of SFAS 5 (ASC No. 450), Accounting for Contingencies. Adoption of FSP FAS 141(R)-1 did not have an impact on the Company’s financial position, results of operations or cash flows.

In April 2009, FASB issued FSP No. FAS 107-1 (ASC No. 825) and APB 28-1 (ASC No. 270), “Interim Disclosures about Fair Value of Financial Instruments”. This FASB staff position amends FASB Statement No. 107 to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements. The staff position also amends APB Opinion No. 28 to require those disclosures in summarized financial information at interim reporting periods. This FASB staff position becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted these standards. The adoption of these standards did not materially impact its financial statements.

In April 2009, FASB issued FSP No. FAS 115-2 (ASC No. 320) and FAS 124-2 (ASC No. 958), “Recognition and Presentation of Other-Than-Temporary Impairments”. This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities. If an entity determines that it has an other-than-temporary impairment on a security, it must recognize the credit loss on the security in the income statement. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The staff position expands disclosures about other-than-temporary impairment and requires that the annual disclosures in FASB Statement No. 115 and FSP FAS 115-1 and FAS 124-1 be made for interim reporting periods. This FSP becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted this standard. The adoption of this standard did not materially impact its financial statements.

(q) Significant risks

The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated and combined financial statements.

Credit risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts receivable and other receivables. The Company places its cash and cash equivalents, amounted to US$336 k and US$9 k as of November 30, 2009 and 2008, with financial institutions that management believes is of high-credit ratings and quality.

The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Foreign currency risk

A majority of the Company’s sales and expenses transactions and a significant portion of the Company’s assets and liabilities are denominated in Renminbi (“RMB”). The RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or any other China foreign exchange regulatory body which require certain supporting documentation in order to affect the remittance.

NOTE 3. CASH AND CASH EQUIVALENTS

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Cash     8       1  
Current Deposit     336       8  
       344       9  

NOTE 4. ACCOUNTS RECEIVABLE

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Accounts receivable     2,401       547  
Less: allowance for doubtful accounts     48       48  
       2,353       499  

NOTE 5. UNBILLED REVENUE

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Unbilled revenue     178        
       178        

The Company records revenue in excess of billings as “unbilled revenue”. The Company expects all billed and unbilled amounts to be collected within one year.

NOTE 6. AMOUNTS DUE FROM RELATED PARTIES

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Shanxi WeiDong Plant Biochemical Stock Co. Ltd           48  
Xi'an Xingrong tech enterprise Co., Ltd           8,304  
Xi'an Techteam investment holding Group Ltd           2,967  
             11,319  

These related parties are directly or indirectly owned by the ultimate shareholder, Tao Li. The Company provided financing to these parties. Amounts due from these parties were fully collected as of November 30, 2009.

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 7. INVENTORIES

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Raw material     15       54  
Finished goods     25       81  
Project work-in-progress     87       141  
       127       276  

The Company reviews its inventories periodically for possible obsolete or damaged goods and to determine if any allowance is necessary for potential obsolescence. As of November 30, 2009 and 2008, the Company determined that no allowance was necessary.

NOTE 8. OTHER RECEIVABLES AND PREPAYMENTS

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Prepaid taxes           405  
Advances to staff     182       137  
Deposits on projects     140       124  
Prepayment to suppliers     690       116  
       1,012       781  

Prepaid taxes consist of $297 k enterprise income tax and $108 k prepaid business tax, surcharge and value added taxes.

NOTE 9. DEPOSIT TO PURCHASE BUILDING

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Deposit to purchase building     12,200        
       12,200        

Deposit to purchase building is upfront payment to a property owner for purchasing a building as the Company’s research and development center. The consideration has been fully paid but the title to the property was not transferred to the Company as of November 30, 2009.

NOTE 10. PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Property and improvement     2,077       2,072  
Office equipments and electronic devices     143       126  
Tools and Other devices     143       135  
       2,363       2,333  
Less: accumulated depreciation and amortization     670       540  
       1,693       1,793  

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 10. PROPERTY AND EQUIPMENT, NET  – (continued)

As of November 2009, certain properties with a net book value of $1,027 k are pledged in connection with the short term bank loan.

NOTE 11. ACCOUNTS PAYABLE

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Payable to third-party suppliers     1,409       313  
       1,409       313  

NOTE 12. ADVANCE FROM CUSTOMERS

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Advance from third-party customers     1,398       2,817  
       1,398       2,817  

The advances from customers represents the upfront payment of 10-30% of the contract price received from the customers according to the payment schedule in the sales contracts.

NOTE 13. OTHER PAYABLES AND ACCRUALS

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Individual tax payable     484        
Deposits from suppliers     46       75  
Social insurance payable     13       10  
Accrued payroll     16       12  
       559       97  

Individual tax payable represents the withholding individual tax on the dividends paid to individual shareholders in 2009 in accordance with PRC tax regulation.

NOTE 14. DEFERRED GOVERNMENT GRANT

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Deferred government grant income           50  

The balance represents the government grant received related to the green agriculture research sponsored by the local government. The research is subject to the government inspection. The Company recognized this grant as the subsidy income in the statement of income during the year ended September 30, 2009 when the research passed the government inspection and there were no further commitments to be fulfilled to earn the amount.

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 15. TAXES PAYABLE

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Business tax, surcharge and VAT payable     179        
Enterprise Income tax payable     422        
       601        

NOTE 16. AMOUNTS DUE TO SHAREHOLDER

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Tao Li     200        

In November 2009 the shareholder, Mr. Li loaned to Topsky $200 k used as the capital injection into Softech for its set-up in the PRC.

NOTE 17. SHORT-TERM BANK LOAN

     
    November 30,
       2009   2008
       US$(’000)   US$(’000)
Bank Name   Interest rate          
Xi'an Commercial Bank     Monthly interest rate 1.058% initially, adjustable in line with basic interest rate announced by PBOC. Guaranteed by related parties: Xi'an Yuhua Construction Group, Xi'an Yuansheng Enterprise Co., Ltd             3,501  
Xi'an Lianhu District Credit Association Branch     Monthly fixed interest rate 1.245%, Guaranteed by Xi'an Yong Dexin Industrial Trade Co., Ltd and Tao Li             175  
Xi'an Commercial Bank     Monthly interest rate 0.6638% initially, adjustable in line with basic interest rate announced by PBOC. Guaranteed by Xi'an Hightech Agricultural Co., Ltd, Tao Li and Pledged by Xi'an Yuansheng Enterprise Co., Ltd with two Land use rights valued as RMB114,709,735.       3,437        
             3,437       3,676  

As of November 30, 2009 and 2008, short-term bank borrowings have maturity terms ranging from six to twelve months and fixed interest rates ranging from 5.04% to 11.52% per annum.

NOTE 18. DIVIDEND PAYABLE

   
  November 30,
     2009   2008
     US$(’000)   US$(’000)
Dividend due to shareholders     1,117        

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NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 18. DIVIDEND PAYABLE  – (continued)

In 2009 the shareholders made a resolution to appropriate USD4,096 k to all shareholders in proportion to their shareholding percentage. The balance represents outstanding unpaid dividends to the shareholders.

NOTE 19. RELATED PARTY TRANSACTIONS

   
  For the year ended
November 30
     2009   2008
     US$(’000)   US$(’000)
Sales to related parties:
                 
China Green Agricultural Co., Ltd     1,148        
       1,148        

China Green Agricultural Co. Ltd, under common controlling shareholder with the Company, received the products from the Company at a consideration of USD1,148 k for the year ended November 30, 2009. In addition, the Company’s allows China Green Agricultural Co. Ltd to use its self-owned office space at 3/F, Area A, Block A, No. 18 South Taibai Road, Xi’an 710065, the People’s Republic of China for no consideration for unspecified term.

The Company’s Beijing office is located in two Suites (2208 and 2209) at Building 16, An Hui Dong Li, Chaoyang District, Beijing. It covers a combined gross floor space of 184.8 square meters. Tao Li, the controlling shareholder, owns this spaceand allows the Company to use it for no consideration for an unspecified term. Such amount is immaterial.

NOTE 20. MAJOR CUSTOMERS AND VENDORS

One customer represents 44.7% and 57% of total sales in the year ended November 30, 2009 and in the year ended November 30, 2008 respectively.

No vendor accounted for over 10% of the total purchases in the fiscal year ended November 30, 2009 and 2008.

NOTE 21. COMMITMENTS AND CONTINGENCIES

Commitments and contingencies through December 15, 2009 have been considered by the Company and none were noted which were required to be disclosed.

NOTE 22. SUBSEQUENT EVENTS

1) On March 23, 2010, the board has reached a resolution to change the fiscal year end of the Company and its wholly owned subsidiaries, Topsky and Softech, from November 30 th to September 30 th so they have the same fiscal year end as Kingtone Information.

2) On December 17, 2009, the Company changed its name to Kingtone Wirelessinfo Solution Holding Ltd.

3) On December 15, 2009, a series of agreements were entered into among Softech, Kingtone Information and its shareholders, providing Softech the ability to control Kingtone Information, including its financial interest as described below. Thus, Kingtone information became a contractually controlled subsidiary of Softech.

Due to the fact that Kingtone Information is engaged in business with classified government information in China, current PRC laws and regulations do not allow companies with foreign equity interest to carry out such business activities. If a direct or indirect ownership in Kingtone Information by a foreign interest exists, it could materially and adversely affect Kingtone Information’s ability to perform existing contracts and to win

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 22. SUBSEQUENT EVENTS  – (continued)

future contracts. Therefore, Softech and Kingtone Information entered into the following contractual arrangements. Pursuant to the contractual arrangements between Softech and Kingtone Information, as applicable, Kingtone Information transfers any and all net profits generated from its operations to Softech. Effective December 15, 2009, Softech entered into Control Agreements with Kingtone Information, which agreements provide as follows.

Exclusive Technology Service Agreement  – Kingtone Information has entered into an Exclusive Technology Service Agreement with Softech, which agreement provides that Softech will be the exclusive provider of technology services to Kingtone Information, as appropriate, and that each of them will in turn pay 100% of its net profits Softech for such services. Payments will be made on a yearly basis and reconciled once each of Kingtone Information’s annual net profits, as applicable, are determined at its fiscal year end. Any payment from Kingtone Information to Softech would need to comply with applicable Chinese laws. The term of this agreement is from the date thereof to the earlier of the date when Kingtone Information ceases its operation and the date when Softech acquires 100% interest in Kingtone Information.

Entrusted Management Agreement  – Pursuant to this entrusted management agreement among Softech, the Kingtone Information shareholders and Kingtone Information (the “Entrusted Management Agreement”), Kingtone Information and its shareholders agreed to entrust the operations and management of the Business to Softech. Under the Entrusted Management Agreement, Softech will manage Kingtone Information’s operations and assets, control all of Kingtone Information's cash flow through an entrusted bank account, will be entitled to Kingtone Information's net profits as a management fee, and will be obligated to pay all Kingtone Information payables and loan payments. The Entrusted Management Agreement will remain in effect until Softech acquires all of the assets or equity of Kingtone Information. Prior to that acquisition, Kingtone Information will own all assets. Kingtone Information will continue to be the contracting party under its customer contracts, banks loans and certain other assets until such time as those may be transferred to Softech.

Shareholders’ Voting Proxy Agreement  – Under the shareholders' voting proxy agreement among the Kingtone Information shareholders and Softech, the Kingtone Information shareholders irrevocably and exclusively appointed the members of Softech’s board of directors as their proxies to vote on all matters that require Kingtone Information shareholder approval.

Exclusive Option Agreement  – Under the exclusive option agreement among Softech, Kingtone Information and the Kingtone Information shareholders (the “Exclusive Option Agreement”), the Kingtone Information shareholders have granted Softech an irrevocable and exclusive purchase option (the “Option”) to acquire Kingtone Information’s equity and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. Since current PRC law does not specifically allow non-PRC interest in a PRC entity that engages in business dealing with classified government information, accordingly, the Option is exercisable when PRC law and regulation would allow foreign equity interest in businesses dealing with classified government information. The consideration for the exercise of the Option is to be determined by the parties and memorialized in future, definitive agreements setting forth the kind and value of such consideration. To the extent Kingtone Information shareholders receive any of such consideration, the Option requires them to transfer (and not retain) the same to Kingtone Information or Softech.

Share Pledge Agreement  – Under the share pledge agreement among Softech and the Kingtone Information shareholders (the “Share Pledge Agreement”), the Kingtone Information shareholders have pledged all of their equity interests in Kingtone Information, including the proceeds thereof, to guarantee all of Softech's rights and benefits under the Restructuring Agreements. Prior to termination of the Share Pledge Agreement, the pledged equity interests cannot be transferred without Softech's prior written consent.

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 22. SUBSEQUENT EVENTS  – (continued)

With the above agreements, The Company demonstrated its ability to control Kingtone Information, which is under the common control and management of the Kingtone Information shareholders prior to and after the Reorganization, through its subsidiary Softech.

Call Option Agreements  – In connection with the Company December 2009 reorganization, twelve individual shareholders (listed below) of Kingtone Information (individually a “Purchaser” and collectively the “Purchasers”) each entered into a Call Option Agreement (collectively the “Call Option Agreements”) with Xtra Heights Management Ltd., the 68.06% shareholder of the Company, and its sole shareholder Sha Li (collectively the “Seller”) dated as of December 15, 2009. Pursuant to the terms and conditions of the Call Option Agreements, the Purchasers are entitled to purchase up to an aggregate of 6,806,250 ordinary shares of the Company from the Seller at a price of $0.001 per share. Specifically, (i) if the Purchasers enter into an employment agreement to serve for Softech for a term of not less than five years, the Purchasers are entitled to purchase up to 3,403,125 ordinary shares from the Seller; (ii) if Softech achieves not less than $500,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2010, the Purchasers are entitled to purchase up to 1,361,250 ordinary shares from the Seller; (iii) if Softech achieves not less than $1,000,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2011, the Purchasers are entitled to purchase up to 1,361,250 ordinary shares from the Seller; and (iv) if Softech achieves not less than $2,000,000 in consolidated after-tax net income as determined under US GAAP for the fiscal year ending September 30, 2012, the Purchasers are entitled to purchase up to 680,625 ordinary shares from the Seller. Under the Call Option Agreements, the Seller also irrevocably appoint each Holder with the exclusive right to exercise, on its behalf, all of the voting rights of the Seller’s shares. Additionally, the Call Option Agreements grant the Purchasers the right to all distributions made by the Company, including without limitation, dividends, in respect of the Seller’s shares.

The Purchasers entered into the Call Option Agreements upon terms substantially similar to the terms set forth in that certain Term Sheet, dated October 27, 2009, between the Purchasers and Ms. Sha Li.

4) On December 10, 2009, Mr Tao Li loaned $800 k to Topsky. On December 14, 2009, Topsky invested $900 k as paid-in capital in Softech for its set-up on November 27, 2009. As stipulated by PRC regulation on foreign enterprises’ incorporation, the foreign enterprise is set up upon the authorization of local authority. The paid-in capital should be paid up by the shareholders within two years from its incorporation date pursuant to Softech’s Articles of Association.

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KINGTONE WIRELESSINFO SOLUTION HOLDING LTD AND SUBSIDIARIES
  
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars, except shares and per share amount)

NOTE 23. PARENT COMPANY ONLY FINANCIAL INFORMATION

Parent company only financial information is not required since Kingtone Information only became a consolidated subsidiary of the parent company in December 2009, not as of November 30, 2009. However, the net assets of Kingtone Information will be considered restricted net assets of the parent company in the future and the Company is therefore providing the following separate parent company only financial information as of November 30, 209 for a better understanding of the Company structure:

Kingtone Wirelessinfo Solution Holding Ltd
BALANCE SHEETS — PARENT COMPANY ONLY

 
  As of
November 30,
     2009
     US$(’000)
ASSETS
        
Current assets
        
Cash   $ 210  
Total Current Assets     210  
     $ 210  
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Due to shareholder     200  
Total Current Liabilities     200  
STOCKHOLDERS' EQUITY
        
Common Stock ($.001 par value, 100,000,000 shares authorized, and 10,000,000 shares issued and outstanding)     10  
Total Stockholders' Equity     10  
     $ 210  

There was no income or expenses in the parent company from the inception through November 30, 2009.

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Preliminary Prospectus

  

 American Depositary Shares

  

Kingtone Wirelessinfo Solution Holding Ltd

  

Representing   Ordinary Shares

  
  



 

[GRAPHIC MISSING]



 

  
  

Roth Capital Partners

  
  



 

  

You should rely only on the information contained in this prospectus, any free writing prospectus prepared by or on behalf of us or any other information to which we have referred you in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. Neither the delivery of this prospectus nor sale of ADSs means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ADSs in any circumstances under which the offer or solicitation is unlawful.

  



 

  

Through and including  , 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade our ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 


 
 

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6. Indemnification of Directors and Officers

British Virgin Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Under Registrant’s memorandum of association and articles of association, the Registrant may indemnify its directors, officers and liquidators against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator. To be entitled to indemnification, these persons must have acted honestly and in good faith with a view to the best interest of the Registrant and, in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful.

The Underwriting Agreement, the form of which is filed as Exhibit 1.1 to this registration statement, will also provide for indemnification of the Registrant and its officers and directors.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 7. Recent Sales of Unregistered Securities

The information below sets forth the date of issuance, title, amount and purchasers of, and consideration paid for, the Registrant’s securities sold within the last three years that were not registered under the Securities Act. All such securities were issued outside the United States pursuant to Regulation S of the Securities Act or inside the United States in transactions exempt from the registration requirements of the Securities Act.

         
Date of Sale or Issuance   Title   Number of
Securities
  Consideration   Securities
Act
Exemption
  Purchaser
October 27, 2009     Ordinary Shares       1     $ 1.00       (1)       Sha Li  
December 14, 2009     Ordinary Shares       6,806,249     $ 6,806.25       (1)       Xtra Heights
  Management Ltd.
 
December 14, 2009     Ordinary Shares       1,060,714     $ 1,060.71       (1)       SCGC Capital Holding
  Company Limited
 
December 14, 2009     Ordinary Shares       1,060,714     $ 1,060.71       (1)       Big Leap Enterprises
  Limited
 
December 14, 2009     Ordinary Shares       972,322     $ 972.32       (1)       Silver Avenue
  Overseas Inc.
 
December 14, 2009     Ordinary Shares       100,000       (2)       (2)       Millennium Group
  Inc.
 

(1) The securities were exempt from registration pursuant to Regulation S under the Securities Act as result of a being issued by a foreign private issuer in a private offshore transaction with no direct selling efforts in the U.S.
(2) The securities were issued in consideration for consulting services rendered. The transaction was exempt from registration under Section 4(2) of the Securities Act on the basis that the securities were issued in a private transaction to an “accredited investor” as such term is defined in Regulation D under the Securities Act.

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Item 8. Exhibits and Financial Statement Schedules

See the Exhibit Index beginning on the page II- 0 for a list of exhibits filed as part of this registration statement on Form F-1, which Exhibit Index is incorporated herein by reference.

Item 9. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(b) We hereby undertake that:

(i) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(ii) for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has caused this Registration Statement on Form F-1 to be signed on its behalf by the undersigned, there unto duly authorized, in Shaanxi, PRC on April 12, 2010.

 
 

By:

/s/ Peng Zhang

Peng Zhang
Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and appoint Peng Zhang and Li Wu, his or her true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, or any related registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this Registration Statement on Form F-1 was signed by the following persons in the capacities and on the dates stated.

   
Signature   Title   Date
/s/ Tao Li

Tao Li
  Chairman   April 12, 2010
/s/ Peng Zhang

Peng Zhang
  Chief Executive Officer
(Principal Executive Officer)
  April 12, 2010
/s/ Li Wu

Li Wu
  Chief Financial Officer
(Principal Financial and Accounting Officer)
  April 12, 2010
/s/ Lili Dong

Lilli Dong
  Director   April 12, 2010
/s/ Melody Shi

Melody Shi
  Director (Authorized Representative in the United States)   April 12, 2010
/s/ Ian M. Oades

Ian M. Oades
  Director   April 12, 2010

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EXHIBIT INDEX

 
Exhibit
No.
  Description
 1.1    Form of Underwriting Agreement between the Company and the underwriters named therein.
 3.1    Form of Amended and Restated Memorandum of Association and Articles of Association of the Company.
 4.1    Form of Deposit Agreement among the Company, depositary and holders of the American Depositary Receipts.
 4.3    Form of American Depositary Receipt (included in Exhibit 4.1).
 5.1    Form of Opinion of Harney Westwood & Riegels.
10.1    English translation of Entrusted Management Agreement dated December 15, 2009 between Xi’an Softech Co., Ltd., Xi’an Kingtone Information Technology Co., Ltd. and the shareholders of Xi’an Kingtone Information Technology Co., Ltd.
10.2    English translation of Exclusive Technology Service Agreement dated December 15, 2009 between Xi’an Softech Co., Ltd. and Xi’an Kingtone Information Technology Co., Ltd.
10.3    English translation of Shareholder’s Voting Proxy Agreement dated December 15, 2009 between Xi’an Softech Co., Ltd., Xi’an Kingtone Information Technology Co., Ltd. and the shareholders of Xi’an Kingtone Information Technology Co., Ltd.
10.4    English translation of Exclusive Option Agreement dated December 15, 2009 between Xi’an Softech Co., Ltd., Xi’an Kingtone Information Technology Co., Ltd. and the shareholders of Xi’an Kingtone Information Technology Co., Ltd.
10.5    English translation of Equity Pledge Agreement dated December 15, 2009 between Xi’an Softech Co., Ltd., Xi’an Kingtone Information Technology Co., Ltd. and the shareholders of Xi’an Kingtone Information Technology Co., Ltd.
10.6    English translation of Loan Agreement dated September 14, 2009 between Xi’an Kingtone Information Technology Co., Ltd. and Xian City Commercial Bank.
10.7    English translation of Mortgage Agreement dated September 14, 2009 between Xi’an Kingtone Information Technology Co., Ltd. and Xian City Commercial Bank.
10.8    English translation of Form of Call Option Agreement dated December 15, 2009 by and among Xtra Heights Management Ltd., Shae Li and twelve shareholders of Kingtone Information Technology Co., Ltd.
10.9    English translation of Form of Employment Agreement entered into between the Company and the Company’s executive officers.
10.10   Term Sheet dated October 27, 2009 between Sha Li and certain shareholders of Kingtone Information Technology Co., Ltd.
10.11   English transaction of Processing Contract for the Complete Equipment Installation of Drip Fertilizer dated June 19, 2008 between Xi’an Kingtone Information Technology Co., Ltd. and Shaanxi Techteam Jinong Humic Acid, Ltd.
10.12   English translation of Contract for Integrated & Wireless Pipeline Control System of Shaanxi Techteam Jinong Humic Acid Products Co., Ltd dated October 20, 2008 between Xi’an Kingtone Information Technology Co., Ltd. and Shaanxi Techteam Jinong Humic Acid, Ltd.
10.13   English translation of Installation and Construction Subcontract dated October 15, 2008 between Xi’an Kingtone Information Technology Co., Ltd., Yangzhuanghe Refine Chemical Project Headquarter of the Refine Chemical Company of Shanxi Yanchang Petroleum Group and Shanxi Chemical Construction Co., Ltd.
10.14   English translation of Material Purchase Contract dated April 30, 2009 between Xi’an Kingtone Information Technology Co., Ltd. and Xi’an Product Petroleum Pipe Transportation Project Management Department of Shanxi Chemical Construction YanLian.

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Exhibit
No.
  Description
10.15   Land Use Right and Property Ownership Transfer Agreement dated April 22, 2008 by and between Shaanxi Aoda Real Estate Co., Ltd. and Xi’an Kingtone Information Technology Co., Ltd.
21.1    Subsidiaries of the Company.
       Topsky Info-tech Holdings Pte Ltd, a Singapore company.
  Xi’an Softech Co., Ltd., a PRC company
23.1    Consent of Bernstein & Pinchuk LLP.
23.2    Consent of Harney Westwood & Riegels (contained in Exhibit 5.1).
23.3    Consent of Global Law Office.
24.1    Power of Attorney (included) on the signature page to this registration statement.

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Exhibit 1.1

_________ Ordinary Shares in the Form of American Depositary Shares
 
KINGTONE WIRELESSINFO SOLUTION HOLDING LTD
 
Ordinary Shares in the Form of American Depositary Shares
 
UNDERWRITING AGREEMENT
 
________, 2010

Roth Capital Partners, LLC
24 Corporate Plaza
Newport Beach, CA  92660

Ladies and Gentlemen:
 
Kingtone Wirelessinfo Solution Holding Ltd , a company incorporated under the laws of the British Virgin Islands (the “ Company ”), proposes, subject to the terms and conditions stated herein, to issue and sell to Roth Capital Partners, LLC (“ Roth ” or the “ Underwriter ”) an aggregate of __________ authorized but unissued ordinary shares (the “ Underwritten Shares ”), par value $0.001 per share (the “ Ordinary Shares ”), of the Company, and to grant the Underwriter the option to purchase an aggregate of up to ___________ additional Ordinary Shares (the “ Additional Shares ”) as may be necessary to cover over-allotments made in connection with the offering.  The Underwritten Shares and Additional Shares are collectively referred to as the “ Shares .”
 
The Underwriter will take delivery of the Shares in the form of American Depositary Shares (“ ADSs ”).  The ADSs are to be issued pursuant to a Deposit Agreement dated as of _________________, 2010 (the “ Deposit Agreement ”) among the Company, The Bank of New York Mellon. as Depositary (the “ Depositary ”) and all Holders and Owners (each as defined therein) from time to time of ADSs evidenced by American Depositary Receipts (“ ADRs ”) issued by the Depositary.
 
Each ADS will initially represent the right to receive __________ Ordinary Shares deposited pursuant to the Deposit Agreement.
 
The Company and the Underwriter hereby confirm their agreement as follows:

 
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1.
Registration Statement and Prospectus .
 
(a)           The Company has prepared and filed with the Securities and Exchange Commission (the “ Commission ”) a registration statement on Form F-1 (File No. 333-___________) relating to the Shares under the Securities Act of 1933, as amended (the “ Securities Act ”) and the rules and regulations (the “ Rules and Regulations ”) of the Commission thereunder, and such amendments to such registration statement (including post effective amendments) as may have been required to the date of this Agreement.  Such registration statement, as amended (including any post effective amendments) has been declared effective by the Commission.  Such registration statement, including amendments thereto (including post effective amendments thereto) at such time, the exhibits and any schedules thereto at such time and the documents and information otherwise deemed to be a part thereof or included therein by the Securities Act or otherwise pursuant to the Rules and Regulations at such time, is herein called the “ Registration Statement .”  If the Company has filed or files an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “ Rule 462 Registration Statement ”), then any reference herein to the term Registration Statement shall include such Rule 462 Registration Statement.
 
The Company is filing with the Commission pursuant to Rule 424 under the Securities Act a final prospectus supplement relating to the Shares to a form of prospectus included in the Registration Statement.  Such prospectus in the form in which it appears in the Registration Statement is hereinafter called the “ Base Prospectus ,” and such final prospectus supplement as filed, along with the Base Prospectus, is hereinafter called the “ Final Prospectus .”  Such Final Prospectus and any preliminary prospectus supplement or “red herring,” in the form in which they shall be filed with the Commission pursuant to Rule 424(b) under the Securities Act (including the Base Prospectus as so supplemented) is hereinafter called a “ Prospectus .”
 
(b)           The Company and the Depositary have filed with the Commission a registration statement, and amendments thereto, on Form F-6 (No. 333-_________) for the registration under the Securities Act of the ADSs, which registration statement, as so amended, has been declared effective by the Commission and copies of which have heretofore been delivered to the Underwriters.  Such registration statement, as amended at the time it became effective is hereinafter referred to as the “ ADS Registration Statement .”
 
(c)           A registration statement on Form 8-A (File No. 000-*) in respect of the registration of the Shares under the Exchange Act was filed with the Commission on __________, 2010, such registration statement in the form thereof delivered to the Underwriter was declared effective by the Commission in such form; no other document with respect to such registration statement has theretofore been filed with the Commission (the “ Form 8-A Registration Statement ”).
 
For purposes of this Agreement, all references to the Registration Statement, the Rule 462 Registration Statement, the ADS Registration Statement, the Form 8-A Registration Statement, the Base Prospectus, the Final Prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Interactive Data Electronic Applications system.  All references in this Agreement to amendments or supplements to the Registration Statement, the Rule 462 Registration Statement, the ADS Registration Statement, the Form 8-A Registration Statement, the Base Prospectus, the Final Prospectus or the Prospectus shall be deemed to mean and include the subsequent filing of any document under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), that is deemed to be incorporated therein by reference therein or otherwise deemed by the Rules and Regulations to be a part thereof.

 
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2.
Representations and Warranties of the Company Regarding the Offering.
 
(a)           The Company represents and warrants to, and agrees with, the Underwriter, as of the date hereof and as of the Closing Date (as defined in Section 5(c) below), except as otherwise indicated, as follows:
 
(i)           At each time of effectiveness, at the date hereof and at the Closing Date, the Registration Statement, the ADS Registration Statement, the Form 8-A Registration Statement, and any post-effective amendment thereto complied or will comply in all material respects with the requirements of the Securities Act and the Rules and Regulations and did not and will not contain any 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.  The Base Prospectus, the Prospectus most recently filed with the Commission before the time of this Agreement, including any preliminary prospectus supplement deemed to be a part thereof (the “ Time of Sale Disclosure Package ”) as of the date hereof and at the Closing Date, and the Final Prospectus, as amended or supplemented, at the time of filing pursuant to Rule 424(b) under the Securities Act and at the Closing Date, did not and will not contain any 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, in the light of the circumstances under which they were made, not misleading.  The representations and warranties set forth in the two immediately preceding sentences shall not apply to statements in or omissions from the Registration Statement or any Prospectus in reliance upon, and in conformity with, written information furnished to the Company by the Underwriter specifically for use in the preparation thereof.  Each of the Registration Statement, the ADS Registration Statement and the Form 8-A Registration Statement contains all exhibits and schedules required to be filed by the Securities Act or the Rules and Regulations.  No order preventing or suspending the effectiveness or use of the Registration Statement or any Prospectus is in effect and no proceedings for such purpose have been instituted or are pending, or, to the knowledge of the Company, are contemplated or threatened by the Commission.
 
(ii)          The Company has not distributed any prospectus or other offering material in connection with the offering and sale of the Shares or the ADSs other than the Time of Sale Disclosure Package or other materials permitted by the Act to be distributed by the Company.  The Company has not made and will not make any offer relating to the Shares or the ADSs that would constitute an “issuer free writing prospectus”, as defined in Rule 433 under the Act, or that would otherwise constitute a “free writing prospectus”, as defined in Rule 405 under the Act, required to be filed with the Commission.

 
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(iii)         The financial statements of the Company, together with the related notes, included or incorporated by reference in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act and fairly present the financial condition of the Company as of the dates indicated and the results of operations and changes in cash flows for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein.  No other financial statements, pro forma financial information or schedules are required under the Securities Act to be included or incorporated by reference in the Registration Statement, the Time of Sale Disclosure Package or the Final Prospectus.  To the Company’s knowledge, Bernstein & Pinchuk LLP, which has expressed its opinion with respect to the annual financial statements and schedules filed as a part of the Registration Statement and included in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus is an independent public accounting firm with respect to the Company within the meaning of the Securities Act and the Rules and Regulations.
 
(iv)        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, the Time of Sale Disclosure Package or the Final Prospectus.
 
(v)         All statistical or market-related data included or incorporated by reference in the Registration Statement, the Time of Sale Disclosure Package or the Final Prospectus are based on or derived from 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.
 
(vi)        The Ordinary Shares are registered pursuant to Section 12(b) of the Exchange Act, the ADSs are registered pursuant to the ADS Registration Statement and the Company has applied to list the ADSs on the NASDAQ Capital Market. There is no action pending by the Company or, to the Company’s knowledge, the NASDAQ Capital Market to withdraw or deny the application to list the ADSs on the NASDAQ Capital Market.
 
(vii)       The Company has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or the ADSs.
 
(viii)      The Company is not and, after giving effect to the offering and sale of the Shares, will not be an “investment company,” as such term is defined in the Investment Company Act of 1940, as amended.
 
(b)           Any certificate signed by any officer of the Company and delivered to the Underwriter or to the Underwriter’s counsel shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby.

 
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3.
Representations and Warranties Regarding the Company.
 
(a)           The Company represents and warrants to, and agrees with, the Underwriter, as follows:
 
(i)           Each of the Company and its subsidiaries has been duly incorporated or organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation or organization. Each of the Company and its subsidiaries has the corporate power and authority to own or lease its properties and conduct its business as currently being carried on and as described in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus.
 
(ii)          The Company has the power and authority to enter into this Agreement, the Deposit Agreement and all other agreements, documents, certificates and instruments required to be delivered pursuant to this Agreement, to authorize, issue and sell the Shares and the ADSs as contemplated by this Agreement.  This Agreement and the Deposit Agreement have been duly authorized, executed and delivered by the Company, and constitute valid, legal and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity.
 
(iii)         The execution, delivery and performance of this Agreement and the Deposit Agreement and all other agreements, documents, certificates and instruments required to be delivered pursuant to this Agreement, and the consummation of the transactions hereby and thereby contemplated will not (A) result in a breach or violation of any of the terms and provisions of, or constitute a default under, any law, rule, regulation, ordinance, directive, judgment, decree or order of any judicial, regulatory or other legal or governmental agency or body, domestic or foreign to which the Company or any subsidiary is subject, or by which any property or asset of the Company or any subsidiary is bound or affected, (B) conflict with, result in any violation or breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, lease, credit facility, debt, note, bond, mortgage, indenture or other instrument (the “ Contracts ”) or obligation or other understanding to which the Company or any subsidiary is a party of by which any property or asset of the Company or any subsidiary is bound or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right is not reasonably likely to result in a material adverse effect upon the business, prospects, properties, shareholders’ equity, operations, condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole, or in its ability to perform its obligations under this Agreement or the Deposit Agreement (“ Material Adverse Effect ”), or (C) result in a breach or violation of any of the terms and provisions of, or constitute a default under, the Company’s memorandum of association or articles of association.

 
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(iv)        Neither the Company nor any of its subsidiaries (A) is in violation of its certificates, licenses, permits or authorizations issued by competent governmental, regulatory or judicial authorities or (B) is in violation, breach or default under its memorandum of association, articles of association or other equivalent organizational or governing documents, except, in each case, where the violation, breach or default in the case of a subsidiary of the Company is not reasonably likely to result in a Material Adverse Effect.
 
(v)         All consents, approvals, orders, authorizations and filings required on the part of the Company and its subsidiaries in connection with the execution, delivery or performance of this Agreement and the Deposit Agreement have been obtained or made, other than such consents, approvals, orders and authorizations the failure of which to make or obtain is not reasonably likely to result in a Material Adverse Effect.
 
(vi)        All of the issued and outstanding shares of capital stock of the Company are duly authorized and validly issued, fully paid and non-assessable, and have been issued in compliance with all applicable securities laws, and conform to the description thereof in the Registration Statement, the ADS Registration Statement, Form 8-A Registration Statement, the Time of Sale Disclosure Package and the Prospectus.  Except for the issuances of options or restricted stock as contemplated by and described in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, since the respective dates as of which information is provided in the Registration Statement, the Time of Sale Disclosure Package or the Prospectus, the Company has not entered into or granted any convertible or exchangeable securities, options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company any shares of the capital stock of the Company.  The Shares, when issued, will be duly authorized and validly issued, fully paid and non-assessable, will be issued in compliance with all applicable securities laws, and will be free of preemptive, registration or similar rights other than such rights as have been duly waived or satisfied.
 
(vii)       The ADSs, when issued by the Depositary against the deposit of Shares in respect thereof in accordance with the provisions of the Deposit Agreement, will be duly authorized and validly issued and the persons in whose names such ADSs are registered will be entitled to the rights of registered holders of ADSs specified therein and in the Deposit Agreement.
 
(viii)      The Deposit Agreement, the ADSs and the ADRs conform to the descriptions thereof contained in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus.
 
(ix)         The Shares and the ADSs are freely transferable by the Company to or for the account of the several Underwriters and (to the extent described in the Prospectus) the initial holders thereof; and, except as disclosed in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, there are no restrictions on subsequent transfers of the Shares or the ADSs under the laws of the British Virgin Islands, the People’s Republic of China (the “ PRC ”) or the United States.

 
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(x)          Each of the Company, Topsky Info Tech Holdings Pte Ltd., a Singapore company (the “ Singapore Subsidiary ”) and the PRC Entities (as defined in Section 4(a)(i) below) has timely filed all foreign, federal, state and local returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof.  Each of the Company, the Singapore Subsidiary and the PRC Entities has timely paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has timely paid all taxes imposed on or assessed against the Company the Singapore Subsidiary or the PRC Entities.  The provisions for taxes payable, if any, shown on the consolidated financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements.  Except as disclosed in writing to the Underwriter, (A) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns of or taxes asserted as due from the Company, the Singapore Subsidiary or the PRC Entities, and (B) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company, the Singapore Subsidiary or the PRC Entities.  The term “ taxes ” mean all federal, state, local, foreign, and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto.  The term “ returns ” means all returns, declarations, reports, statements, and other documents required to be filed in respect to taxes.
 
(xi)         Since the respective dates as of which information is given in the Registration Statement, the Time of Sale Disclosure Package or the Prospectus, (A) neither the Company nor the Singapore Subsidiary nor any of the PRC Entities has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (B) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock; (C) there has not been any change in the capital stock of the Company or any of its subsidiaries (other than a change in the number of outstanding Ordinary Shares due to the issuance of shares upon the exercise of outstanding options or warrants or the issuance of restricted stock awards or restricted stock units under the Company’s existing stock awards plan, or any new grants thereof in the ordinary course of business), (D) there has not been any material change in the Company’s long-term or short-term debt, and (E) there has not been the occurrence of any Material Adverse Effect.
 
(xii)        There is no pending or, to the knowledge of the Company, threatened, any action, suit or proceeding to which the Company, the Singapore Subsidiary or any of the PRC Entities is a party or of which any property or assets of the Company, the Singapore Subsidiary or any of the PRC Entities is the subject before or by any court or governmental agency, authority or body, or any arbitrator or mediator, which is reasonably likely to result in a Material Adverse Effect.

 
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(xiii)       The Company, the Singapore Subsidiary and each of the PRC Entities holds, and is in compliance with, all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders (“ Permits ”) of any governmental or self-regulatory agency, authority or body required for the conduct of its business, and all such Permits are in full force and effect, in each case except where the failure to hold, or comply with, any of them is not reasonably likely to result in a Material Adverse Effect.
 
(xiv)       The Company, the Singapore Subsidiary and each of the PRC Entities have all consents, approvals, authorizations, orders, registrations, qualifications, licenses, filings and permits of, with and from all judicial, regulatory and other legal or governmental agencies and all third parties, foreign and domestic, to own, lease and operate all property (whether real or personal) described in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus as being owned by them that are material to the business of the Company, in each case free and clear of all liens, claims, security interests, other encumbrances or defects, except those that are not reasonably likely to result in a Material Adverse Effect.   Although the Company has not consummated the title registration of the transfer of the premises located at No. 17 Huoju Road, Beiling District, Xi’an (“Kingtone Center”) with applicable PRC authorities, the Company represents that (x) to its knowledge, after due inquiry, there is no third party lien or encumbrance attached to such property, and (y) the lack of title registration of such property will not directly or indirectly result in a Material Adverse Effect. The property described in the Registration Statement, the time of Sale Disclosure Package and the Prospectus as held under lease or pursuant to house ownership certificate by the Company, the Singapore Subsidiary or the PRC Entities is held by them under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease or pursuant to house ownership certificate, as the case may be, as do not interfere in any material respect with the conduct of the business of the Company, the Singapore Subsidiary or the PRC Entities.  Neither the Company nor the Singapore Subsidiary nor any of the PRC Entities has received any notice of any claim adverse to its ownership of any real or personal property or any claim against the continued possession of any real property, whether owned or held under lease or sublease by the Company or any subsidiary.
 
(xv)        The Company, the Singapore Subsidiary or the PRC Entities owns or possesses or has valid right to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, formulae, inventions, customer lists, know-how,  trade secrets and similar rights (“ Intellectual Property ”) necessary for the conduct of the business of the Company, the Singapore Subsidiary and each of the PRC Entities as currently carried on and as described in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus.  To the knowledge of the Company, no action or use by the Company, the Singapore Subsidiary or the PRC Entities will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property of others, except where such action, use, license or fee is not reasonably likely to result in a Material Adverse Effect.  Neither the Company nor the Singapore Subsidiary nor any of the PRC Entities has received any notice alleging any such infringement or fee.  There is no pending nor, to the knowledge of the Company, threatened action, suit, proceeding by any person challenging the rights of the Company, the Singapore Subsidiary or the PRC Entities in or to any such Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim.

 
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(xvi)       The Company, the Singapore Subsidiary and each of the PRC Entities have complied with, are not in violation of, and have not received any notice of violation relating to any law, rule or regulation relating to the conduct of its business, or the ownership or operation of its property and assets, including, without limitation, (A) the Currency and Foreign Transactions Reporting Act of 1970, as amended, or any money laundering laws, rules or regulations, (B) any laws, rules or regulations related to health, safety or the environment, including those relating to the regulation of hazardous substances, (C) the Sarbanes-Oxley Act and the rules and regulations of the Commission thereunder, and (D) the Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder, in each case except where the failure to be in compliance is not reasonably likely to result in a Material Adverse Effect.
 
(xvii)      Neither the Company nor the Singapore Subsidiary nor any of the PRC Entities nor, to the knowledge of the Company, any director, officer, employee, representative, agent or affiliate of the Company, the Singapore Subsidiary or any of the PRC Entities is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares and the ADSs contemplated hereby, or lend, contribute or otherwise make available such proceeds to any person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
 
(xviii)     Except as disclosed in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, the Company and each of the PRC Entities carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries in the People’s Republic of China (the “ PRC ”).
 
(xix)        Except as disclosed in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, each of the Company, the Singapore Subsidiary and the PRC Entities has complied in all material respects with all applicable employment and labor laws with respect to its employees.  No labor dispute with the employees of the Company, the Singapore Subsidiary or any of the PRC Entities exists or, to the knowledge of the Company, is imminent that is reasonably likely to result in a Material Adverse Effect.
 
(xx)        Neither the Company, the Singapore Subsidiary or any of the PRC Entities, nor to the Company’s knowledge, any other party is in violation, breach or default of any Contract that is reasonably likely to result in a Material Adverse Effect.
 
(xxi)       No supplier, customer, distributor or sales agent of the PRC Entities has notified the Company, the Singapore Subsidiary or any of the PRC Entities that it intends to discontinue or decrease the rate of business done with the Company, the Singapore Subsidiary or any of the PRC Entities except where such decrease is not reasonably likely to result in a Material Adverse Effect.
 
(xxii)      Except as disclosed in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder’s, consulting or origination fee with respect to the introduction of the Company to the Underwriter or the sale of the Shares and the ADSs hereunder or any other arrangements, agreements, understandings, payments or issuances with respect to the Company that may affect the Underwriter’s compensation, as determined by FINRA.

 
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(xxiii)     Except as disclosed to the Underwriter in writing, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to (A) any person, as a finder’s fee, investing fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who provided capital to the Company, (B) any FINRA member, or (C) any person or entity that has any direct or indirect affiliation or association with any FINRA member within the 12-month period prior to the date on which the Registration Statement was filed with the Commission (“ Filing Date ”) or thereafter.
 
(xxiv)     None of the net proceeds of the offering will be paid by the Company to any participating FINRA member or any affiliate or associate of any participating FINRA member, except as specifically authorized herein.
 
(xxv)      To the Company’s knowledge, no (A) officer or director of the Company, the Singapore Subsidiary or any PRC Entity, (B) owner of 5% or more of the Company’s securities or that of the Singapore Subsidiary or any PRC Entity or (C) owner of any amount of the Company’s securities acquired within the 180-day period prior to the Filing Date, has any direct or indirect affiliation or association with any FINRA member.  The Company will advise the Underwriter and its counsel if it becomes aware that any officer, director or stockholder of the Company, the Singapore Subsidiary or any of the PRC Entities is or becomes an affiliate or associated person of a FINRA member participating in the offering.
 
(xxvi)     Other than the Underwriter, no person has the right to act as an underwriter or as a financial advisor to the Company in connection with the transactions contemplated hereby.
 
 
4.
Representations and Warranties of the Company Regarding the PRC.
 
(a)           The Company represents and warrants to, and agrees with, the Underwriter, as of the date hereof and as of the Closing Date, as follows:

 
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(i)           The Company conducts substantially all of its operations and generates substantially all of its revenue through (A) Xi’an Softech Co., Ltd., a wholly foreign-owned enterprise formed under the laws of the PRC (“ Softech ”) and (B) Xi’an Kingtone Information Technology Co., Ltd., a company formed under the laws of the PRC(“ Kingtone Information ”), which the Company controls, through contractual arrangements among Softech and Kingtone Information and its shareholders.  Softech and Kingtone Information are collectively referred to in this Agreement as the “ PRC Entities .”
 
(ii)          Each of the PRC Entities has been duly established, is validly existing as a company under the laws of the PRC, has the corporate power and authority to own, lease and operate its property and to conduct its business as described in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, and is duly qualified to conduct its business operation, enforce its agreements and transact business in the PRC and in each other jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified, to conduct its normal business operation or enforce its agreements would not, singly or in the aggregate, have a Material Adverse Effect.  Each PRC Entity has applied for and obtained all requisite business licenses, clearance and permits required under PRC law and regulations as necessary for the conduct of its businesses,  and each PRC Entity has complied in all material respects with all applicable PRC laws and regulations in connection with foreign exchange, including without limitation, carrying out all relevant filings, registrations and applications for relevant permits with the relevant branch of the PRC State Administration of Foreign Exchange and any other relevant  authorities, and all such permits are validly subsisting.  The registered capital of each PRC Entity has been fully paid up in accordance with the schedule of payment stipulated in its respective articles of association, approval document, certificate of approval and legal person business license (hereinafter referred to as the “ Establishment Documents ”) and in compliance with PRC laws and regulations, and there is no outstanding capital contribution commitment for any PRC Entity.  The Establishment Documents of the PRC Entities have been duly approved in accordance with the laws of the PRC and are valid and enforceable.  The business scope specified in the Establishment Documents of each PRC Entity complies with the requirements of all relevant PRC laws and regulations.  None of the PRC Entities is carrying out or has carried out any business activities that are beyond its business scope or the scope of its Permits.  The outstanding equity interests of each PRC Entity is owned of record by the respective entities or individuals identified as the registered holders thereof in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus.  Except for the PRC Entities, the Company does not presently own, control or have, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, branch offices or other entity in the PRC.
 
(iii)         Except as disclosed in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, no consents, approvals, authorizations, orders, registrations, clearances, certificates, franchises, licenses, permits or qualifications of or with any PRC governmental agency are required for Softech’s contractual arrangements and agreements with Kingtone Information and its registered equity holders (the “ VIE Structure ”) or the execution, delivery and performance of such contractual arrangements and agreements (the “ VIE Structuring Documents ”).  None of the VIE Structuring Documents has been revoked and no such revocation is pending or threatened.  Each of the VIE Structuring Documents has been entered into prior to the date thereof in compliance with all applicable laws and regulations and constitutes a valid and legally binding agreement, enforceable in accordance with its terms.

 
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(iv)        The VIE Structure and the execution, delivery and performance of the VIE Structuring Documents and the consummation of the transactions contemplated thereby did not and do not (A) conflict with, or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which any PRC Entity is a party or by which any PRC Entity is bound or by which any of the properties or assets of any PRC Entity is subject, (B) violate or conflict with the Establishment Documents of any PRC Entity, or (C) violate or conflict with any applicable laws, regulations, rules, orders, decrees, guidelines, notices or other legislation of the PRC.
 
(v)         Except as disclosed in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, the VIE Structure complies, and after the consummation of the offering and sale of the Shares and the ADSs will comply, with all applicable laws, regulations, rules, orders, decrees, guidelines, notices or other legislation of the PRC; the VIE Structure has not been challenged by any PRC governmental agency and there are no legal, arbitration, governmental or other proceedings (including, without limitation, governmental investigations or inquiries) pending before or, to the Company’s knowledge, threatened or contemplated by any PRC governmental agency in respect of the VIE Structure; and the Company reasonably believes that after the consummation of the offering and sale of the Shares and the ADSs, the VIE Structure could not be successfully challenged by any PRC governmental agency.
 
(vi)        The Company possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of Kingtone Information.
 
(vii)       Softech is not currently prohibited, directly or indirectly, from paying any dividends to the Company (or the Singapore Subsidiary), and Kingtone Information is not currently prohibited, directly or indirectly, from paying any of its obligations set forth in the VIE Structuring Documents.  No PRC Entity is prohibited, directly or indirectly, from making any other distribution on such PRC Entity’s equity capital, or from repaying to the Company or any of its direct or indirect subsidiaries any loans or advances to such PRC Entity from the Company or any of the Company’s subsidiaries.
 
(viii)      None of the PRC Entities nor any of their properties, assets or revenues are entitled to any right of immunity on the grounds of sovereignty from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any court, from services of process, from attachment prior to or in aid of execution of judgment, or from any other legal process or proceeding for the giving of any relief or for the enforcement of any judgment.

 
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(ix)         It is not necessary that this Agreement, the Registration Statement, the Time of Sale Disclosure Package, the Prospectus or any other document be filed or recorded with any governmental agency, court or other authority in the PRC.
 
(x)          No transaction, stamp, capital or other issuance, registration, transaction, transfer, income, capital gains, withholding or other taxes or duties are payable by or on behalf of the Underwriter to the government of the PRC or to any political subdivision or taxing authority thereof or therein in connection with (A) the execution and delivery of this Agreement, (B) the issuance, sale and delivery of the Shares and the ADSs by the Company and the delivery of the Shares and the ADSs to or for the account of the Underwriter, (C) the purchase from the Company and the initial sale and delivery by the Underwriter of the Shares and the ADSs to purchasers thereof, or (D) the consummation of any other transaction contemplated in this Agreement.
 
(xi)         The Company has taken all necessary steps to comply with, and to require compliance by all of the Company’s direct or indirect shareholders and option holders who are PRC residents with, any applicable rules and regulations of the PRC, including the regulations issued by the State Administration of Foreign Exchange of the PRC (the “ SAFE Rules and Regulations ”), including, without limitation, using its reasonable best efforts to require each shareholder and option holder that is, or is directly or indirectly owned or controlled by, a PRC resident to complete any registration and other procedures required under applicable SAFE Rules and Regulations.
 
(xii)        The Company is aware of, and has been advised as to, the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, as in effect on the date hereof, jointly promulgated on August 8, 2006 by the PRC Ministry of Commerce, the PRC State Assets Supervision and Administration Commission, the PRC State Administration of Taxation, the PRC State Administration of Industry and Commerce, the China Securities Regulatory Commission (the “ CSRC ”) and the PRC State Administration of Foreign Exchange of the PRC and amended Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on June 22, 2009 by the PRC Ministry of Commerce (the “ M&A Rules ”), in particular the relevant provisions thereof that purport to require offshore special purpose vehicles controlled directly or indirectly by PRC-incorporated companies or PRC residents and established for the purpose of obtaining a stock exchange listing outside of the PRC to obtain the approval of the CSRC prior to the listing and trading of their securities on any stock exchange located outside of the PRC.  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.  In addition, the Company has communicated such legal advice in full to each of its directors that signed the Registration Statement and each such director has confirmed that he or she understands such legal advice.
 
(xiii)       The issuance and sale of the Shares, the listing and trading of the ADSs on the NASADAQ Capital Market and the consummation of the transactions contemplated by this Agreement, the Deposit Agreement, the Registration Statement, the Time of Sale Disclosure Package and the Prospectus are not as of the date hereof and will not be, on the Closing Date, subject to or otherwise materially affected by the M&A Rules or any official clarifications, guidance, interpretations or implementation rules in connection with or related to the M&A Rules, including the guidance and notices issued by the CSRC on September 8 and September 21, 2006 (together with the M&A Rules, the “ M&A Rules and Related Clarifications ”).

 
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(xiv)       The Company has used its reasonable best efforts to require compliance by each of its shareholders, option holders, directors, officers and employees that is, or is directly or indirectly owned or controlled by, a PRC resident or citizen with any applicable rules and regulations of the relevant PRC government agencies (including but not limited to the PRC Ministry of Commerce, the PRC National Development and Reform Commission and the PRC State Administration of Foreign Exchange) relating to overseas investment by PRC residents and citizens (the “ PRC Overseas Investment and Listing Regulations ”), including, requesting each shareholder, option holder, director, officer, employee and participant that is, or is directly or indirectly owned or controlled by, a PRC resident or citizen to complete any registration and other procedures required under applicable PRC Overseas Investment and Listing Regulations.
 
(xv)        As of the date hereof, the M&A Rules and Related Clarifications do not require the Company to obtain the approval of the CSRC prior to the issuance and sale of the Shares and the ADSs, the listing and trading of the ADSs on the NASDAQ Capital Market, or the consummation of the transactions contemplated by this Agreement, the Registration Statement, the Time of Sale Disclosure Package or the Prospectus.
 
(xvi)       Each of the PRC Entities is in compliance with all requirements under all applicable PRC laws and regulations to qualify for an exemption from enterprise income tax or other income tax benefits (the “ Tax Benefits ”) as described in the Registration Statement, the Time of Sale Disclosure Package and the Prospectus, and the actual operations and business activities of each such PRC Entity are sufficient to meet the qualifications for the Tax Benefits.  No submissions made to any PRC government authority in connection with obtaining the Tax Benefits contained any misstatement or omission that to the Company’s knowledge would have affected the granting of the Tax Benefits.  No PRC Entity has received notice of any deficiency in its respective applications for the Tax Benefits, and the Company is not aware of any reason why any such PRC Entity might not qualify for, or be in compliance with the requirements for, the Tax Benefits.
 
(xvii)      All local and national PRC governmental tax holidays, exemptions, waivers, financial subsidies, and other local and national PRC tax relief, concessions and preferential treatment enjoyed by any PRC Entity as described in the Registration Statement, the Time of Disclosure Package and the Prospectus are valid, binding and enforceable and do not violate any laws, regulations, rules, orders, decrees, guidelines, judicial interpretations, notices or other legislation of the PRC.

 
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5.
Purchase, Sale and Delivery of Shares and ADSs.
 
(a)           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 issue and sell the Underwritten Shares, in the form of ADSs, to the Underwriter, and the Underwriter agrees to purchase the Underwritten Shares.  The purchase price for each Underwritten Share shall be $_______ per share (the “ Per Share Price ”).
 
(b)           The Company hereby grants to the Underwriter the option to purchase some or all of the Additional Shares, in the form of ADSs, and, upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Underwriter shall have the right to purchase all or any portion of the Additional Shares at the Per Share Price as may be necessary to cover over-allotments made in connection with the transactions contemplated hereby.  This option may be exercised by the Underwriter at any time (but not more than once) on or before the thirtieth day following the date hereof, by written notice to the Company (the “ Option Notice ”).  The Option Notice shall set forth the aggregate number of Additional Shares and ADSs as to which the option is being exercised, and the date and time when the Additional Shares are to be delivered (such date and time being herein referred to as the “ Option Closing Date ”); provided , however , that the Option Closing Date shall not be earlier than the Closing Date (as defined below) nor earlier than the first business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised unless the Company and the Underwriter otherwise agree.
 
Payment of the purchase price for and delivery of the Additional Shares shall be made at the Option Closing Date in the same manner and at the same office as the payment for the Underwritten Shares   as set forth in subparagraph (c) below.  For the purpose of expediting the checking of the certificate for the Additional Shares by the Underwriter, the Company agrees to make a form of such certificate available to the Underwriter for such purpose at least one full business day preceding the Option Closing Date.
 
(c)           The Underwritten Shares, in the form of ADSs, will be delivered by the Company to the Underwriter against payment of the purchase price therefor by wire transfer of same day funds payable to the order of the Company at the offices of Roth Capital Partners, LLC, 24 Corporate Plaza, Newport Beach, CA 92660, or such other location as may be mutually acceptable, at 6:00 a.m. PST, on the third (or if the Underwritten Shares are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern time, the fourth) full business day following the date hereof, or at such other time and date as the Underwriter and the Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, or, in the case of the Additional Shares, at such date and time set forth in the Option Notice.  The time and date of delivery of the Underwritten Shares or the Additional Shares, as applicable, is referred to herein as the “ Closing Date .”  If the Underwriter so elects, delivery of the Underwritten Shares and Additional Shares, each in the form of ADSs, may be made by credit through full fast transfer to the account at The Depository Trust Company designated by the Underwriter.  Certificates representing the ADSs, in definitive form and in such denominations and registered in such names as the Underwriter may request upon at least two business days’ prior notice to the Company, will be made available for checking and packaging not later than 10:30 a.m. PDT on the business day next preceding the Closing Date at the above addresses, or such other location as may be mutually acceptable.

 
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6.
Covenants.
 
(a)           The Company covenants and agrees with the Underwriter as follows:
 
(i)           During the period beginning on the date hereof and ending on the later of the Closing Date or such date as determined by the Underwriter the Prospectus is no longer required by law to be delivered in connection with sales by an underwriter or dealer (the “ Prospectus Delivery Period ”), prior to amending or supplementing the Registration Statement, including any Rule 462 Registration Statement, the Time of Sale Disclosure Package or the Prospectus, the Company shall furnish to the Underwriter for review and comment a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Underwriter reasonably objects.
 
(ii)          From the date of this Agreement until the end of the Prospectus Delivery Period, the Company shall promptly advise the Underwriter in writing (A) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (B) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to the Time of Sale Disclosure Package or the Prospectus, (C) of the time and date that any post-effective amendment to the Registration Statement becomes effective and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending its use or the use of the Time of Sale Disclosure Package , or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes.  If the Commission shall enter any such stop order at any time during the Prospectus Delivery Period, the Company will use its reasonable efforts to obtain the lifting of such order at the earliest possible moment.  Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 430B, as applicable, under the Securities Act and will use its reasonable efforts to confirm that any filings made by the Company under Rule 424(b) or Rule 433 were received in a timely manner by the Commission (without reliance on Rule 424(b)(8) or Rule 164(b) of the Securities Act).
 
(iii)         During the Prospectus Delivery Period, the Company will comply with all requirements imposed upon it by the Securities Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, and by the Exchange Act, as now and hereafter amended, so far as necessary to permit the continuance of sales of or dealings in the Shares as contemplated by the provisions hereof, the Time of Sale Disclosure Package, the Registration Statement and the Prospectus.  If during such period any event occurs the result of which the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Time of Sale Disclosure Package ) would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary or appropriate in the opinion of the Company or its counsel or the Underwriter or its counsel to amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Time of Sale Disclosure Package ) to comply with the Securities Act, the Company will promptly notify the Underwriter and will amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Time of Sale Disclosure Package) so as to correct such statement or omission or effect such compliance.

 
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(iv)         The Company shall take or cause to be taken all necessary action to cause the ADSs to be listed on the NASDAQ Capital Market and to qualify the ADSs for sale under the securities laws of such jurisdictions as the Underwriter reasonably designates and to continue such qualifications in effect so long as required for the distribution of the ADSs, except that the Company shall not be required in connection therewith to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified, to execute a general consent to service of process in any state or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise subject.
 
(v)          The Company will furnish to the Underwriter and counsel for the Underwriter copies of the Registration Statement, each Prospectus, the ADS Registration Statement, the Deposit Agreement and the Form 8-A Registration Statement and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Underwriter may from time to time reasonably request.
 
(vi)         The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company’s current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period that shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Rules and Regulations.
 
(vii)        The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay or cause to be paid  (A) all expenses (including transfer taxes allocated to the respective transferees) incurred in connection with the delivery of the Shares to the Underwriter, (B) all expenses and fees (including, without limitation, fees and expenses of the Company’s counsel) in connection with the preparation, printing, filing, delivery, and shipping of the Registration Statement (including the financial statements therein and all amendments, schedules, and exhibits thereto), the Shares, the Time of Sale Disclosure Package, the Prospectus, and any amendment thereof or supplement thereto, (C) the fees and expenses of any transfer agent or registrar, (D) NASDAQ Capital Market listing fees and (E) all other costs and expenses incident to the performance of the Company s obligations hereunder that are not otherwise specifically provided for herein; provided, however, that the Company shall have no obligation to pay any of the expenses of the Underwriter, including the following, each of which shall be paid by the Underwriter: (i) all filing fees and reasonable fees and disbursements of the Underwriter’s counsel incurred in connection with the qualification of the Shares for offering and sale by the Underwriter or by dealers under the securities or blue sky laws of the states and other jurisdictions that the Underwriter shall designate, (ii) the filing fees and fees of counsel incident to any required review and approval by FINRA, of the terms of the sale of the Shares, and (iii) all out-of-pocket disbursements (including but not limited to, reasonable fees and disbursements (including, but not limited to, reasonable fees and disbursements of counsel, travel expenses, postage, facsimile and telephone charges) incurred by the Underwriter in connection with its investigation, preparing to market and marketing the Shares or in contemplation of performing its obligations hereunder.  In addition to the foregoing, the Company will pay the Underwriter, on the Closing Date, an amount equal to 5% of the gross proceeds received by the Company from the sale of the Underwritten Shares and the Additional Shares, as applicable, as an underwriting discount.

 
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(viii)       The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder for the purposes set forth in the Time of Sale Disclosure Package and in the Final Prospectus.
 
(ix)          The Company has not taken and will not take, directly or indirectly, during the Prospectus Delivery Period, any action designed to or which might reasonably be expected to cause or result in, or that has constituted, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
 
(x)           The Company represents and agrees that it 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 under the Act, or that would otherwise constitute a “free writing prospectus”, as defined in Rule 405 under the Act.
 
(xi)          The Company hereby agrees that, without the prior written consent of the Underwriter, it will not, during the period ending 180 days after the date hereof (“ Lock-Up Period ”), (A) offer, pledge, issue, sell, contract to sell, purchase, contract to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares or any securities convertible into or exercisable or exchangeable for or representing the right to receive Ordinary Shares, including ADSs; or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Ordinary Shares, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of Ordinary Shares or such other securities, in cash or otherwise; or (C) file any registration statement with the Commission relating to the offering of any Ordinary Shares or any securities convertible into or exercisable or exchangeable for or representing the right to receive Ordinary Shares, including ADSs.  The restrictions contained in the preceding sentence shall not apply to (1) the Shares and ADSs to be sold hereunder, (2) the issuance of Ordinary Shares upon the exercise of options or warrants disclosed as outstanding in the Registration Statement (excluding exhibits thereto) or the Prospectus, and (3) the issuance of employee stock options not exercisable during the Lock-Up Period and the grant of restricted stock awards or restricted stock units pursuant to equity incentive plans described in the Registration Statement (excluding exhibits thereto) and the Prospectus.  Notwithstanding the foregoing, if (x) the Company issues an earnings release or material news, or a material event relating to the Company occurs, during the last 17 days of the Lock-Up Period, or (y) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by this clause shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless the Underwriter waives such extension in writing.

 
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(xii)         The Company hereby agrees that for a period of six months after the Closing Date, the Underwriter shall have the first right to provide investment banking services to the Company on an exclusive basis in all matters for which investment banking services are sought by the Company on the terms contained in this Section (such right, the “ Right of First Refusal ”). For these purposes, investment banking services shall include, without limitation, (i) acting as lead, book-running manager for any underwritten public offering; (ii) acting as exclusive placement agent or financial advisor in connection with any private offering of securities of the Company; and (iii) acting as financial advisor in connection with any sale or other transfer by the Company, directly or indirectly, of a majority or controlling portion of its respective capital stock or assets to another entity, any purchase or other transfer by another entity, directly or indirectly, of a majority or controlling portion of the capital stock or assets of the Company, and any merger or consolidation of the Company with another entity. In the event the Company determines to undertake a transaction of the type described in (i), (ii) or (iii) above, it shall promptly send notice thereof to the Underwriter, the Underwriter may exercise the Right of First Refusal by sending written notice to the Company of its desire to serve as the Company's investment banking firm in connection with such transaction not later than 15 calendar days following its receipt of the Company's notice. Any decision by the Underwriter to act in any such capacity shall he contained in separate agreements, which agreements would contain, among other matters, provisions for customary fees for transactions of similar size and nature, as may be mutually agreed upon, and indemnification of the Underwriter and its affiliates and shall be subject to general market conditions. If the Underwriter declines or otherwise fails to exercise the Right of First Refusal within the prescribed period (which it may do in its sole and absolute discretion), the Company shall have the right to retain any other person or persons to provide such services on terms and conditions which are not materially more favorable (taken as a whole) to such other person or persons than the terms offered to the Underwriter.
 
(xiii)         On or prior to May 20, 2010, the Company shall pay or cause to be paid all transfer taxes and other fees and expenses required by all relevant PRC governmental agencies or authorities in order to consummate the title registration of the transfer of Kingtone Center to the Company.
 
(b)           The Underwriter covenants and agrees with the Company as follows:
 
(i)           The Underwriter represents and agrees that it has not made and will not make any offer relating to the Shares or the ADSs that would constitute an “issuer free writing prospectus”, as defined in Rule 433 under the Act, or that would otherwise constitute a “free writing prospectus”, as defined in Rule 405 under the Act.

 
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7.             Conditions of the Underwriter’s Obligations.   The obligations of the Underwriter hereunder to purchase the Shares and the ADSs are subject to the accuracy, as of the date hereof and at the Closing Date (as if made at the Closing Date), of and compliance with all representations, warranties and agreements of the Company   contained herein, the performance by the Company of its obligations hereunder and the following additional conditions:
 
(a)           If filing of the Prospectus, or any amendment or supplement thereto, is required under the Securities Act or the Rules and Regulations, the Company shall have filed the Prospectus (or such amendment or supplement) with the Commission in the manner and within the time period so required (without reliance on Rule 424(b)(8) or Rule 164(b) under the Securities Act); the Registration Statement shall remain effective; no stop order suspending the effectiveness of the Registration Statement or any part thereof, any Rule 462 Registration Statement, or any amendment thereof, nor suspending or preventing the use of the Time of Sale Disclosure Package or the Prospectus shall have been issued; no proceedings for the issuance of such an order shall have been initiated or threatened; any request of the Commission or the Underwriter for additional information (to be included in the Registration Statement, the Time of Sale Disclosure Package, the Prospectus or otherwise) shall have been complied with to the Underwriter’s satisfaction.
 
(b)           FINRA shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements.
 
(c)           The Underwriter shall not have reasonably determined, and advised the Company, that the Registration Statement, the Time of Sale Disclosure Package or the Prospectus, or any amendment thereof or supplement thereto, contains an untrue statement of fact which, in the Underwriter’s reasonable opinion, is material, or omits to state a fact which, in the Underwriter’s reasonable opinion, is material and is required to be stated therein or necessary to make the statements therein not misleading.
 
(d)           On or after the date hereof (i) no downgrading shall have occurred in the rating accorded any of the Company’s securities by any “nationally recognized statistical organization,” as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company’s securities.
 
(e)           On the Closing Date, there shall have been furnished to the Underwriter the opinion of Pryor Cashman LLP, dated the Closing Date and addressed to the Underwriter, in form and substance reasonably satisfactory to the Underwriter, to the effect set forth in Schedule I .
 
(f)            On the Closing Date, there shall have been furnished to the Underwriter the opinion of the Company’s BVI counsel, dated the Closing Date and addressed to the Underwriter, in form and substance reasonably satisfactory to the Underwriter, to the effect set forth in Schedule II .

 
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(g)           On the Closing Date, there shall have been furnished to the Underwriter the opinion of the Company’s China counsel, dated the Closing Date and addressed to the Underwriter, in form and substance reasonably satisfactory to the Underwriter, to the effect set forth in Schedule II I.
 
(h)           On the Closing Date, there shall have been furnished to the Underwriter the opinion of the Company’s Singapore counsel, dated the Closing Date and addressed to the Underwriter, in form and substance reasonably satisfactory to the Underwriter, to the effect set forth in Schedule IV .
 
(i)            The Underwriter shall have received a letter from Bernstein & Pinchuk LLP, on the date hereof and on the Closing Date addressed to the Underwriter, confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualifications of accountants under Rule 2-01 of Regulation S-X of the Commission, and confirming, as of the date of each such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Time of Sale Disclosure Package, as of a date not prior to the date hereof or more than five days prior to the date of such letter), the conclusions and findings of said firm with respect to the financial information and other matters required by the Underwriter.
 
(j)            On or before the date hereof, the Underwriter shall have received duly executed “lock-up” agreements, in the form set forth on Schedule VI , between the Underwriter and those persons set forth on Schedule V .
 
(k)           On the Closing Date, there shall have been furnished to the Underwriter a certificate, dated the Closing Date and addressed to the Underwriter, signed by the chief executive officer and the chief financial officer of the Company, in their capacity as officers of the Company, to the effect that:
 
(i)           The representations and warranties of the Company in this Agreement are true and correct, in all material respects, as if made at and as of the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date;
 
(ii)          No stop order or other order (A) suspending the effectiveness of the Registration Statement or any part thereof or any amendment thereof, the ADS Registration Statement, or any part thereof or any amendment thereto or the Form 8-A Registration Statement, or any part thereof or any amendment thereto, (B) suspending the qualification of the Shares or the ADSs for offering or sale, or (C) suspending or preventing the use of the Time of Sale Disclosure Package or the Prospectus, has been issued, and no proceeding for that purpose has been instituted or, to their knowledge, is contemplated by the Commission or any state or regulatory body; and
 
(iii)         There has been no occurrence of any event resulting or reasonably likely to result in a Material Adverse Effect during the period from and after the date of this Agreement and prior to the Closing Date.

 
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(l)            At the Closing Date, the ADSs shall have been approved for listing on the Nasdaq Capital Market.
 
(m)          The Depositary shall have delivered to the Company at such Closing Date certificates satisfactory to the Underwriter evidencing the deposit with the Depositary or its nominee of the Shares being so deposited against issuance of ADRs evidencing the ADSs to be delivered by the Company at the Closing Date, and the execution, countersignature (if applicable), issuance and delivery of ADRs evidencing such ADSs pursuant to the Deposit Agreement.
 
(n)           The Company shall have furnished to the Underwriter and counsel for the Underwriter such additional documents, certificates and evidence as the Underwriter or counsel for the Underwriter may have reasonably requested.
 
If any condition specified in this Section 7 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriter by notice to the Company at any time at or prior to the Closing Date and such termination shall be without liability of any party to any other party, except that Section 6(a)(vii), Section 8 and Section 9 shall survive any such termination and remain in full force and effect.
 
 
8.
Indemnification and Contribution .
 
(a)           The Company agrees to indemnify, defend and hold harmless the Underwriter, its  affiliates, directors and officers and employees, and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any losses, claims, damages or liabilities to which the Underwriter or such person may become subject, under the Securities Act or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Rules and Regulations, the Time of Sale Disclosure Package, the Prospectus, the ADS Registration Statement, the Form 8-A Registration Statement or any amendment or supplement thereto (including any documents filed under the Exchange Act and deemed to be incorporated by reference into the Registration Statement or the Prospectus), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) in whole or in part, any inaccuracy in the representations and warranties of the Company contained herein, or (iii) in whole or in part, any failure of the Company to perform its obligations hereunder or under law, and will reimburse the Underwriter for any legal or other expenses reasonably incurred by it in connection with evaluating, investigating or defending against such loss, claim, damage, liability or action; provided, however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Time of Sale Disclosure Package, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by the Underwriter specifically for use in the preparation thereof.

 
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(b)           The Underwriter will indemnify, defend and hold harmless the Company, its affiliates, directors, officers and employees, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Time of Sale Disclosure Package, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Time of Sale Disclosure Package, the Prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by the Underwriter specifically for use in the preparation thereof, and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with evaluating, investigating or defending against any such loss, claim, damage, liability or action.
 
(c)           Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party except to the extent such indemnifying party has been materially prejudiced by such failure.  In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying party’s election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided , however , that if (i) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (ii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iii) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, the indemnified party shall have the right to employ a single counsel to represent it in any claim in respect of which indemnity may be sought under subsection (a) or (b) of this Section 8, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or parties and reimbursed to the indemnified party as incurred.

 
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The indemnifying party under this Section 8 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment.  No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is a party or could be named and indemnity was or would be sought hereunder by such indemnified party, unless such settlement, compromise or consent (a) includes an unconditional release of such indemnified party from all liability for claims that are the subject matter of such action, suit or proceeding and (b) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
 
(d)           If the indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriter, on the other hand, from the offering and sale of the Shares   or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriter on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Company on the one hand and the Underwriter on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriter, in each case as set forth in the table on the cover page of the Final Prospectus.  The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriter and the parties’ relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission.  The Company and the Underwriter agree that it would not be just and equitable if contributions pursuant to this subsection (d) were to be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this subsection (d).  The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim that is the subject of this subsection (d).  Notwithstanding the provisions of this subsection (d),   the Underwriter shall not be required to contribute any amount in excess of the amount of the Underwriter’s commissions referenced in Section 6(a)(vii) of this Agreement actually received by the Underwriter pursuant to this Agreement.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 
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(e)           The obligations of the Company under this Section 8 shall be in addition to any liability that the Company may otherwise have and the benefits of such obligations shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act; and the obligations of the Underwriter under this Section 8 shall be in addition to any liability that the Underwriter may otherwise have and the benefits of such obligations shall extend, upon the same terms and conditions, to the Company, and officers, directors and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
 
(f)           For purposes of this Agreement, the Underwriter confirms, and the Company acknowledges, that there is no information concerning the Underwriter furnished in writing to the Company by the Underwriter specifically for preparation of or inclusion in the Registration Statement, the Time of Sale Disclosure Package, the Prospectus, other than the statements set forth in the last paragraph on the cover page of the Prospectus and the statements set forth in the “Underwriting” section of the Prospectus and Time of Sale Disclosure Package, only insofar as such statements relate to the amount of selling concession and re-allowance or to over-allotment and related activities that may be undertaken by the Underwriter.
 
9.             Representations and Agreements to Survive Delivery .  All representations, warranties, and agreements of the Company herein or in certificates delivered pursuant hereto, including, but not limited to, the agreements of the Underwriter and the Company contained in Section 6(a)(vii) and Section 8 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter or any controlling person thereof, or the Company or any of its officers, directors, or controlling persons, and shall survive delivery of, and payment for, the Shares to and by the Underwriter hereunder.
 
 
10.
Termination of this Agreement .
 
(a)           The Underwriter shall have the right to terminate this Agreement by giving notice to the Company as hereinafter specified at any time at or prior to the Closing Date, if (i) trading in the Company’s ADSs shall have been suspended by the Commission or the NASDAQ Capital Market or trading in securities generally on the NASDAQ Capital Market, New York Stock Exchange or NYSE Amex shall have been suspended, (ii) minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the NASDAQ Capital Market, New York Stock Exchange or NYSE Amex, by such exchange or by order of the Commission or any other governmental authority having jurisdiction, (iii) a banking moratorium shall have been declared by federal, state or the PRC authorities, (iv) there shall have occurred any attack on, outbreak or material escalation of hostilities or act of terrorism involving the United States or the PRC, any declaration by the United States or the PRC of a national emergency or war, any substantial adverse change in financial markets, any substantial adverse change or development involving a prospective substantial adverse change in the political, financial or economic conditions in the United States or the PRC or any other calamity or crisis, or (v) the Company suffers any material loss by strike, fire, flood, earthquake, accident or other calamity, whether or not covered by insurance, the effect of which, in each case described in this subsection (a), in the Underwriter’s reasonable judgment is material and adverse and makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Shares.  Any such termination shall be without liability of any party to any other party except that the provisions of Section 6(a)(vii) and Section 8 hereof shall at all times be effective and shall survive such termination.

 
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(b)           If the Underwriter elects to terminate this Agreement as provided in this Section, the Company shall be notified promptly by the Underwriter by telephone, confirmed by letter.
 
11.           Notices .  Except as otherwise provided herein, all communications hereunder shall be in writing and, if to Roth, shall be mailed, delivered or telecopied to Roth Capital Partners, LLC, 24 Corporate Plaza, Newport Beach, CA 92660, telecopy number: (949) 720-7227, Attention:  Managing Director; and if to the Company, shall be mailed, delivered or telecopied to it at 3 rd Floor, Borough A, Block A No. B1, South Taibai Road, Xi’an, Shaanxi Province, People’s Republic of China 710065, telecopy number: 86-29-88266368, Attention: Peng Zhang; or in each case to such other address as the person to be notified may have requested in writing.  Any party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose.
 
12.           Persons Entitled to Benefit of Agreement .  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns and the controlling persons, officers and directors referred to in Section 8.  Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement or any provision herein contained.  The term “successors and assigns” as herein used shall not include any purchaser, as such purchaser, of any of the Shares or ADSs from the Underwriter.
 
13.           Absence of Fiduciary Relationship .  The Company acknowledges and agrees that: (a) the Underwriter has been retained solely to act as underwriter in connection with the sale of the Shares and that no fiduciary, advisory or agency relationship between the Company and the Underwriter has been created in respect of any of the transactions contemplated by this Agreement, irrespective of whether the Underwriter has advised or is advising the Company on other matters; (b) the price and other terms of the Shares set forth in this Agreement were established by the Company following discussions and arms-length negotiations with the Underwriter and the Company is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated by this Agreement; (c) it has been advised that the Underwriter and its affiliates are engaged in a broad range of transactions that may involve interests that differ from those of the Company and that the Underwriter has no obligation to disclose such interest and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; (d) it has been advised that the Underwriter is acting, in respect of the transactions contemplated by this Agreement, solely for the benefit of the Underwriter, and not on behalf of the Company.

 
26

 

14.           Amendments and Waivers .  No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby.  The failure of a party to exercise any right or remedy shall not be deemed or constitute a waiver of such right or remedy in the future.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver be deemed or constitute a continuing waiver unless otherwise expressly provided.
 
15.           Partial Unenforceability .  The invalidity or unenforceability of any section, paragraph, clause or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph, clause or provision.
 
16.           Governing Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
 
17.           Counterparts.   This Agreement may be executed and delivered (including by facsimile transmission or electronic mail attaching a portable document file (.pdf)) in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original and all such counterparts shall together constitute one and the same instrument.

 
27

 
 
Please sign and return to the Company the enclosed duplicates of this letter whereupon this letter will become a binding agreement between the Company and the Underwriter in accordance with its terms.
 
Very truly yours,
 
KINGTONE WIRELESSINFO SOLUTION
HOLDING LTD
   
By:
 
Name: 
 
Title:
 

Confirmed as of the date first above-
mentioned by the Underwriter.
 
ROTH CAPITAL PARTNERS, LLC
 
By:
 
Name: 
 
Title:
 
 
[Signature page to Underwriting Agreement]

 

 
 
SCHEDULE I
 
Company Opinions

 

 

SCHEDULE III

PRC Opinion

 

 
 
SCHEDULE IV

Singapore Opinion

 

 

SCHEDULE V

Persons Subject to Lock-Up Agreements

 

 

SCHEDULE VI

Form of Lock-Up Agreement

___________ __, 2010
 
Roth Capital Partners, LLC
24 Corporate Plaza
Newport Beach, California 92660
 
Ladies and Gentlemen:
 
The undersigned understands that Roth Capital Partners, LLC (the “ RCP ” or “ Underwriter ”) proposes to enter into an Underwriting Agreement (the “ Underwriting Agreement ”) with Kingtone Wirelessinfo Solution Holding Ltd, a company incorporated under the laws of the British Virgin Islands, (the “ Company ”), providing for the public offering (the “ Public Offering ”) by the Underwriter of ordinary shares, par value $0.001 per share (the “ Ordinary   Shares ”), of the Company.  The Underwriter will take delivery of the Ordinary Shares in the form of American Depositary Shares (“ ADSs ”).  Each ADS will initially represent the right to receive __________ Ordinary Shares deposited pursuant to the Deposit Agreement dated as of _________________, 2010 among the Company, The Bank of New York Mellon N.A. as Depositary (the “ Depositary ”) and all Holders and Beneficial Owners (each as defined therein) from time to time of ADSs evidenced by American Depositary Receipts (“ ADRs ”) issued by the Depositary..
 
To induce the underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of RCP, he will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus supplement relating to the Public Offering (the “ Prospectus ”) (the “ Lock-Up Period ”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares, ADSs, or any securities convertible into or exercisable or exchangeable for Ordinary Shares or ADSs, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Ordinary Shares or ADSs, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Ordinary Shares or such other securities, in cash or otherwise.  The foregoing sentence shall not apply to (a) transactions relating to Ordinary Shares, ADSs or other securities acquired in open market transactions after the completion of the Public Offering,   , or (b) transfers of Ordinary Shares, ADSs or any security convertible into Ordinary Shares or ADSs as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of a family member; provided that in the case of any transfer or distribution pursuant to clause (b),  each donee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter .  In addition, the undersigned agrees that, without the prior written consent of RCP, it will not, during the period commencing on the date hereof and ending 180 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any Ordinary Shares, ADSs or any security convertible into or exercisable or exchangeable for Ordinary Shares or ADSs.  The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Ordinary Shares and ADSs  except in compliance with the foregoing restrictions.

 

 
 
If (i) the Company issues an earnings release or material news, or a material event relating to the Company occurs, during the last 17 days of the Lock-Up Period, or (ii) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by this agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless RCP waives such extension.
 
No provision in this agreement shall be deemed to restrict or prohibit the exercise or exchange by the undersigned of any option or warrant to acquire Ordinary Shares, ADSs, or securities exchangeable or exercisable for or convertible into Ordinary Shares or ADSs, provided that the undersigned does not transfer the Ordinary Shares or ADSs acquired on such exercise or exchange during the Lock-Up Period, unless otherwise permitted pursuant to the terms of this agreement.  In addition, no provision herein shall be deemed to restrict or prohibit the entry into or modification of a so-called “10b5-1” plan at any time (other than the entry into or modification of such a plan in such a manner as to cause the sale of any Ordinary Shares or ADSs or any securities convertible into or exercisable or exchangeable for Ordinary Shares or ADSs within the Lock-Up Period).
 
The undersigned understands that the Company and the Underwriter are relying upon this agreement in proceeding toward consummation of the Public Offering.  The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
 
The undersigned understands that, if the Underwriting Agreement is not executed by _________, 2010, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Ordinary Shares and ADSs to be sold thereunder, the undersigned shall be released from all obligations under this letter agreement.
 
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions.  Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriter.
 
 
Very truly yours,
   
   
 
(Name)
   
   
 
(Address)

 

 

Exhibit 3.1

BC NO: 1553620


British Virgin Islands

The BVI Business Companies Act, 2004

(No. 16 of 2004)

Memorandum of Association
and
Articles of Association
of

Kingtone Wirelessinfo Solution Holding Ltd

Incorporated the 24 th day of October, 2009

Amended and Restated the 11 th Day of December 2009

Amended and Restated the 17 th Day of December 2009

Amended and Restated the 25 th Day of March 2010

Portcullis TrustNet (BVI) Limited
 
Portcullis TrustNet Chambers, P.O. Box 3444
Road Town, Tortola, British Virgin Islands
Telephone:  (284) 494 5296
Fax:  (284) 494 5283
 
 
 

 

TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

(No. 16 of 2004)

MEMORANDUM OF ASSOCIATION
OF

Kingtone Wirelessinfo Solution Holding Ltd

NAME

1.
The name of the Company is Kingtone Wirelessinfo Solution Holding Ltd.

TYPE OF COMPANY

2.
The Company is a company limited by shares.

REGISTERED OFFICE

3.
The first Registered Office of the Company is the offices of Portcullis TrustNet (BVI) Limited, Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands, the office of the first registered agent .

REGISTERED AGENT

4.
The first Registered Agent of the Company is Portcullis TrustNet (BVI) Limited of Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola,  British Virgin Islands.

ISSUED SHARES

5.
The maximum number of shares that the Company is authorized to issue is 100,000,000.

CLASSES, NUMBER AND PAR VALUE OF SHARES

6.
The shares issued by the Company shall be made up of one class and one series of shares, namely ordinary shares and each share may be issued with or without a par value and any share issued with a par value may be issued in any currency provided however that where the currency is not specified upon issue the currency shall be that of the United States of America.

FRACTIONAL SHARES

7.
The Company may issue fractions of a share and a fractional share shall have the same corresponding fractional liabilities, limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of the same class or series of shares.

RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO SHARES

8.
(1)
All shares shall have;
 
 
(a)
the right to one vote at a meeting of the members of the Company or on any resolution of members;
 
 
1

 
 
 
(b)
the right to an equal share in any distribution by way of dividend paid by the Company; and
 
 
(c)
the right to an equal share in the distribution of the surplus assets of the Company on its liquidation.
 
 
(2)
The directors may at their discretion by resolution of directors redeem, purchase or otherwise acquire all or any of the shares in the Company subject to the Articles.
 
VARIATION OF CLASS RIGHTS

9.
If at any time the issued shares are divided into different classes or series of shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or series and of the holders of not less than three-fourths of the issued shares of any other class or series of shares which may be affected by such variation.

RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU

10.
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

CAPACITY AND POWERS

11.
Subject to the Act, any other British Virgin Islands legislation and paragraph 12 below the Company has, irrespective of corporate benefit:
 
 
(a)
full capacity to carry on or undertake any business or activity, do any act or enter into any transaction;
 
 
(b)
for the purposes of paragraph (a), full rights, powers and privileges; and
 
 
(c)
full powers to issue shares with pre-emptive rights, subject to the Articles.
 
LIMITATIONS ON THE COMPANY’S BUSINESS

12.
For the purposes of section 9(4)  of the Act the Company may not;
 
 
(a)
carry on banking or trust business, unless it is licensed to do so under the Banks and Trust Companies Act, 1990;
 
 
(b)
carry on business as an insurance or reinsurance company, insurance agent or insurance broker, unless it is licensed under the Insurance Act 1994;
 
 
(c)
carry on business of company management, unless it is licensed under the Company Management Act, 1990;
 
 
(d)
carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands;
 
 
(e)
carry on the business as a mutual fund, manager of mutual funds or administrator of mutual funds unless it is recognized or licenced as the case may be under the Mutual Funds Act 1996; or
 
 
(f)
carry on any other business that gives rise to a licencing requirement under any law for the time being in force in the British Virgin Islands unless it is licenced, regulated, recognised or otherwise approved pursuant to such law.
 
 
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REGISTERED SHARES AND PROHIBITION ON ISSUE OF BEARER SHARES

13.
Shares in the Company may only be issued as registered shares. The issue of shares to bearer is prohibited .

PROHIBITION ON EXCHANGE AND CONVERSION OF REGISTERED SHARES TO BEARER SHARES

14.
The exchange or conversion of registered shares to bearer shares is prohibited.

TRANSFER OF REGISTERED SHARES

15.
Subject to the provisions of the Articles the Company may upon receipt of an instrument of transfer enter the name of the transferee in the register of members subject to the prior or simultaneous approval of the Company as evidenced by a resolution of directors or by a resolution of members. Subject to any resolution of the members to the contrary, the directors may resolve by resolution of directors to refuse or delay the registration of the transfer for reasons that shall be specified in the resolution of directors.

AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION

16.1
The Company may amend its Memorandum or Articles by a resolution of members or by a resolution of directors provided that the directors shall not have the power to amend the Memorandum or Articles;

 
(a)
to restrict the rights or powers of the members to amend the Memorandum or Articles;

 
(b)
to change the percentage of members required to pass a resolution to amend the Memorandum or Articles;

 
(c)
in circumstances where the Memorandum or Articles cannot be amended by the members; or

 
(d)
to Clauses 8,9, 10 or this Clause 12.

16.2
No amendment may be made to Regulation 76 of the Articles unless approved by an affirmative vote of the holders of 66 2 / 3 percent or more of the outstanding votes of the shares entitled to vote thereon.

DEFINITIONS

17.
The meanings of words in this Memorandum are as defined in the Articles.

We, Portcullis TrustNet (BVI) Limited of Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign this Memorandum of Association the 27 th day of October, 2009.

Incorporator

 
/s/ Nicole Wheatley
 
 
Portcullis TrustNet (BVI) Limited
 
 
Portcullis TrustNet Chambers
 
 
P.O. Box 3444
 
 
Road Town, Tortola
 
 
British Virgin Islands
 
 
(Sgd. Nicole Wheatley)
 
 
 
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TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

(No. 16 of 2004)

ARTICLES OF ASSOCIATION
OF

Kingtone Wirelessinfo Solution Holding Ltd

PRELIMINARY

1.
In these Articles, if not inconsistent with the subject or context, the words and expressions standing in the first column of the following table shall bear the meanings set opposite them respectively in the second column thereof.

Words
Meaning
   
Act
the BVI Business Companies Act, 2004 (No 16 of 2004.) including any modification, extension, re-enactment or renewal thereof and any regulations made thereunder.
   
Articles
these Articles of Association as originally framed or as from time to time amended.
   
Designated Stock Exchange
either the Nasdaq National Stock Market, Inc. or such other exchange or quotation bureau on which, the Company’s Securities are listed or traded; provided that until the Securities are listed on any such “Exchange” the rules of any such Designated Stock Exchange shall be inapplicable to these Articles.
   
director
a director of the Company.
   
distribution
in relation to a distribution by a company to a member, means

 
(i)
the direct or indirect transfer of an asset, other than the Company’s own shares, to or for the benefit of the member or

 
(ii)
the incurring of a debt to or for the benefit of a member,

 
in relation to shares held by a member, and whether by means of a purchase of an asset, the purchase, redemption or other acquisition of shares, a transfer of indebtedness or otherwise, and includes a dividend.
   
Independent Director
a person who meets the then current requirements for “independence” of the applicable rules and regulations of the U.S. Securities and Exchange Commission and the Designated Stock Exchange.

 
1

 

member or shareholder
in relation to the Company, means a person whose name is entered in the register of members as the holder of one or more shares, or fractional shares, in the Company.
   
Memorandum
the Memorandum of Association of the Company as originally framed or as from time to time amended.
   
person
An individual, a corporation, a trust, trustee, the estate of a deceased individual, a partnership or an unincorporated association of persons.
   
Related Party
(a) any director, officer and employee of the Company; (b) any family member of such director, officer and employee; and (c) any entity (e.g. a corporation, partnership, or trust) controlled by or set up for the benefit of a director, officer or employee, or a family member of such director, officer or employee.
   
Relevant System
A facility for the electronic transfer of uncertificated securities administered by The Depository Trust Company or such other Person regulated by the SEC.

resolution of
directors
(a)
A resolution approved at a duly convened and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or
     
 
(b)
a resolution consented to in writing by a simple majority of the directors or of all members of the committee, as the case may be;
 
except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority.

resolution of
members
Subject to the provisions of the Memorandum and Articles means:
       
 
(a)
A resolution approved at a duly convened and constituted meeting of the members of the Company by the affirmative vote of
       
   
(i)
a majority of in excess of 50% of the votes of the shares entitled to vote and voting on the resolution, or
       
   
(ii)
a majority of in excess of 50% of the votes of each class or series of shares entitled to vote as a class or series and voting on the resolution and a majority of in excess of 50% of the votes of the remaining shares entitled to vote and voting on the resolution; or
 
 
2

 

 
(b)
a resolution consented to in writing by
       
   
(i)
an absolute majority of the votes of shares entitled to vote thereon, or
       
   
(ii)
an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute majority of the votes of the remaining shares entitled to vote thereon.
   
Seal
Any Seal which has been duly adopted as the common seal of the Company.
       
SEC
The United States Securities and Exchange Commission.
       
Securities
shares  and  debt  obligations  of every kind, and options, warrants and rights to acquire shares, or debt obligations.
       
share
a share issued or to be issued by the Company.
       
solvency test
a company satisfies the solvency test if;
       
   
(i)
the value of the company’s assets exceeds its liabilities, and
       
   
(ii)
the company is able to pay its debts as they fall due.
       
treasury shares
shares in the Company that were previously issued but were repurchased, redeemed or otherwise acquired by the Company and not cancelled.

 
2.
"Written" or any term of like import includes words typewritten, printed, painted, engraved, lithographed, photographed or represented or reproduced by any mode of  reproducing words in a visible form, including telex, facsimile, telegram, cable or other form of writing produced by electronic communication.

 
3.
Save as aforesaid any words or expressions defined in the Act shall bear the same meaning in these Articles.

 
4.
Whenever the singular or plural number, or the masculine, feminine or neuter gender is used in these Articles, it shall equally, where the context admits, include the others.

 
5.
A reference in these Articles to voting in relation to shares shall be construed as a reference to voting by members holding the shares except that it is the votes allocated to the shares that shall be counted and not the number of members who actually voted and a reference to shares being present at a meeting shall be given a corresponding construction.

 
6.
A reference to money in these Articles is, unless otherwise stated, a reference to the currency in which shares in the Company shall be issued according to the provisions of the Memorandum.

REGISTERED SHARES

 
7.
Every member holding registered shares in the Company shall be entitled to a certificate signed by a director or officer of the Company or such other person who may be authorised from time to time by resolution of directors or under the Seal, with or without the signature of any director of the Company, specifying the share or shares held by him and the signature of the director or officer or person so authorised and the Seal may be facsimiles.

 
3

 

 
8.
Any member receiving a share certificate for registered shares shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof.  If a share certificate for registered shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of directors.

 
9.
If several persons are registered as joint holders of any shares, any one of such persons may give an effectual receipt for any distribution payable in respect of such shares.

10.
Nothing in these Articles shall require title to any shares or other Securities to be evidenced by a certificate if the Act and the rules of the Designated Stock Exchange permit otherwise.

SHARES AND ISSUED SHARES

11.
Subject to the provisions of these Articles and, if applicable, the rules of the Designated Stock Exchange, and any resolution of members, the directors of the Company may, without limiting or affecting any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of shares to such persons, at such times and upon such terms and conditions as the Company may by resolution of directors determine. The directors shall not issue more shares than the maximum number provided for in the Memorandum.

12.
The Company may issue fully paid, partly paid or nil paid shares as well as bonus shares.  A partly paid or nil paid share or a share issued for a promissory note or other written obligation for payment of a debt may be issued subject to forfeiture in the manner prescribed in these Articles.

13.
Shares in the Company may be issued for consideration in any form, including money, a promissory note or other obligation to contribute money or property, real property, personal property (including goodwill and know-how) services rendered or a contract for future services  and the amount of such consideration shall be determined by resolution of directors, except that in the case of shares with par value, the amount shall not be less than the par value, and in the absence of fraud the decision of the directors as to the value of the consideration received by the Company in respect of the issue is conclusive unless a question of law is involved.

14.
Before issuing shares for a consideration other than money, the directors shall pass a resolution stating;

 
(a)
the amount to be credited for the issue of the shares;

 
(b)
their determination of the reasonable present cash value of the non-money consideration for the issue; and

 
(c)
that, in their opinion, the present cash value of the non-money consideration for the issue is not less than the amount to be credited for the issue of the shares.

15.
A share issued by the Company upon conversion of, or in exchange for, another share or a debt obligation or other security in the Company, shall be treated for all purposes as having been issued for money equal to the consideration received or deemed to have been received by the Company in respect of the other share, debt obligation or security.

16.
Treasury shares may be disposed of by the Company on such terms and conditions (not otherwise inconsistent with these Articles) as the Company may by resolution of directors determine.

17.
Subject to these Articles, the Company may purchase, redeem or otherwise acquire and hold its own shares save that the Company may not purchase, redeem or otherwise acquire its own shares without the consent of the member whose shares are to be purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or Articles to purchase, redeem or otherwise acquire the shares without their consent.

 
4

 

18.
No purchase, redemption or other acquisition of shares shall be made unless the directors determine by resolution of the directors that immediately after the purchase, redemption or other acquisition the value of the  Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

19.
Sections 60 ( Process for acquisition of own shares ), 61 ( Offer to one or more shareholders ) and 62 ( Shares redeemed otherwise than at the option of company ) of the Act shall not apply to the Company.

20.
A determination by the directors under Article 18 is not required;

 
(a)
the Company redeems a share or shares pursuant to  a  right  of  a member to have his shares redeemed or to have his shares exchanged for money or other property of the Company; or

 
(b)
by virtue of the provisions of Section 179 of the Act.

21.
Shares that the Company purchases, redeems or otherwise acquires pursuant to Article 17 may be cancelled or held as treasury shares except to the extent that such shares are in excess of 80 percent of the issued shares of the Company in which case they shall be cancelled but they shall be available for reissue.

22.
Shares in the Company shall only be held as treasury shares where the directors of the Company resolve as such and the number of shares acquired, when aggregated with shares of the same class already held by the Company as treasury shares, does not exceed 50% of the shares of that class previously issued by the Company, excluding shares that have been cancelled. All rights and obligations attaching to a treasury share are suspended and shall not be exercised by or against the Company while it holds the share as a treasury share. Treasury shares may be reissued by the Company as new shares.

23.
The Company shall keep a register of members containing;

 
(a)
the names and addresses of the persons who hold registered shares in the Company;

 
(b)
the number of each class and series of registered shares held by each member;

 
(c)
the date on which the name of each member was entered in the register of members;

 
(d)
the date on which any person ceased to be a member; and

 
(e)
such other information as may be prescribed pursuant to the Act.

24.
The register of members may be in any such form as the directors may approve but if it is in magnetic, electronic or other data storage form, the company must be able to produce legible evidence of its contents.

25.
The original or a copy of the register of members shall be kept at the registered office of the Company or at the office of the registered agent of the Company.

26.
A share is deemed to be issued when the name of the member is entered in the register of members.

27.
Subject to the Act and the rules of the Designated Stock Exchange, the board of directors without further consultation with the holders of any shares or Securities may resolve that any class or series of shares or other Securities from time to time in issue or to be issued (including shares in issue at the date of the adoption of these Articles) may be issued, held, registered and converted to uncertificated form.

28.
Conversion of shares held in certificated form into shares held in uncertificated form, and vice versa, may be made in such manner as the board of directors, in its absolute discretion, may think fit.  The Company or any duly authorised transfer agent (a “ Transfer Agent ”) shall enter on the register of members how many shares are held by each member in uncertificated form and in certificated form and shall maintain the register of members. Notwithstanding any provision of these Articles, a class or series of shares shall not be treated as two classes by virtue only of that class or series comprising both certificated shares and uncertificated Shares or as a result of any provision of these Articles which apply only in respect of certificated or uncertificated shares.

 
5

 

MORTGAGES AND CHARGES OF REGISTERED SHARES

29.
Members may mortgage or charge their registered shares in the Company with such mortgage or charge being evidenced in writing and signed by, or with the authority of the registered holder of a registered share to which the mortgage or charge relates.   The Company shall give effect to the terms of any valid mortgage or charge except insofar as it may conflict with any requirements herein contained for consent to the transfer of shares.

30.
In the case of the mortgage or charge of registered shares there may be entered in the share register of the Company at the request of the registered holder of such shares

 
(a)
a statement that the shares are mortgaged or charged;

 
(b)
the name of the mortgagee or chargee; and

 
(c)
the date on which the aforesaid particulars are entered in the share register.

31.
Where particulars of a mortgage or charge are entered in the register of members, such particulars shall be cancelled

 
(a)
with the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf; or

 
(b)
upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable.

32.
Whilst particulars of a mortgage or charge over registered shares are entered in the register of members pursuant to the preceding articles no transfer of any share comprised therein shall be effected without the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf.

FORFEITURE

33.
When shares not fully paid on issue or issued for a promissory note or other written obligation for payment of a debt have been issued subject to forfeiture, the following provisions shall apply.

34.
Written notice specifying a date for payment to be made and the shares in respect of which payment is to be made shall be served on the member who defaults in making payment pursuant to a promissory note or other written obligations to pay a debt.

35.
The written notice specifying a date for payment shall

 
(a)
name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which payment required by the notice is to be made; and

 
(b)
contain a statement that in the event of non-payment at or before the time named in the notice the shares, or any of them, in respect of which payment is not made will be liable to be forfeited.

36.
Where a written notice has been issued and the requirements of the notice have not been complied with within the prescribed time, the directors may at any time before tender of payment forfeit and cancel the shares to which the notice relates.

 
6

 

37.
The Company is under no obligation to refund any moneys to the member whose shares have been forfeited and cancelled pursuant to these provisions.  Upon forfeiture and cancellation of the shares the member is discharged from any further obligation to the Company with respect to the shares forfeited and cancelled.

LIEN

38.
The Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to contribute money or property or any combination thereof to the Company, and the Company shall also have a first and paramount lien on every share standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding  that  the  same are joint debts or liabilities of such member or his estate and any other person, whether a member of the Company or not.  The Company's lien on a share shall extend to all distributions payable thereon.  The directors may at any time either generally, or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Article.

39.
In the absence of express provisions regarding sale in the promissory note or other binding obligation to contribute money or property, the Company may sell, in such manner as the directors may by resolution of directors determine, any share on which the Company has a  lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of twenty-one days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share.

40.
The net proceeds of the sale by the Company of any shares on which it has a lien shall be applied in or towards payment of discharge of the promissory note or other binding obligation to contribute money or property or any combination thereof in respect of which the lien exists so far as the same is presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale.  For giving effect to any such sale the directors may authorize some person to transfer the share sold to the purchaser thereof.  The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the sale.

TRANSFER OF SHARES

41.
Registered shares in the Company are transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee. The instrument of transfer shall be signed by the transferee if registration as a holder of the share shall impose a liability to the Company on the transferee. The instrument of transfer of a registered share shall be sent to the Company for registration.

42.
The board of directors may resolve that interests in shares in the form of depositary receipts may be transferred or otherwise dealt with in accordance with the regulations and practices instituted by the operator of the Relevant System and any  holder of interests in shares shall be entitled to transfer such interests by means of such Relevant System and the operator of the Relevant System shall act as agent of the holders of such interests for the purposes of the transfer of those interests.

43.
The register of members may be closed at such times and for such periods as the board of directors may from time to time determine, upon notice being given by advertisement in such newspapers as may be required by the Act and the practice of the Designated Stock Exchange.

44.
The transfer of a registered share is effective when the name of the transferee is entered on the register of members.

45.
If the directors of the Company are satisfied that an instrument of transfer relating to shares has been signed but that the instrument has been lost or destroyed, they may resolve;

 
7

 
 
 
(a)
to accept such evidence of the transfer of the shares as they consider appropriate; and

 
(b)
that the transferee’s name should be entered in the register of members notwithstanding the absence of the instrument of transfer.

46.
The Company must on the receipt of an instrument of transfer from the transferor or transferee of a registered share in the Company enter the name of the transferee of the share in the register or members unless the directors, if permitted by the Memorandum or these Articles, resolve by resolution of directors to refuse or delay the registration of the transfer for reasons that shall be specified in the resolution of directors.

TRANSMISSION OF SHARES

47.
The personal representative of a deceased member may transfer a share even though the personal representative is not a member at the time of the transfer.

48.
The personal representative, executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognized by the Company as having any title to his share but they shall not be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the next following three Articles.

49.
The production to the Company of any document which is evidence of probate of the will, or letters of administration of the estate, or confirmation as executor, of a deceased member or of the appointment of a guardian of an incompetent member or the trustee of a bankrupt member shall be accepted by the Company    even if the deceased, incompetent or bankrupt member is domiciled outside the  British  Virgin Islands if the document evidencing the grant of probate or letters of administration, confirmation as executor, appointment as guardian or trustee in bankruptcy is issued by a foreign court which had competent jurisdiction in the matter.  For the purpose of establishing whether or not a foreign court had competent jurisdiction in such a matter the directors may obtain appropriate legal advice.  The directors may also require an indemnity to be given by the executor, administrator, guardian or trustee in bankruptcy.

50.
The Company may enter in the register of members the name of any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy upon such evidence being produced as may reasonably be required by the directors.

51.
Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as the transferee of such share or shares and such request shall likewise be treated as if it were a transfer.

52.
What amounts to incompetence on the part of a person is a matter to be determined by the court having regard to all the relevant evidence and the circumstances of the case.

REDUCTION OR INCREASE IN AUTHORISED AND UNISSUED SHARES

48.
The Company may amend the Memorandum to increase or reduce the maximum number of shares the Company is authorised to issue and may in respect of any unissued shares increase or reduce the number of such shares, or effect any combination of the foregoing.

49.
The Company may

(1)          (a)           divide its shares, including issued shares, into a larger number of shares; or

(b)           combine its shares, including issued shares, into a smaller number of shares.

 
(2)
A division or combination of shares, including issued shares, of a class or series shall be for a larger or smaller number, as the case may be, of shares in the same class or series.

 
8

 
 
 
(3)
A company shall not divide its shares under subsection (1)(a) or (2) if it would cause the maximum number of shares that the Company is authorised to issue by its memorandum to be exceeded.

 
(4)
Where shares are divided or combined under this article, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares.

MEETINGS AND CONSENTS OF MEMBERS

50.
The directors of the Company may convene meetings of the members of the Company at such times and in such manner and places within or outside the British Virgin Islands as the directors consider necessary or desirable. The Company may hold an annual general meeting, but shall not (unless required by the applicable rules of the Designated Stock Exchange for so long as the Company’s Securities are listed or traded on the Designated Stock Exchange) be obliged to hold an annual general meeting.

51.
Upon the written request of members holding 30 percent or more of the outstanding voting shares in the Company the directors shall convene a meeting of members.

52.
The directors shall give not less than 7 days notice of meetings of members to those persons whose names on the date the notice is given appear as members in the share register of the Company and are entitled to vote at the meeting.

53.
The directors may fix the date notice is given of a meeting of members as the record date for determining those shares that are entitled to vote at the meeting.

54.
A meeting of members may be called on short notice:

 
(a)
if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or

 
(b)
if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver.

55.
The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting.

56.
A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member.

57.
The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote.

58.
An instrument appointing a proxy shall be in substantially the following form or such other form as the Chairman of the meeting shall accept as properly evidencing the wishes of the member appointing the proxy.

(Name of Company)

I/We
being a member of the above
Company with
shares HEREBY APPOINT
of
or failing him
of
to be my/our proxy to vote for me/us at the meeting of members to be held on the              day
of
and at any adjournment thereof.
 
 
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(Any restrictions on voting to be inserted here.)
     
 
Signed this             day of
 
 
   
 
 
Member
 

59.
The following shall apply in respect of joint ownership of shares:

 
a.
if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member;

 
b.
if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and

 
c.
if two or more of the joint owners are present in person or by proxy they must vote as one.

60.
A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other.

61.
A meeting of members is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting.  If a quorum be present, notwithstanding the fact that such quorum may be represented by only one person then such person may resolve any matter and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy form shall constitute a valid resolution of members.

62.
If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the  shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.

63.
At every meeting of members, the Chairman of the Board of Directors shall preside as chairman of the meeting.  If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting, the members present shall choose some one of their number to be the chairman.  If the members are unable to choose a chairman for any reason, then the person representing the greatest number of voting shares present in person or by prescribed form of proxy at the meeting shall preside as chairman failing which the oldest individual member or representative of a member present shall take the chair.

64.
The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

65.
At any meeting of the members the chairman shall be responsible for deciding in such manner as he shall consider appropriate whether any resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof.  If the chairman shall have any doubt as to the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall thereupon cause a poll to be taken.  If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the chairman.

 
10

 

66.
Any person other than an individual shall be regarded as one member and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence.  In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member.

67.
Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual member of the Company.

68.
The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded.

69.
Directors of the Company may attend and speak at any meeting of members of the Company and at any separate meeting of the holders of any class or series of shares in the Company.

70.
An action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution.  The consent may be in the form of counterparts, each counterpart being signed by one or more members.

DIRECTORS

71.
The first directors of the Company shall be appointed by the first registered agent of the Company and thereafter the directors shall be appointed by resolution of members, subject to Article 78, for such term as the members determine.  A person shall not be appointed as a director unless he has consented in writing to be a director.

72.
The minimum number of directors shall be one and the maximum number shall be 20. Unless otherwise determined by the Company in a meeting of shareholders and subject to the requirements of the Memorandum, the directors may by a Resolution of Directors, amend this Regulation 72 to change the number of directors. For as long as Securities of the Company are listed or traded on the Designated Stock Exchange, the directors shall include such number of Independent Directors as applicable law, rules or regulations of the Designated Stock Exchange may require for a foreign private issuer as long as the Company is a foreign private issuer.

73.
Each director shall hold office for the term, if any, fixed by resolution of members or until his earlier death, resignation or removal.

74.
Where the Company has only one member who is an individual and that member is also the sole director of the Company, that sole member/director may, by instrument in writing, nominate a person who is not disqualified from being a director of the Company under section 111(1) of the Act as a reserve director of the Company to act in the place of the sole director in the event of his death.

75.
The nomination of a person as a reserve director of the Company ceases to have effect if;

 
a.
before the death of the sole member/director who nominated him;

 
(i)
he resigns as reserve director, or

 
11

 

 
(ii)
the sole member/director revokes the nomination in writing; or

 
b.
the sole member/director who nominated him ceases to be the sole member/director of the Company for any reason other than his death.

76.
A director may be removed from office, with or without cause, by a resolution of directors or a resolution of members. For the purposes of this Regulation 76, “cause” means the willful and continuous failure by a director to substantially perform his duties to the Company (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by the director in gross misconduct materially and demonstrably injurious to the Company. If a director is removed from office without cause by a resolution of the members, for the purposes of this Regulation, the resolution of members will require the affirmative vote of the holders of 66 2 / 3 percent or more of the outstanding votes of the shares entitled to vote thereon.

77.
A director may resign his office by giving written notice of his resignation to the Company and the resignation shall have effect from the date the notice is received by the Company or from such later date as may be specified in the notice. A director of the Company shall resign forthwith if he is, or becomes, disqualified to act as a director under the Act.

78.
The directors may at any time by resolution of directors appoint any person to be a director to fill a vacancy.  There is a vacancy if a director dies or otherwise ceases to hold office as a director prior to the expiration of his term of office, where his term of office was fixed upon his appointment. The directors may not appoint a director to fill a vacancy for a term exceeding the term that remained when the person who has ceased to be a director left or otherwise ceased to hold office.

79.
The Company shall keep a register of directors containing:

 
a.
the names and addresses of the persons who are directors of the Company or who have been nominated as reserve directors of the Company;

 
b.
the date on which each person whose name is entered in the register was appointed as a director of the Company or nominated as a reserve director of the Company;

 
c.
the date on which each person named as a director ceased to be a director of the Company;

 
d.
the date on which the nomination of any person nominated as a reserve director ceased to have effect; and

 
e.
such other information as may be prescribed pursuant to the Act.

80.
The original or a copy of any register of directors shall be kept at the office of the registered agent of the Company.

81.
The register of directors may be in any such form as the directors may approve but if it is in magnetic, electronic or other data storage form, the company must be able to produce legible evidence of its contents.

82.
With the prior or subsequent approval by a resolution of members, the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company.

83.
A director shall not require a share qualification and may be an individual or a company.
 
 
12

 
 
POWERS OF DIRECTORS
 
84.
The business and affairs of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be authorized by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with these Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made. Notwithstanding anything in Section 175 of the Act the directors shall have the power to sell, transfer, lease, exchange or otherwise dispose of more than fifty percent of the assets of the Company without submitting a proposal to or obtaining the consent of the members of the Company.

85.
If the Company is a wholly-owned subsidiary of a holding company a director may when exercising powers or performing duties as a director act in a manner which he believes is in the best interests of the holding company even though it may not be in the best interests of the Company.

86.
The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company.  The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

87.
Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the resolution of directors appointing the officer or agent, except that no agent has any power or authority with respect to the following;

 
a.
to amend the memorandum or articles;

 
b.
to change the registered office or agent;

 
c.
to designate committees of directors;

 
d.
to delegate powers to a committee of directors;

 
e.
to appoint or remove directors;

 
f.
to appoint or remove an agent;

 
g.
to fix emoluments of directors;

 
h.
to approve a plan of merger, consolidation or arrangement;

 
i.
to make a declaration of solvency for the purposes of section 198(1)(a) of the Act or to approve a liquidation plan;

 
j.
to make a determination under section 57(1) of the Act that the company will, immediately after a proposed distribution, satisfy the solvency test; or

 
k.
to authorise the Company to continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

88.
Any director which is a body corporate may appoint any person its duly authorized representative for the purpose of representing it at meetings of the Board of Directors or with respect to unanimous written consents.

89.
The continuing directors may act notwithstanding any vacancy in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members.

90.
The directors may by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party.

 
13

 

91.
All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to  the  Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors.

92.
The Company shall keep a register of all relevant charges created by the Company showing:

 
a.
if the charge is a charge created by the Company, the date of its creation or if the charge is existing on property acquired by the Company, the date on which the property was acquired;

 
b.
a short description of the liability secured by the charge;

 
c.
a short description of the property charged;

 
d.
the name and address of the trustee for the security, or if there is no such trustee the name and address of the chargee;

 
e.
unless the charge is a security to bearer, the name and address of the holder of the charge;

 
f.
details of any prohibition or restriction , if any, contained in the instrument creating the charge on the power of the company to create any future charge ranking in priority to or equally with the charge; and

 
g.
such other information as may be prescribed pursuant to the Act.

93.
The original or a copy of the register of charges shall be kept at the registered office of the Company or at the office of the registered agent of the Company.

PROCEEDINGS OF DIRECTORS

94.
The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable. Any one or more directors may convene a meeting of directors.

95.
A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other.

96.
A director shall be given not less than 3 days notice of meetings of directors, but a meeting of directors held without 3 days notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend, waive notice of the meeting and for this purpose, the presence of a director at a meeting shall constitute waiver on his part.  The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting.

97.
A director may by a written instrument appoint an alternate who need not be a director and an alternate is entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director.

98.
A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one half of the total number of directors, unless there are only 2 directors in which case the quorum shall be 2.

99.
If the Company shall have only one director the provisions herein contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum or these Articles required to be exercised by the members of the Company and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters requiring a resolution of directors.  Such a note or memorandum shall constitute sufficient evidence of such resolution for all purposes.

 
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100.
At every meeting of the directors the Chairman of the Board of Directors shall preside as chairman of the meeting.  If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting the Vice Chairman of the Board of Directors shall preside.  If there is no Vice Chairman of the Board of Directors or if the Vice Chairman of the Board of Directors is not present at the meeting the directors present shall choose some one of their number to be chairman of the meeting.

101.
An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by all directors or all members of the committee as the case may be, without the need for any notice.  The consent may be in the form of counterparts, each counterpart being signed by one or more directors.

102.
The directors shall cause the following records to be kept:

 
a.
minutes of all meetings of directors, members, committees of directors and committees of members; and

 
b.
copies of all resolutions consented to by directors, members, committees of directors and committees of members.

103.
The resolutions, records and minutes referred to in the preceding Article shall be kept at the registered office of the Company, its principal place of business or at such other place as the directors determine.

104.
The directors may, by resolution of directors, designate one or more committees, each consisting of one or more directors.

105.
Subject to the following Article, each committee of directors has such powers and authorities of the directors, including the power and authority to affix the Seal, as are set forth in the resolution of directors establishing the committee.

106.
The directors have no power to delegate the following powers to a committee of directors;

 
a.
to amend the memorandum or articles;

 
b.
to change the registered office or agent;

 
c.
to designate committees of directors;

 
d.
to delegate powers to a committee of directors;

 
e.
to appoint or remove directors;

 
f.
to appoint or remove an agent;

 
g.
to fix emoluments of directors;

 
h.
to approve a plan of merger, consolidation or arrangement;

 
i.
to make a declaration of solvency for the purposes of section 198(1)(a) or to approve a liquidation plan;

 
j.
to make a determination under section 57(1) that the company will, immediately after a proposed distribution, satisfy the solvency test; or

 
15

 

 
k.
to authorise the company to continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

Paragraphs (c) and (d) do not prevent a committee of directors, where authorised by the directors, from appointing a sub-committee and delegating powers exercisable by the committee to the sub-committee.

107.
The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee.

108.
Without prejudice to the freedom of the directors to establish any other committee, if the shares (or depositary receipts therefore) are listed or quoted on the Designated Stock Exchange, and if required by the Designated Stock Exchange, the directors shall establish and maintain an audit committee as a committee of the board of directors, the composition and responsibilities of which shall comply with the rules and regulations of the SEC and the Designated Stock Exchange.  The audit committee shall meet at least once every financial quarter, or more frequently as circumstances dictate.

109.
The Company shall adopt a formal written audit committee charter and review and assess the adequacy of the formal written charter on an annual basis. The charter shall specify the responsibilities of the Audit Committee which shall include responsibility for, among other things, ensuring its receipt from the outside auditors of the Company of a formal written statement delineating all relationships between the auditor and the Company, and the Audit Committee’s responsibility for actively engaging in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor take appropriate action to oversee the independence of the outside auditor. In addition, the Audit Committee is responsible for reviewing potential conflict of interest situations and approving all Related Party Transactions.

110.
Without prejudice to the freedom of the directors to establish any other committees, the Board may establish a Stock Option Committee to administer the Company’s stock option plans, including authority to make and modify awards under such plans. For so long as the Securities of the Company are listed or traded on the Designated Stock Exchange, the Stock Option Committee shall have at least two Independent Directors. The Stock Option Committee will administer the Company’s stock option plans, including the authority to make and modify awards under such plans.

111.
Without prejudice to the freedom of the directors to establish any other committees, the Board may establish a Nominating Committee to assist the Board in identifying qualified individuals to become members of the Board.

OFFICERS

112.
The Company may by resolution of directors appoint officers of the Company at such times as shall be considered necessary or expedient.  Such officers may consist of a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President and one or more Vice Presidents, Secretaries and Treasurers and such other officers as may from time to time be deemed desirable.   Any number of offices may be held by the same person.

113.
The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any  modification in such duties as may be prescribed thereafter by resolution of directors or resolution of members, but in the absence of any specific allocation of duties it shall be the responsibility of the Chairman of the Board of Directors to preside at meetings of directors and members, the Vice Chairman to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the Vice Presidents to act in order of seniority in the absence of the President but otherwise to perform such duties as may be delegated to them by the President, the Secretaries to maintain the share register, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company.

 
16

 

114.
Subject to the rules of the Designated Stock Exchange, the emoluments of all officers shall be fixed by resolution of directors.

115.
The officers of the Company shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors.  Any vacancy occurring in any office of the Company may be filled by resolution of directors.

CONFLICT OF INTERESTS

116.
A director of the Company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other directors of the Company.

 
117.
A director of the Company is not required to comply with Article 112 if;
 
 
a.
the transaction or proposed transaction is between the director and the Company; and

 
b.
the transaction or proposed transaction is or is to be entered into in the ordinary course of the company's business and on usual terms and conditions.
 
118.
For the purposes of Article 112 a disclosure to all other directors to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction.
 
119.A.
A director of the Company who is interested in a transaction entered into or to be entered into by the Company may:
 
(i)           vote on a matter relating to the transaction;

 
(ii)
attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and

 
(iii)
sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction,
 
and, subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.
 
119.B.
For so long the Securities of the Company are listed or traded on the Designated Stock Exchange, the Company shall conduct an appropriate review of all material Related Party Transactions on an ongoing basis and shall utilize the Audit Committee for the review and approval of potential conflicts of interest situations.

INDEMNIFICATION

120.
Subject to the limitations hereinafter provided the Company may indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative  or  investigative proceedings any person who;

 
a.
is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidator of the Company; or

 
b.
is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.

 
17

 
 
121.
The Company may only indemnify a person if the person acted honestly and in good faith in what he believed to be in the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful.

122.
For the purposes of the preceding Article, a director acts in the best interests of the Company if he acts in the best interests of;

 
a.
the Company's holding company; or

 
b.
a shareholder or shareholders of the Company;

in either case, in the circumstances specified in Article 85.

123.
The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of these Articles, unless a question of law is involved.

124.
The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful.

125.
Expenses, including legal fees, incurred by a director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the director is not entitled to be indemnified by the Company in accordance with these Articles.

126.
Expenses, including legal fees, incurred by a former director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the former director to repay the amount if it shall ultimately be determined that the director is not entitled to be indemnified by the Company in accordance with these Articles.

127.
The indemnification and advancement of expenses provided by, or granted pursuant to, these Articles is not exclusive of any other rights to which the person seeking indemnification of advancement of expenses may be entitled under any agreement, resolution of members, resolution of disinterested directors or otherwise, both as to acting in the person's official capacity and as to acting in another capacity while serving as a director of the Company.

128.
If a person to be indemnified has been successful in defence of any proceedings referred to above the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings.

129.
The Company may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the Company, or who at the request of the Company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another body corporate or a  partnership, joint  venture, trust or other enterprise, against any liability  asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in these Articles.
 
 
18

 
 
SEAL
 
130.
The Company shall have a Seal and may have more than one Seal. References herein to the Seal shall be references to every Seal which shall have been duly adopted by resolution of directors.  The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the office of the registered agent of the Company.  Except as otherwise expressly provided herein, the Seal when affixed to any written instrument, shall be witnessed and attested to by the signature of a director or any other person so authorized from time to time by resolution of directors.  Such authorization may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The Directors may provide for a facsimile of the Seal and of the signature of any director or authorized person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been signed as hereinbefore described.

DISTRIBUTIONS

131.
The directors of the Company may  by resolution authorise a distribution by the Company at any time and of any amount and to any members they think fit if they are satisfied on reasonable grounds that immediately after the distribution;

 
a.
the value of the Company’s assets will exceed its liabilities, and

 
b.
the Company will be able to pay its debts as they fall due.

132.
A resolution of the directors passed under the preceding Article shall contain a statement that, in the opinion of the directors, immediately after the distribution the value of the Company’s assets will exceed its liabilities, and the Company will be able to pay its debts as they fall due.

133.
If, after a distribution is authorised and before it is made, the directors cease to be satisfied on reasonable grounds that the Company will, immediately after the distribution satisfy the solvency test, any distribution made by the Company is deemed not to have been authorised.

134.
If, by virtue of the preceding Article, a distribution is deemed not to have been authorised, a director who;

 
a.
ceased, after authorisation but before the making of the distribution, to be satisfied on reasonable grounds for believing that the company would satisfy the solvency test immediately after the distribution is made; and

 
b.
failed to take reasonable steps to prevent the distribution being made;

is personally liable to the company to repay to the company so much of the distribution as is not able to be recovered from members.

135.
A distribution made to a member at a time when the company did not, immediately after the distribution, satisfy the solvency test may be recovered by the company from the member unless;

 
a.
the member received the distribution in good faith and without knowledge of the company's failure to satisfy the solvency test;

 
b.
the member has altered his position in reliance on the validity of the distribution; and

 
c.
it would be unfair to require repayment in full or at all.

DISTRIBUTIONS BY WAY OF DIVIDEND

136.
The Company may by a resolution of directors declare a distribution by way of dividend and pay such distribution in money, shares or other property.  In the event that distributions by way of dividend are paid in specie the directors shall have responsibility for establishing and recording in the resolution of directors authorizing the distribution by way of dividend, a fair and proper value for the assets to be so distributed.

137.
The directors may from time to time pay to the members such interim distributions by way of dividend as appear to the directors to be justified by the profits of the Company.

 
19

 

138.
The directors may, before declaring any distribution by way of dividend, set aside out of the profits of the Company such sum as they think proper as a reserve fund, and may invest the sum so set aside as a reserve fund upon such securities as they may select.

139.
Notice of any distribution by way of dividend that may have been declared shall be given to each member in the manner hereinafter mentioned and all distributions by way of dividend unclaimed for 3 years after having been declared may be forfeited by resolution of directors for the benefit of the Company.

140.
No distribution by way of dividend shall bear interest as against the Company and no distribution by way of dividend shall be paid on treasury shares or shares held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the vote in electing directors.

141.
A share issued as a distribution by way of dividend by the Company shall be treated for all purposes as having been issued for money equal to the value determined by resolution of the directors.  In the absence of fraud the decision of the directors as to the value of the share is conclusive unless a question of law is involved.

142.
A division of the issued and outstanding shares of a class or series of shares into a larger number of shares of the same class or series having a proportionately smaller par value does not constitute a distribution by way of dividend of shares.

ACCOUNTS AND AUDIT

143.
The Company may by resolution of members call for the directors to prepare periodically a profit and loss account and a balance sheet.  The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for the financial period and a true and fair view of the state of affairs of the Company as at the end of the financial period.

144.
The Company may by resolution of members call for the accounts to be examined by auditors.

145.
Subject to the rules of the Designated Stock Exchange, the first auditors shall be appointed by resolution of directors; subsequent auditors shall be appointed by the Audit Committee and shall hold office until the Audit Committee appoint another independent auditor.

146.
Subject to the rules of the Designated Stock Exchange, the remuneration of the auditors of the Company shall be fixed by the Audit Committee.

147.
The auditors shall examine each profit and loss account and balance sheet required to be served on every member of the Company or laid before a meeting of the members of the Company and shall state in a written report whether or not

 
a.
in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the state of affairs of the Company at the end of that period; and

 
b.
all the information and explanations required by the auditors have been obtained.

148.
The report of the auditors shall be annexed to the accounts and shall be read at the meeting of members at which the accounts are laid before the Company or shall be served on the members.

149.
Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors.

150.
The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of members of the Company at which the Company's profit and loss account and balance sheet are to be presented.

 
20

 

NOTICES

151.
Any notice, information or written statement to be given by the Company to members may be served in any way by which it can reasonably be expected to reach each member or by mail addressed to each member at the address shown in the share register.

152.
Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.

153.
Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.

PENSION AND SUPERANNUATION FUNDS

154.
The directors may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company or any company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid or who hold or held any salaried employment or office in the Company or such other company, or any persons in whose welfare the Company or any such other company as aforesaid is or has been at any time interested, and to the wives, widows, families and dependents of any such person, and may make payments for or towards the insurance of any such persons as aforesaid, and may do any of the matters aforesaid either alone or in conjunction with any such other  company as aforesaid.  Subject always to the proposal being approved by resolution of members, a director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension allowance or emolument.

VOLUNTARY WINDING UP AND DISSOLUTION

155.
The Company may voluntarily commence to wind up and dissolve by a resolution of members but if the Company has never issued shares it may voluntarily commence to wind up and dissolve by resolution of directors.

CONTINUATION

156.
The Company may by resolution of members or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws.

ARBITRATION

157.
Whenever any difference arises between the Company on the one hand and any of the members or their executors, administrators or assigns on the other hand, touching the true intent and construction or the incidence or consequences of these Articles or of the Act, touching anything done or executed, omitted or suffered in pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these Articles, or to any Act or Ordinance affecting the Company or to any of the affairs of the Company such difference shall, unless the parties agree to refer the same to a single arbitrator, be referred to 2 arbitrators one to be chosen by each of the parties to the difference and the arbitrators shall before entering on the reference appoint an umpire.

 
21

 

158.
If either party to the reference makes default in appointing an arbitrator either originally or by way of substitution (in the event that an appointed arbitrator shall die, be incapable of acting or refuse to act) for 10 days after the other party has given him notice to appoint the same, such other party may appoint an arbitrator to act in the place of the arbitrator of the defaulting party.

We, Portcullis TrustNet (BVI) Limited of Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign these Articles of Association the 27 th day of October, 2009.

 
Incorporator
 
     
 
/s/ Nicole Wheatley
 
 
Portcullis TrustNet (BVI) Limited
 
 
Portcullis TrustNet Chambers
 
 
P.O. Box 3444
 
 
Road Town, Tortola
 
 
British Virgin Islands
 
 
(Sgd. Nicole Wheatley)
 
 
 
22

 

Exhibit 4.1
 


KINGTONE WIRELESSINFO SOLUTION HOLDING LTD

AND

THE BANK OF NEW YORK MELLON

As Depositary

AND

OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES

Deposit Agreement

Dated as of ___________, 2010



 
 

 

TABLE OF CONTENTS
 
ARTICLE 1.            DEFINITIONS
 
1
SECTION 1.01         American Depositary Shares.
 
1
SECTION 1.02         BVI
 
2
SECTION 1.03         Commission.
 
2
SECTION 1.04         Company.
 
2
SECTION 1.05         Custodian.
 
2
SECTION 1.06         Deliver; Surrender.
 
2
SECTION 1.07         Deposit Agreement.
 
3
SECTION 1.08         Depositary; Corporate Trust Office.
 
3
SECTION 1.09         Deposited Securities.
 
3
SECTION 1.10         Dollars.
 
3
SECTION 1.11         DTC.
 
3
SECTION 1.12         Foreign Registrar.
 
3
SECTION 1.13         Holder.
 
4
SECTION 1.14         Owner.
 
4
SECTION 1.15         Receipts.
 
4
SECTION 1.16         Registrar.
 
4
SECTION 1.17         Restricted Securities.
 
4
SECTION 1.18         Securities Act of 1933.
 
5
SECTION 1.19         Shares.
 
5
     
ARTICLE 2.            FORM OF RECEIPTS, DEPOSIT OF SHARES, DELIVERY, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARY SHARES
 
5
SECTION 2.01         Form of Receipts; Registration and Transferability of American Depositary Shares.
 
5
SECTION 2.02         Deposit of Shares.
 
6
SECTION 2.03         Delivery of American Depositary Shares.
 
7
SECTION 2.04         Registration of Transfer of American Depositary Shares; Combination and Split-up of Receipts; Interchange of Certificated and Uncertificated American Depositary Shares.
 
8
SECTION 2.05         Surrender of American Depositary Shares and Withdrawal of Deposited Securities.
 
8
SECTION 2.06         Limitations on Delivery, Transfer and Surrender of American Depositary Shares.
 
9
SECTION 2.07         Lost Receipts, etc.
 
10
SECTION 2.08         Cancellation and Destruction of Surrendered Receipts.
 
10
SECTION 2.09         Pre-Release of American Depositary Shares.
 
11

 
ii

 

SECTION 2.10         DTC Direct Registration System and Profile Modification System.
 
11
     
ARTICLE 3.            CERTAIN OBLIGATIONS OF OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES
 
12
SECTION 3.01         Filing Proofs, Certificates and Other Information.
 
12
SECTION 3.02         Liability of Owner for Taxes.
 
13
SECTION 3.03         Warranties on Deposit of Shares.
 
13
     
ARTICLE 4.            THE DEPOSITED SECURITIES
 
13
SECTION 4.01         Cash Distributions.
 
13
SECTION 4.02         Distributions Other Than Cash, Shares or Rights.
 
14
SECTION 4.03         Distributions in Shares.
 
15
SECTION 4.04         Rights.
 
15
SECTION 4.05         Conversion of Foreign Currency.
 
17
SECTION 4.06         Fixing of Record Date.
 
18
SECTION 4.07         Voting of Deposited Securities.
 
18
SECTION 4.08         Changes Affecting Deposited Securities.
 
19
SECTION 4.09         Reports.
 
19
SECTION 4.10         Lists of Owners.
 
20
SECTION 4.11         Withholding.
 
20
     
ARTICLE 5.            THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY
 
20
SECTION 5.01         Maintenance of Office and Transfer Books by the Depositary.
 
20
SECTION 5.02         Prevention or Delay in Performance by the Depositary or the Company.
 
21
SECTION 5.03         Obligations of the Depositary, the Custodian and the Company.
 
21
SECTION 5.04         Resignation and Removal of the Depositary.
 
22
SECTION 5.05         The Custodians.
 
23
SECTION 5.06         Notices and Reports.
 
24
SECTION 5.07         Distribution of Additional Shares, Rights, etc.
 
24
SECTION 5.08         Indemnification.
 
25
SECTION 5.09         Charges of Depositary.
 
26
SECTION 5.10         Retention of Depositary Documents.
 
27
SECTION 5.11         Exclusivity.
 
27
SECTION 5.12         List of Restricted Securities Owners.
 
27
     
ARTICLE 6.            AMENDMENT AND TERMINATION
 
28

 
iii

 

SECTION 6.01         Amendment.
 
28
SECTION 6.02         Termination.
 
28
     
ARTICLE 7.            MISCELLANEOUS
 
29
SECTION 7.01         Counterparts.
 
29
SECTION 7.02         No Third Party Beneficiaries.
 
29
SECTION 7.03         Severability.
 
29
SECTION 7.04         Owners and Holders as Parties; Binding Effect.
 
30
SECTION 7.05         Notices.
 
30
SECTION 7 .06         Arbitration; Settlement of Disputes.
 
31
SECTION 7.07         Submission to Jurisdiction; Appointment of Agent for Service of Process; Jury Trial Waiver.
 
32
SECTION 7.08         Waiver of Immunities.
 
32
SECTION 7.09         Governing Law.
 
33

 
iv

 

DEPOSIT AGREEMENT
 
DEPOSIT AGREEMENT dated as of __________, 2010, among KINGTONE WIRELESSINFO SOLUTION HOLDING LTD, incorporated under the laws of the British Virgin Islands (herein called the Company), THE BANK OF NEW YORK MELLON, a New York banking corporation (herein called the Depositary), and all Owners and Holders from time to time of American Depositary Shares issued hereunder.
 
WITNESSETH:
 
WHEREAS, the Company desires to provide, as hereinafter set forth in this Deposit Agreement, for the deposit of Shares (as hereinafter defined) of the Company from time to time with the Depositary or with the Custodian (as hereinafter defined) as agent of the Depositary for the purposes set forth in this Deposit Agreement, for the creation of American Depositary Shares representing the Shares so deposited and for the execution and delivery of American Depositary Receipts evidencing the American Depositary Shares; and
 
WHEREAS, the American Depositary Receipts are to be substantially in the form of Exhibit A annexed hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in this Deposit Agreement;
 
NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties hereto as follows:
 
ARTICLE 1.     DEFINITIONS
 
The following definitions shall for all purposes, unless otherwise clearly indicated, apply to the respective terms used in this Deposit Agreement:
 
SECTION 1.01           American Depositary Shares.
 
The term “American Depositary Shares” shall mean the securities created under this Deposit Agreement representing rights with respect to the Deposited Securities. American Depositary Shares may be certificated securities evidenced by Receipts or uncertificated securities.  The form of Receipt annexed as Exhibit A to this Deposit Agreement shall be the prospectus required under the Securities Act of 1933 for sales of both certificated and uncertificated American Depositary Shares.  Except for those provisions of this Deposit Agreement that refer specifically to Receipts, all the provisions of this Deposit Agreement shall apply to both certificated and uncertificated American Depositary Shares.  Each American Depositary Share shall represent the number of Shares specified in Exhibit A to this Deposit Agreement, until there shall occur a distribution upon Deposited Securities covered by Section 4.03 or a change in Deposited Securities covered by Section 4.08 with respect to which additional American Depositary Shares are not delivered, and thereafter American Depositary Shares shall represent the amount of Shares or Deposited Securities specified in such Sections.

 
- 1 -

 
 
SECTION 1.02           BVI
 
The term “BVI” shall mean the British Virgin Islands.

SECTION 1.03           Commission.
 
The term “Commission” shall mean the Securities and Exchange Commission of the United States or any successor governmental agency in the United States.
 
SECTION 1.04           Company.
 
The term “Company” shall mean Wirelessinfo Solution Holding Ltd, incorporated under the laws of the British Virgin Islands, and its successors.
 
SECTION 1.05           Custodian.
 
The term “Custodian” shall mean the principal Hong Kong office of The Hongkong and Shanghai Banking Corporation Limited, as agent of the Depositary for the purposes of this Deposit Agreement, and any other firm or corporation which may hereafter be appointed by the Depositary pursuant to the terms of Section 5.05, as substitute or additional custodian or custodians hereunder, as the context shall require and shall also mean all of them collectively.
 
SECTION 1.06           Deliver; Surrender.
 
(a)           The term “deliver”, or its noun form, when used with respect to Shares or other Deposited Securities, shall mean  (i) book-entry transfer of those Shares or other Deposited Securities to an account maintained by an institution authorized under applicable law to effect transfers of such securities designated by the person entitled to that delivery or (ii) physical transfer of certificates evidencing those Shares or other Deposited Securities registered in the name of, or duly endorsed or accompanied by proper instruments of transfer to, the person entitled to that delivery.
 
(b)           The term “deliver”, or its noun form, when used with respect to American Depositary Shares, shall mean (i) book-entry transfer of American Depositary Shares to an account at DTC designated by the person entitled to such delivery, evidencing American Depositary Shares registered in the name requested by that person,  (ii) registration of American Depositary Shares not evidenced by a Receipt on the books of the Depositary in the name requested by the person entitled to such delivery and  mailing to that person of a statement confirming that registration or (iii) if requested by the person entitled to such delivery, delivery at the Corporate Trust Office of the Depositary to the person entitled to such delivery of one or more Receipts.

 
- 2 -

 
 
(c)           The term “surrender”, when used with respect to American Depositary Shares, shall mean (i) one or more book-entry transfers of American Depositary Shares to the DTC account of the Depositary, (ii) delivery to the Depositary at its Corporate Trust Office of an instruction to surrender American Depositary Shares not evidenced by a Receipt or (iii) surrender to the Depositary at its Corporate Trust Office of one or more Receipts evidencing American Depositary Shares.
 
SECTION 1.07           Deposit Agreement.
 
The term “Deposit Agreement” shall mean this Agreement, as the same may be amended from time to time in accordance with the provisions hereof.
 
SECTION 1.08           Depositary; Corporate Trust Office.
 
The term “Depositary” shall mean The Bank of New York Mellon, a New York banking corporation, and any successor as depositary hereunder.  The term “Corporate Trust Office”, when used with respect to the Depositary, shall mean the office of the Depositary which at the date of this Deposit Agreement is 101 Barclay Street, New York, New York 10286.
 
SECTION 1.09           Deposited Securities.
 
The term “Deposited Securities” as of any time shall mean Shares at such time deposited or deemed to be deposited under this Deposit Agreement, including without limitation Shares that have not been successfully delivered upon surrender of American Depositary Shares, and any and all other securities, property and cash received by the Depositary or the Custodian in respect thereof and at such time held under this Deposit Agreement, subject as to cash to the provisions of Section 4.05.
 
SECTION 1.10           Dollars.
 
The term “Dollars” shall mean  United States dollars.
 
SECTION 1.11           DTC.
 
The term “DTC” shall mean The Depository Trust Company or its successor.
 
SECTION 1.12           Foreign Registrar.
 
The term “Foreign Registrar” shall mean the entity that presently carries out the duties of registrar for the Shares or any successor as registrar for the Shares and any other agent of the Company for the transfer and registration of Shares, including without limitation any securities depository for the Shares.

 
- 3 -

 
 
SECTION 1.13           Holder.
 
The term “Holder” shall mean any person holding a Receipt or a security entitlement or other interest in American Depositary Shares, whether for its own account or for the account of another person, but that is not the Owner of that Receipt or those American Depositary Shares.
 
SECTION 1.14           Owner.
 
The term “Owner” shall mean the person in whose name American Depositary Shares are registered on the books of the Depositary maintained for such purpose.
 
SECTION 1.15           Receipts.
 
The term “Receipts” shall mean the American Depositary Receipts issued hereunder evidencing certificated American Depositary Shares, as the same may be amended from time to time in accordance with the provisions hereof.
 
SECTION 1.16           Registrar.
 
The term “Registrar” shall mean any bank or trust company having an office in the Borough of Manhattan, The City of New York, that is appointed by the Depositary to register American Depositary Shares and transfers of American Depositary Shares as herein provided.
 
SECTION 1.17           Restricted Securities.
 
The term “Restricted Securities” shall mean Shares, or American Depositary Shares representing Shares, that are acquired directly or indirectly from the Company or its affiliates (as defined in Rule 144 under the Securities Act of 1933) in a transaction or chain of transactions not involving any public offering, or that are subject to resale limitations under Regulation D under the Securities Act of 1933 or both, or which are held by an officer, director (or persons performing similar functions) or other affiliate of the Company, or that would require registration under the Securities Act of 1933 in connection with the offer and sale thereof in the United States, or that are subject to other restrictions on sale or deposit under the laws of the United States or the BVI, or under a shareholder agreement or the articles of association or similar document of the Company.

 
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SECTION 1.18           Securities Act of 1933.
 
The term “Securities Act of 1933” shall mean the United States Securities Act of 1933, as from time to time amended.
 
SECTION 1.19           Shares.
 
The term “Shares” shall mean ordinary shares of the Company that are validly issued and outstanding and fully paid, nonassessable and that were not issued in violation of any pre-emptive or similar rights of the holders of outstanding securities of the Company; provided , however , that, if there shall occur any change in nominal value, a split-up or consolidation or any other reclassification or, upon the occurrence of an event described in Section 4.08, an exchange or conversion in respect of the Shares of the Company, the term “Shares” shall thereafter also mean the successor securities resulting from such change in nominal value, split-up or consolidation or such other reclassification or such exchange or conversion.
 
ARTICLE 2.
FORM OF RECEIPTS, DEPOSIT OF SHARES, DELIVERY, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARY SHARES
 
SECTION 2.01           Form of Receipts; Registration and Transferability of American Depositary Shares.
 
Definitive Receipts shall be substantially in the form set forth in Exhibit A annexed to this Deposit Agreement, with appropriate insertions, modifications and omissions, as hereinafter provided.  No Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose, unless such Receipt shall have been (i) executed by the Depositary by the manual signature of a duly authorized officer of the Depositary or (ii) executed by the facsimile signature of a duly authorized officer of the Depositary and countersigned by the manual signature of a duly authorized signatory of the Depositary or a Registrar.  The Depositary shall maintain books on which (x) each Receipt so executed and delivered as hereinafter provided and the transfer of each such Receipt shall be registered and (y) all American Depositary Shares delivered as hereinafter provided and all registrations of transfer of American Depositary Shares shall be registered.  A Receipt bearing the facsimile signature of a person that was at any time a proper officer of the Depositary shall, subject to the other provisions of this paragraph, bind the Depositary, notwithstanding that such person was not a proper officer of the Depositary on the date of issuance of that Receipt.
 
The Receipts may, and upon written request of the Company shall, be endorsed with or have incorporated in the text thereof such legends or recitals or modifications not inconsistent with the provisions of this Deposit Agreement as may be required by the Depositary or the Company or required to comply with any applicable law or regulations thereunder or with the rules and regulations of any securities exchange upon which American Depositary Shares may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Receipts are subject by reason of the date of issuance of the underlying Deposited Securities or otherwise.

 
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American Depositary Shares evidenced by a Receipt, when properly endorsed or accompanied by proper instruments of transfer, shall be transferable as certificated registered securities under the laws of New York. American Depositary Shares not evidenced by Receipts shall be transferable as uncertificated registered securities under the laws of New York.  The Depositary, notwithstanding any notice to the contrary, may treat the Owner of American Depositary Shares as the absolute owner thereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes, and neither the Depositary nor the Company shall have any obligation or be subject to any liability under this Deposit Agreement to any holder of American Depositary Shares unless that holder is the Owner of those American Depositary Shares.
 
SECTION 2.02           Deposit of Shares.
 
Subject to the terms and conditions of this Deposit Agreement, Shares or evidence of rights to receive Shares may be deposited by delivery thereof to any Custodian hereunder, accompanied by any appropriate instruments or instructions for transfer, or endorsement, in form satisfactory to the Custodian, together with all such certifications as may be required by the Depositary or the Custodian in accordance with the provisions of this Deposit Agreement, and, if the Depositary requires, together with a written order directing the Depositary to deliver to, or upon the written order of, the person or persons stated in such order, the number of American Depositary Shares representing such deposit.
 
No Share shall be accepted for deposit unless accompanied by evidence satisfactory to the Depositary that any necessary approval has been granted by any governmental body in any relevant jurisdiction that is then performing the function of the regulation of currency exchange. If required by the Depositary, Shares presented for deposit at any time, whether or not the transfer books of the Company or the Foreign Registrar, if applicable, are closed, shall also be accompanied by an agreement or assignment, or other instrument satisfactory to the Depositary, which will provide for the prompt transfer to the Custodian of any dividend, or right to subscribe for additional Shares or to receive other property which any person in whose name the Shares are or have been recorded may thereafter receive upon or in respect of such deposited Shares, or in lieu thereof, such agreement of indemnity or other agreement as shall be satisfactory to the Depositary.

 
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At the request and risk and expense of any person proposing to deposit Shares, and for the account of such person, the Depositary may receive certificates for Shares to be deposited, together with the other instruments herein specified, for the purpose of forwarding such Share certificates to the Custodian for deposit hereunder.
 
Upon each delivery to a Custodian of a certificate or certificates for Shares to be deposited hereunder, together with the other documents specified above, such Custodian shall, as soon as transfer and recordation can be accomplished, present such certificate or certificates to the Company or the Foreign Registrar, if applicable, for transfer and recordation of the Shares being deposited in the name of the Depositary or its nominee or such Custodian or its nominee.
 
Deposited Securities shall be held by the Depositary or by a Custodian for the account and to the order of the Depositary or at such other place or places as the Depositary shall determine.
 
SECTION 2.03           Delivery of American Depositary Shares.
 
Upon receipt by any Custodian of any deposit pursuant to Section 2.02 hereunder, together with the other documents required as specified above, such Custodian shall notify the Depositary of such deposit and the person or persons to whom or upon whose written order American Depositary Shares are deliverable in respect thereof and the number of American Depositary Shares to be so delivered. Such notification shall be made by letter or, at the request, risk and expense of the person making the deposit, by cable, telex or facsimile transmission (and in addition, if the transfer books of the Company or the Foreign Registrar, if applicable, are open, the Depositary may in its sole discretion require a proper acknowledgment or other evidence from the Company or the Foreign Registrar that any Deposited Securities have been recorded upon the books of the Company or the Foreign Registrar, if applicable, in the name of the Depositary or its nominee or such Custodian or its nominee).  Upon receiving such notice from such Custodian, or upon the receipt of Shares or evidence of the right to receive Shares by the Depositary, the Depositary, subject to the terms and conditions of this Deposit Agreement, shall deliver, to or upon the order of the person or persons entitled thereto, the number of American Depositary Shares issuable in respect of that deposit, but only upon payment to the Depositary of the fees and expenses of the Depositary for the delivery of such American Depositary Shares as provided in Section 5.09, and of all taxes and governmental charges and fees payable in connection with such deposit and the transfer of the Deposited Securities.
 
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SECTION 2.04           Registration of Transfer of American Depositary Shares; Combination and Split-up of Receipts; Interchange of Certificated and Uncertificated American Depositary Shares.

The Depositary, subject to the terms and conditions of this Deposit Agreement, shall register transfers of American Depositary Shares on its transfer books from time to time, upon (i) in the case of certificated American Depositary Shares, surrender of the Receipt evidencing those American Depositary Shares, by the Owner in person or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer or (ii) in the case of uncertificated American Depositary Shares, receipt from the Owner of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10), and, in either case, duly stamped as may be required by the laws of the State of New York and of the United States of America. Thereupon the Depositary shall deliver those American Depositary Shares to or upon the order of the person entitled thereto.
 
The Depositary, subject to the terms and conditions of this Deposit Agreement, shall upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts, execute and deliver a new Receipt or Receipts for any authorized number of American Depositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.
 
The Depositary, upon surrender of certificated American Depositary Shares for the purpose of exchanging for uncertificated American Depositary Shares, shall cancel those certificated American Depositary Shares and send the Owner a statement confirming that the Owner is the owner of the same number of uncertificated American Depositary Shares. The Depositary, upon receipt of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10) from the Owner of uncertificated American Depositary Shares for the purpose of exchanging for certificated American Depositary Shares, shall cancel those uncertificated American Depositary Shares and deliver to the Owner the same number of certificated American Depositary Shares.
 
The Depositary may appoint one or more co-transfer agents for the purpose of effecting registration of transfers of American Depositary Shares and combinations and split-ups of Receipts at designated transfer offices on behalf of the Depositary.  In carrying out its functions, a co-transfer agent may require evidence of authority and compliance with applicable laws and other requirements by Owners or persons entitled to American Depositary Shares and will be entitled to protection and indemnity to the same extent as the Depositary.
 
SECTION 2.05           Surrender of American Depositary Shares and Withdrawal of Deposited Securities.
 
Upon surrender at the Corporate Trust Office of the Depositary of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby, and upon payment of the fee of the Depositary for the surrender of American Depositary Shares as provided in Section 5.09 and payment of all taxes and governmental charges payable in connection with such surrender and withdrawal of the Deposited Securities, and subject to the terms and conditions of this Deposit Agreement, the Owner of those American Depositary Shares shall be entitled to delivery, to him or as instructed, of the amount of Deposited Securities at the time represented by those American Depositary Shares.  Such delivery shall be made, as hereinafter provided, without unreasonable delay.

 
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A Receipt surrendered for such purposes may be required by the Depositary to be properly endorsed in blank or accompanied by proper instruments of transfer in blank. The Depositary may require the surrendering Owner to execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be delivered to or upon the written order of a person or persons designated in such order.  Thereupon the Depositary shall direct the Custodian to deliver at the office of such Custodian, subject to Sections 2.06, 3.01 and 3.02 and to the other terms and conditions of this Deposit Agreement, to or upon the written order of the person or persons designated in the order delivered to the Depositary as above provided, the amount of Deposited Securities represented by the surrendered American Depositary Shares, except that the Depositary may make delivery to such person or persons at the Corporate Trust Office of the Depositary of any dividends or distributions with respect to the Deposited Securities represented by those American Depositary Shares, or of any proceeds of sale of any dividends, distributions or rights, which may at the time be held by the Depositary.
 
At the request, risk and expense of any Owner so surrendering American Depositary Shares, and for the account of such Owner, the Depositary shall direct the Custodian to forward any cash or other property (other than rights) comprising, and forward a certificate or certificates, if applicable, and other proper documents of title for, the Deposited Securities represented by the surrendered American Depositary Shares to the Depositary for delivery at the Corporate Trust Office of the Depositary.  Such direction shall be given by letter or, at the request, risk and expense of such Owner, by cable, telex or facsimile transmission.
 
SECTION 2.06           Limitations on Delivery, Transfer and Surrender of American Depositary Shares.
 
As a condition precedent to the delivery, registration of transfer or surrender of any American Depositary Shares or split-up or combination of any Receipt or withdrawal of any Deposited Securities, the Depositary, Custodian or Registrar may require payment from the depositor of Shares or the presenter of the Receipt or instruction for registration of transfer or surrender of American Depositary Shares not evidenced by a Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees as herein provided, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with any regulations the Depositary may establish consistent with the provisions of this Deposit Agreement, including, without limitation, this Section 2.06.

 
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The delivery of American Depositary Shares against deposit of Shares generally or against deposit of particular Shares may be suspended, or the transfer of American Depositary Shares in particular instances may be refused, or the registration of transfer of outstanding American Depositary Shares generally may be suspended, during any period when the transfer books of the Depositary are closed, or if any such action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission, or under any provision of this Deposit Agreement, or for any other reason, subject to the provisions of the following sentence. Notwithstanding anything to the contrary in this Deposit Agreement, the surrender of outstanding American Depositary Shares and withdrawal of Deposited Securities may not be suspended subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the Foreign Registrar, if applicable, or the deposit of Shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes and similar charges, and (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the American Depositary Shares or to the withdrawal of the Deposited Securities.  Without limitation of the foregoing, the Depositary shall not knowingly accept for deposit under this Deposit Agreement any Shares which would be required to be registered under the provisions of the Securities Act of 1933 for public offer and sale in the United States unless a registration statement is in effect as to such Shares for such offer and sale.
 
SECTION 2.07           Lost Receipts, etc.
 
In case any Receipt shall be mutilated, destroyed, lost or stolen, the Depositary shall deliver to the Owner the American Depositary Shares evidenced by that Receipt in uncertificated form or, if requested by the Owner, execute and deliver a new Receipt of like tenor in exchange and substitution for such mutilated Receipt, upon cancellation thereof, or in lieu of and in substitution for such destroyed, lost or stolen Receipt.  Before the Depositary shall deliver American Depositary Shares in uncertificated form or execute and deliver a new Receipt, in substitution for a destroyed, lost or stolen Receipt, the Owner thereof shall have (a) filed with the Depositary (i) a request for such execution and delivery before the Depositary has notice that the Receipt has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond and (b) satisfied any other reasonable requirements imposed by the Depositary.
 
SECTION 2.08           Cancellation and Destruction of Surrendered Receipts.
 
All Receipts surrendered to the Depositary shall be cancelled by the Depositary.  The Depositary is authorized to destroy Receipts so cancelled.

 
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SECTION 2.09           Pre-Release of American Depositary Shares.
 
Notwithstanding Section 2.03 hereof, the Depositary may deliver American Depositary Shares prior to the receipt of Shares pursuant to Section 2.02 (a “Pre-Release”).  The Depositary may, pursuant to Section 2.05, deliver Shares upon the surrender of American Depositary Shares that have been Pre-Released, whether or not such cancellation is prior to the termination of such Pre-Release or the Depositary knows that such American Depositary Shares have been Pre-Released.  The Depositary may receive American Depositary Shares in lieu of Shares in satisfaction of a Pre-Release.  Each Pre-Release will be (a) preceded or accompanied by a written representation from the person to whom American Depositary Shares or Shares are to be delivered, that such person, or its customer, owns the Shares or American Depositary Shares to be remitted, as the case may be, (b) at all times fully collateralized with cash or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days notice, and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate.  The number of Shares represented by American Depositary Shares which are outstanding at any time as a result of Pre-Release will not normally exceed thirty percent (30%) of the Shares deposited hereunder; provided , however , that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate.
 
The Depositary may retain for its own account any compensation received by it in connection with the foregoing.
 
SECTION 2.10           DTC Direct Registration System and Profile Modification System.
 
(a)           Notwithstanding the provisions of Section 2.04, the parties acknowledge that the Direct Registration System (“DRS”) and Profile Modification System (“Profile”) shall apply to uncertificated American Depositary Shares upon acceptance thereof to DRS by DTC.  DRS is the system administered by DTC pursuant to which the Depositary may register the ownership of uncertificated American Depositary Shares, which ownership shall be evidenced by periodic statements issued by the Depositary to the Owners entitled thereto.  Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an Owner of American Depositary Shares, to direct the Depositary to register a transfer of those American Depositary Shares to DTC or its nominee and to deliver those American Depositary Shares to the DTC account of that DTC participant without receipt by the Depositary of prior authorization from the Owner to register such transfer.
 
(b)           In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties understand that the Depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of an Owner in requesting a registration of transfer and delivery as described in subsection (a) has the actual authority to act on behalf of the Owner (notwithstanding any requirements under the Uniform Commercial Code).  For the avoidance of doubt, the provisions of Sections 5.03 and 5.08 shall apply to the matters arising from the use of the DRS.  The parties agree that the Depositary’s reliance on and compliance with instructions received by the Depositary through the DRS/Profile System and in accordance with this Deposit Agreement shall not constitute negligence or bad faith on the part of the Depositary.

 
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SECTION 2.11           Maintenance of Records
 
The Depositary agrees to maintain records of all Receipts surrendered and Deposited Securities withdrawn under Section 2.05, substitute Receipts delivered under Section 2.07, and cancelled or destroyed Receipts under Section 2.08, in keeping with procedures ordinarily followed by stock transfer agents located in the City of New York.
 
ARTICLE 3.
CERTAIN OBLIGATIONS OF OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES
 
SECTION 3.01           Filing Proofs, Certificates and Other Information.
 
Any person presenting Shares for deposit or any Owner or holder may be required from time to time to file with the Depositary or the Custodian such proof of citizenship or residence, exchange control approval, or such information relating to the registration on the books of the Company or the Foreign Registrar, if applicable, to execute such certificates and to make such representations and warranties, as the Depositary may deem necessary or proper.  The Depositary may withhold the delivery or registration of transfer of American Depositary Shares or the distribution of any dividend or sale or distribution of rights or of the proceeds thereof or the delivery of any Deposited Securities until such proof or other information is filed or such certificates are executed or such representations and warranties made.  The Depositary shall provide the Company, upon the Company’s written request and at its expense, as promptly as practicable, with copies of any information or other materials which it receives pursuant to this Section 3.01, to the extent that disclosure is permitted under applicable law.
 
SECTION 3.02           Liability of Owner for Taxes.
 
If any tax or other governmental charge shall become payable by the Custodian or the Depositary with respect to any American Depositary Shares or any Deposited Securities represented by any American Depositary Shares, such tax or other governmental charge shall be payable by the Owner of such American Depositary Shares to the Depositary. The Depositary may refuse to register any transfer of those American Depositary Shares or any withdrawal of Deposited Securities represented by those American Depositary Shares until such payment is made, and may withhold any dividends or other distributions, or may sell for the account of the Owner thereof any part or all of the Deposited Securities represented by those American Depositary Shares, and may apply such dividends or other distributions or the proceeds of any such sale in payment of such tax or other governmental charge and the Owner of such American Depositary Shares shall remain liable for any deficiency.

 
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SECTION 3.03           Warranties on Deposit of Shares.
 
Every person depositing Shares under this Deposit Agreement shall be deemed thereby to represent and warrant that such Shares and each certificate therefor, if applicable, are validly issued, fully paid, nonassessable and free of any preemptive rights of the holders of outstanding Shares and that the person making such deposit is duly authorized so to do.  Every such person shall also be deemed to represent that the deposit of such Shares and the sale of American Depositary Shares representing such Shares by that person are not restricted under the Securities Act of 1933.  Such representations and warranties shall survive the deposit of Shares and delivery of American Depositary Shares.
 
SECTION 3.04           Disclosure of Interests .
 
The Company may from time to time request Owners to provide information as to the capacity in which such Owners own or owned American Depositary Shares and regarding the identity of any other persons then or previously interested in such American Depositary Shares and the nature of such interest.  Each Owner agrees to provide any information requested by the Company or the Depositary pursuant to this Section 3.04.  The Depositary agrees to comply with reasonable written instructions received from the Company requesting that the Depositary forward any such requests to the Owners and to forward to the Company any such responses to such requests received by the Depositary.  The Depositary shall provide reasonable assistance to the Company, at the Company’s request and expense, in obtaining information sought by the Company pursuant to this Section 3.04.
 
ARTICLE 4.          THE DEPOSITED SECURITIES
 
SECTION 4.01           Cash Distributions.
 
Whenever the Depositary shall receive any cash dividend or other cash distribution on any Deposited Securities, the Depositary shall, subject to the provisions of Section 4.05, convert such dividend or distribution into Dollars and shall distribute the amount thus received (net of the fees and expenses of the Depositary as provided in Section 5.09) to the Owners entitled thereto, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively; provided , however , that in the event that the Custodian or the Depositary shall be required to withhold and does withhold from such cash dividend or such other cash distribution an amount on account of taxes or other governmental charges, the amount distributed to the Owner of the American Depositary Shares representing such Deposited Securities shall be reduced accordingly.  The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Owner a fraction of one cent.  Any such fractional amounts shall be rounded to the nearest whole cent and so distributed to Owners entitled thereto.  The Company or its agent will remit to the appropriate governmental agency in any applicable jurisdiction all amounts withheld and owing to such agency.  The Depositary will forward to the Company or its agent such information from its records as the Company may reasonably request to enable the Company or its agent to file necessary reports with governmental agencies, and the Depositary or the Company or its agent may file any such reports necessary to obtain benefits under the applicable tax treaties for the Owners.

 
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SECTION 4.02           Distributions Other Than Cash, Shares or Rights.
 
Subject to the provisions of Sections 4.11 and 5.09, whenever the Depositary shall receive any distribution other than a distribution described in Section 4.01, 4.03 or 4.04, the Depositary shall cause the securities or property received by it to be distributed to the Owners entitled thereto, after deduction or upon payment of any fees and expenses of the Depositary or any taxes or other governmental charges, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively, in any manner that the Depositary may deem equitable and practicable for accomplishing such distribution; provided, however, that if in the opinion of the Depositary, after consultation with the Company to the extent practicable, such distribution cannot be made proportionately among the Owners entitled thereto, or if for any other reason (including, but not limited to, any requirement that the Company or the Depositary withhold an amount on account of taxes or other governmental charges or that such securities must be registered under the Securities Act of 1933 in order to be distributed to Owners or holders) the Depositary deems such distribution not to be feasible, the Depositary may adopt such method as it may deem equitable and practicable for the purpose of effecting such distribution, including, but not limited to, the public or private sale of the securities or property thus received, or any part thereof, and the net proceeds of any such sale (net of the fees and expenses of the Depositary as provided in Section 5.09) shall be distributed by the Depositary to the Owners entitled thereto, all in the manner and subject to the conditions described in Section 4.01.  The Depositary may withhold any distribution of securities under this Section 4.02 if it has not received satisfactory assurances from the Company that the distribution does not require registration under the Securities Act of 1933.  The Depositary may sell, by public or private sale, an amount of securities or other property it would otherwise distribute under this Section 4.02 that is sufficient to pay its fees and expenses in respect of that distribution.

 
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SECTION 4.03           Distributions in Shares.
 
If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Depositary may, and shall, subject to the following sentence, if the Company so requests in writing, deliver to the Owners entitled thereto, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively, an aggregate number of American Depositary Shares representing the amount of Shares received as such dividend or free distribution, subject to the terms and conditions of the Deposit Agreement with respect to the deposit of Shares and issuance of American Depositary Shares and after deduction or upon withholding of any tax or other governmental charge as provided in Section 4.11 and the payment of the fees and expenses of the Depositary as provided in Section 5.09 (and the Depositary may sell, by public or private sale, an amount of the Shares received sufficient to pay its fees and expenses in respect of that distribution).  The Depositary may withhold any such delivery of American Depositary Shares if it has not received satisfactory assurances from the Company that such distribution does not require registration under the Securities Act of 1933.  In lieu of delivering fractional American Depositary Shares in any such case, the Depositary shall sell the amount of Shares represented by the aggregate of such fractions and distribute the net proceeds, all in the manner and subject to the conditions described in Section 4.01.  If additional American Depositary Shares are not so delivered, each American Depositary Share shall thenceforth also represent the additional Shares distributed upon the Deposited Securities represented thereby.
 
SECTION 4.04           Rights.
 
In the event that the Company shall offer or cause to be offered to the holders of any Deposited Securities any rights to subscribe for additional Shares or any rights of any other nature, the Depositary, after consultation with the Company to the extent practicable, shall have discretion as to the procedure to be followed in making such rights available to any Owners or in disposing of such rights on behalf of any Owners and making the net proceeds available to such Owners or, if by the terms of such rights offering or for any other reason, the Depositary may not either make such rights available to any Owners or dispose of such rights and make the net proceeds available to such Owners, then the Depositary shall allow the rights to lapse.  If at the time of the offering of any rights the Depositary determines in its discretion that it is lawful and feasible to make such rights available to all or certain Owners but not to other Owners, the Depositary may distribute to any Owner to whom it determines the distribution to be lawful and feasible, in proportion to the number of American Depositary Shares held by such Owner, warrants or other instruments therefor in such form as it deems appropriate.
 
In circumstances in which rights would otherwise not be distributed, if an Owner requests the distribution of warrants or other instruments in order to exercise the rights allocable to the American Depositary Shares of such Owner hereunder, the Depositary will make such rights available to such Owner upon written notice from the Company to the Depositary that (a) the Company has elected in its sole discretion to permit such rights to be exercised and (b) such Owner has executed such documents as the Company has determined in its sole discretion are reasonably required under applicable law.

 
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If the Depositary has distributed warrants or other instruments for rights to all or certain Owners, then upon instruction from such an Owner pursuant to such warrants or other instruments to the Depositary from such Owner to exercise such rights, upon payment by such Owner to the Depositary for the account of such Owner of an amount equal to the purchase price of the Shares to be received upon the exercise of the rights, and upon payment of the fees and expenses of the Depositary and any other charges as set forth in such warrants or other instruments, the Depositary shall, on behalf of such Owner, exercise the rights and purchase the Shares, and the Company shall cause the Shares so purchased to be delivered to the Depositary on behalf of such Owner.  As agent for such Owner, the Depositary will cause the Shares so purchased to be deposited pursuant to Section 2.02 of this Deposit Agreement, and shall, pursuant to Section 2.03 of this Deposit Agreement, deliver American Depositary Shares to such Owner.  In the case of a distribution pursuant to the second paragraph of this Section, such deposit shall be made, and depositary shares shall be delivered, under depositary arrangements which provide for issuance of depositary shares subject to the appropriate restrictions on sale, deposit, cancellation, and transfer under applicable United States laws.
 
If the Depositary, after consultation with the Company to the extent practicable, determines in its discretion that it is not lawful and feasible to make such rights available to all or certain Owners, it may sell the rights, warrants or other instruments in proportion to the number of American Depositary Shares held by the Owners to whom it has determined it may not lawfully or feasibly make such rights available, and allocate the net proceeds of such sales (net of the fees and expenses of the Depositary as provided in Section 5.09 and all taxes and governmental charges payable in connection with such rights and subject to the terms and conditions of this Deposit Agreement) for the account of such Owners otherwise entitled to such rights, warrants or other instruments, upon an averaged or other practical basis without regard to any distinctions among such Owners because of exchange restrictions or the date of delivery of any American Depositary Shares or otherwise.
 
The Depositary will not offer rights to Owners unless both the rights and the securities to which such rights relate are either exempt from registration under the Securities Act of 1933 with respect to a distribution to all Owners or are registered under the provisions of such Act; provided , that nothing in this Deposit Agreement shall create any obligation on the part of the Company to file a registration statement with respect to such rights or underlying securities or to endeavor to have such a registration statement declared effective.  If an Owner requests the distribution of warrants or other instruments, notwithstanding that there has been no such registration under the Securities Act of 1933, the Depositary shall not effect such distribution unless it has received an opinion from recognized counsel in the United States for the Company upon which the Depositary may rely that such distribution to such Owner is exempt from such registration.
 
The Depositary shall not be responsible for any failure to determine that it may be lawful or feasible to make such rights available to Owners in general or any Owner in particular.

 
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SECTION 4.05           Conversion of Foreign Currency.
 
Whenever the Depositary or the Custodian shall receive foreign currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the Depositary be converted on a reasonable basis into Dollars and the resulting Dollars transferred to the United States, the Depositary shall convert or cause to be converted by sale or in any other manner that it may determine such foreign currency into Dollars, and such Dollars shall be distributed to the Owners entitled thereto or, if the Depositary shall have distributed any warrants or other instruments which entitle the holders thereof to such Dollars, then to the holders of such warrants and/or instruments upon surrender thereof for cancellation.  Such distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Owners on account of exchange restrictions, the date of delivery of any American Depositary Shares or otherwise and shall be net of any expenses of conversion into Dollars incurred by the Depositary as provided in Section 5.09.
 
If such conversion or distribution can be effected only with the approval or license of any government or agency thereof, the Depositary shall file such application for approval or license, if any, as it may deem desirable.
 
If at any time the Depositary shall determine that in its judgment any foreign currency received by the Depositary or the Custodian is not convertible on a reasonable basis into Dollars transferable to the United States, or if any approval or license of any government or agency thereof which is required for such conversion is denied or in the opinion of the Depositary is not obtainable, or if any such approval or license is not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute the foreign currency (or an appropriate document evidencing the right to receive such foreign currency) received by the Depositary to, or in its discretion may hold such foreign currency uninvested and without liability for interest thereon for the respective accounts of, the Owners entitled to receive the same.
 
If any such conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the Owners entitled thereto, the Depositary may in its discretion make such conversion and distribution in Dollars to the extent permissible to the Owners entitled thereto and may distribute the balance of the foreign currency received by the Depositary to, or hold such balance uninvested and without liability for interest thereon for the respective accounts of, the Owners entitled thereto.

 
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SECTION 4.06           Fixing of Record Date.
 
Whenever any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or whenever rights shall be issued with respect to the Deposited Securities, or whenever the Depositary shall receive notice of any meeting of holders of Shares or other Deposited Securities, or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each American Depositary Share, or whenever the Depositary shall find it necessary or convenient, the Depositary shall fix a record date, which shall the same as or as near as practicable to any corresponding record date established by the Company in respect of the Shares or other Deposited Securities (a) for the determination of the Owners who shall be (i) entitled to receive such dividend, distribution or rights or the net proceeds of the sale thereof, (ii) entitled to give instructions for the exercise of voting rights at any such meeting or (iii) responsible for any fee or charge assessed by the Depositary pursuant to this Deposit Agreement, or (b) on or after which each American Depositary Share will represent the changed number of Shares.  Subject to the provisions of Sections 4.01 through 4.05 and to the other terms and conditions of this Deposit Agreement, the Owners on such record date shall be entitled, as the case may be, to receive the amount distributable by the Depositary with respect to such dividend or other distribution or such rights or the net proceeds of sale thereof in proportion to the number of American Depositary Shares held by them respectively and to give voting instructions and to act in respect of any other such matter.
 
SECTION 4.07           Voting of Deposited Securities.
 
Upon receipt of notice of any meeting of holders of Shares or other Deposited Securities, if requested in writing by the Company, the Depositary shall, as soon as practicable thereafter, mail to the Owners a notice, the form of which notice shall be in the sole discretion of the Depositary, which shall contain (a) such information as is contained in such notice of meeting received by the Depositary from the Company, (b) a statement that the Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of BVI law and of the memorandum and articles of association or similar documents of the Company, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the amount of Shares or other Deposited Securities represented by their respective American Depositary Shares and (c) a statement as to the manner in which such instructions may be given, including an express indication that instructions may be given or deemed given in accordance with the last sentence of this paragraph if no instruction is received, to the Depositary to give a discretionary proxy to a person designated by the Company.  Upon the written request of an Owner of American Depositary Shares on such record date, received on or before the date established by the Depositary for such purpose, the Depositary shall endeavor, in so far as practicable, to vote or cause to be voted the amount of Shares or other Deposited Securities represented by those American Depositary Shares in accordance with the instructions set forth in such request.  The Depositary shall not itself exercise any voting discretion over any Deposited Securities.  If (i) the Company instructed the Depositary to act under this Section 4.07 and complied with the following paragraph and (ii) no instructions are received by the Depositary from an Owner with respect to American Depositary Shares of that Owner on or before the date established by the Depositary for such purpose, the Depositary shall deem that Owner to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to the amount of Deposited Securities represented by those American Depositary Shares and the Depositary shall give a discretionary proxy to a person designated by the Company to vote that amount of Deposited Securities, except that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writing, if applicable) that (x) the Company does not wish such proxy given, (y) substantial opposition exists or (z) such matter materially and adversely affects the rights of holders of Shares..

 
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In order to give Owners a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Deposited Securities, if the Company will request the Depositary to act under this Section 4.07, the Company shall give the Depositary notice of any such meeting and details concerning the matters to be voted upon not less than 45 days prior to the meeting date.
 
There can be no assurance that Owners generally or any Owner in particular will receive the notice described in Section 4.07 of the Deposit Agreement sufficiently prior to the instruction cutoff date to ensure that the Depositary will vote the Shares or Deposited Securities in accordance with the instructions of any Owner.
 
SECTION 4.08           Changes Affecting Deposited Securities.
 
Upon any change in nominal value, change in par value, split-up, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger or consolidation or sale of assets affecting the Company or to which it is a party, or upon the redemption or cancellation by the Company of the Deposited Securities, any securities, cash or property which shall be received by the Depositary or a Custodian in exchange for, in conversion of, in lieu of or in respect of Deposited Securities, shall be treated as new Deposited Securities under this Deposit Agreement, and American Depositary Shares shall thenceforth represent, in addition to the existing Deposited Securities, the right to receive the new Deposited Securities so received, unless additional American Depositary Shares are delivered pursuant to the following sentence.  In any such case the Depositary may deliver additional American Depositary Shares as in the case of a dividend in Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing such new Deposited Securities.
 
SECTION 4.09           Reports.
 
The Depositary shall make available for inspection by Owners at its Corporate Trust Office any reports and communications, including any proxy solicitation material, received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company.  The Depositary shall also, upon written request by the Company, send to the Owners copies of such reports when furnished by the Company pursuant to Section 5.06.  Any such reports and communications, including any such proxy soliciting material, furnished to the Depositary by the Company shall be furnished in English, to the extent such materials are required to be translated into English pursuant to any regulations of the Commission.

 
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SECTION 4.10           Lists of Owners.
 
Promptly upon request by the Company, the Depositary shall, at the expense of the Company, furnish to it a list, as of a recent date, of the names, addresses and holdings of American Depositary Shares by all persons in whose names American Depositary Shares are registered on the books of the Depositary.
 
SECTION 4.11           Withholding.
 
In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charge which the Depositary is obligated to withhold, the Depositary may by public or private sale dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes or charges and the Depositary shall distribute the net proceeds of any such sale after deduction of such taxes or charges to the Owners entitled thereto in proportion to the number of American Depositary Shares held by them respectively.
 
ARTICLE 5.          THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY
 
SECTION 5.01           Maintenance of Office and Transfer Books by the Depositary.
 
Until termination of this Deposit Agreement in accordance with its terms, the Depositary shall maintain in the Borough of Manhattan, The City of New York, facilities for the execution and delivery, registration, registration of transfers and surrender of American Depositary Shares in accordance with the provisions of this Deposit Agreement.
 
The Depositary shall keep books, at its Corporate Trust Office, for the registration of American Depositary Shares and transfers of American Depositary Shares which at all reasonable times shall be open for inspection by the Owners, provided that such inspection shall not be for the purpose of communicating with Owners in the interest of a business or object other than the business of the Company or a matter related to this Deposit Agreement or the American Depositary Shares.
 
The Depositary may close the transfer books, at any time or from time to time, when deemed expedient by it in connection with the performance of its duties hereunder.

 
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If any American Depositary Shares are listed on one or more stock exchanges in the United States, the Depositary shall act as Registrar or appoint a Registrar or one or more co-registrars for registry of such American Depositary Shares in accordance with any requirements of such exchange or exchanges.
 
The Company shall have the right, at all reasonable times, to inspect transfer and registration records of the Depositary, the Registrar and any co-transfer agents or co-registrars and to require such parties to supply copies of such portions of their records as the Company may reasonably request.
 
SECTION 5.02           Prevention or Delay in Performance by the Depositary or the Company.
 
Neither the Depositary nor the Company nor any of their respective directors, employees, agents or affiliates shall incur any liability to any Owner or Holder (i) if by reason of any provision of any present or future law or regulation of the United States, the BVI or any other country, or of any governmental or regulatory authority or stock exchange, or by reason of any provision, present or future, of the memorandum and articles of association or similar document of the Company, or by reason of any provision of any securities issued or distributed by the Company, or any offering or distribution thereof, or by reason of any act of God or war or terrorism or other circumstances beyond its control, the Depositary or the Company shall be prevented, delayed or forbidden from, or be subject to any civil or criminal penalty on account of, doing or performing any act or thing which by the terms of this Deposit Agreement or the Deposited Securities it is provided shall be done or performed, (ii) by reason of any non-performance or delay, caused as aforesaid, in the performance of any act or thing which by the terms of this Deposit Agreement it is provided shall or may be done or performed, (iii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement, (iv) for the inability of any Owner or holder to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of this Deposit Agreement, made available to Owners or holders, or (v) for any special, consequential or punitive damages for any breach of the terms of this Deposit Agreement.  Where, by the terms of a distribution pursuant to Section 4.01, 4.02 or 4.03, or an offering or distribution pursuant to Section 4.04, or for any other reason, such distribution or offering may not be made available to Owners, and the Depositary may not dispose of such distribution or offering on behalf of such Owners and make the net proceeds available to such Owners, then the Depositary shall not make such distribution or offering, and shall allow any rights, if applicable, to lapse.
 
SECTION 5.03           Obligations of the Depositary, the Custodian and the Company.
 
The Company, its directors, officers, employees, agents and affiliates assume no obligation nor shall any of them be subject to any liability under this Deposit Agreement to any Owner or Holder, except that the Company agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith.

 
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The Depositary assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to any Owner or Holder (including, without limitation, liability with respect to the validity or worth of the Deposited Securities), except that the Depositary agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith.
 
Neither the Depositary nor the Company (nor any of its directors, officers, employees, agents or affiliates) shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or in respect of the American Depositary Shares on behalf of any Owner or Holder or any other person.
 
Neither the Depositary nor the Company (nor any of its directors, officers, employees, agents or affiliates) shall be liable for any action or nonaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Owner or any other person believed by it in good faith to be competent to give such advice or information.
 
The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.
 
The Depositary shall not be liable for the acts or omissions of any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of Deposited Securities or otherwise.
 
The Depositary shall not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any such vote is cast or the effect of any such vote, provided that any such action or nonaction is in good faith.
 
No disclaimer of liability under the Securities Act of 1933 is intended by any provision of this Deposit Agreement.
 
SECTION 5.04           Resignation and Removal of the Depositary.
 
The Depositary may at any time resign as Depositary hereunder by written notice of its election so to do delivered to the Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided.

 
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The Depositary may at any time be removed by the Company by 120 days prior written notice of such removal, to become effective upon the later of (i) the 120th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided.
 
In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, The City of New York.  Every successor depositary shall execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor; but such predecessor, nevertheless, upon payment of all sums due it and on the written request of the Company shall execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder, shall duly assign, transfer and deliver all right, title and interest in the Deposited Securities to such successor and shall deliver to such successor a list of the Owners of all outstanding American Depositary Shares.  Any such successor depositary shall promptly mail notice of its appointment to the Owners.
 
Any corporation into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.
 
SECTION 5.05           The Custodians.
 
The Custodian shall be subject at all times and in all respects to the directions of the Depositary and shall be responsible solely to it.  Any Custodian may resign and be discharged from its duties hereunder by notice of such resignation delivered to the Depositary at least 30 days prior to the date on which such resignation is to become effective.  If upon such resignation there shall be no Custodian acting hereunder, the Depositary shall, promptly after receiving such notice, appoint a substitute custodian or custodians, each of which shall thereafter be a Custodian hereunder.  The Depositary in its discretion may appoint a substitute or additional custodian or custodians, each of which shall thereafter be one of the Custodians hereunder.  Upon demand of the Depositary any Custodian shall deliver such of the Deposited Securities held by it as are requested of it to any other Custodian or such substitute or additional custodian or custodians.  Each such substitute or additional custodian shall deliver to the Depositary, forthwith upon its appointment, an acceptance of such appointment satisfactory in form and substance to the Depositary.

 
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Upon the appointment of any successor depositary hereunder, each Custodian then acting hereunder shall forthwith become, without any further act or writing, the agent hereunder of such successor depositary and the appointment of such successor depositary shall in no way impair the authority of each Custodian hereunder; but the successor depositary so appointed shall, nevertheless, on the written request of any Custodian, execute and deliver to such Custodian all such instruments as may be proper to give to such Custodian full and complete power and authority as agent hereunder of such successor depositary.
 
SECTION 5.06           Notices and Reports.
 
On or before the first date on which the Company gives notice, by publication or otherwise, of any meeting of holders of Shares or other Deposited Securities, or of any adjourned meeting of such holders, or of the taking of any action in respect of any cash or other distributions or the offering of any rights, the Company agrees to transmit to the Depositary and the Custodian a copy of the notice thereof in the form given or to be given to holders of Shares or other Deposited Securities.
 
The Company will arrange for the translation into English, if not already in English, to the extent required pursuant to any regulations of the Commission, and the prompt transmittal by the Company to the Depositary and the Custodian of such notices and any other reports and communications which are made generally available by the Company to holders of its Shares.  If requested in writing by the Company, the Depositary will arrange for the mailing, at the Company’s expense, of copies of such notices, reports and communications to all Owners.  The Company will timely provide the Depositary with the quantity of such notices, reports, and communications, as requested by the Depositary from time to time, in order for the Depositary to effect such mailings.
 
SECTION 5.07           Distribution of Additional Shares, Rights, etc.
 
If the Company or any affiliate of the Company determines to make any issuance or distribution of (1) additional Shares, (2) rights to subscribe for Shares, (3) securities convertible into Shares, or (4) rights to subscribe for such securities (each a “Distribution”), the Company shall notify the Depositary in writing in English as promptly as practicable and in any event before the Distribution starts and, if requested in writing by the Depositary, the Company shall promptly furnish to the Depositary a written opinion from U.S. counsel for the Company that is reasonably satisfactory to the Depositary, stating whether or not the Distribution requires, or, if made in the United States, would require, registration under the Securities Act of 1933.  If, in the opinion of that counsel, the Distribution requires, or, if made in the United States, would require, registration under the Securities Act of 1933, that counsel shall furnish to the Depositary a written opinion as to whether or not there is a registration statement under the Securities Act of 1933 in effect that will cover that Distribution.

 
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The Company agrees with the Depositary that, except as otherwise agreed between the Company and the Depositary, neither the Company nor any company controlled by, controlling or under common control with  the Company will at any time deposit any Shares, either originally issued or previously issued and reacquired by the Company or any such affiliate, unless a Registration Statement is in effect as to such Shares under the Securities Act of 1933 or the Company delivers to the Depositary an opinion of United States counsel, satisfactory to the Depositary, to the effect that, upon deposit, those Shares will be eligible for public resale in the United States without further registration under the Securities Act of 1933.
 
SECTION 5.08           Indemnification.
 
The Company agrees to indemnify the Depositary, its directors, employees, agents and affiliates and any Custodian against, and hold each of them harmless from, any liability or expense (including, but not limited to any fees and expenses incurred in seeking, enforcing or collecting such indemnity and the reasonable fees and expenses of counsel) which may arise out of or in connection with (a) any registration with the Commission of American Depositary Shares or Deposited Securities or the offer or sale thereof in the United States or (b) acts performed or omitted, pursuant to the provisions of or in connection with this Deposit Agreement and of the Receipts, as the same may be amended, modified or supplemented from time to time, (i) by either the Depositary or a Custodian or their respective directors, employees, agents and affiliates, except for any liability or expense arising out of the negligence or bad faith of either of them, or (ii) by the Company or any of its directors, employees, agents and affiliates.
 
The indemnities contained in the preceding paragraph shall not extend to any liability or expense which arises solely and exclusively out of a Pre-Release (as defined in Section 2.09) of American Depositary Shares in accordance with Section 2.09 and which would not otherwise have arisen had those American Depositary Shares not been the subject of a Pre-Release pursuant to Section 2.09; provided , however , that the indemnities provided in the preceding paragraph shall apply to any such liability or expense (i) to the extent that such liability or expense would have arisen had those American Depositary Shares not be the subject of a Pre-Release, or (ii) which may arise out of any misstatement or alleged misstatement or omission or alleged omission in any registration statement, proxy statement, prospectus (or placement memorandum), or preliminary prospectus (or preliminary placement memorandum) relating to the offer or sale of American Depositary Shares, except to the extent any such liability or expense arises out of (x) information relating to the Depositary or any Custodian (other than the Company), as applicable, furnished in writing and not materially changed or altered by the Company expressly for use in any of the foregoing documents, or, (y) if such information is provided, the failure to state a material fact necessary to make the information provided not misleading.

 
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The Depositary agrees to indemnify the Company, its directors, employees, agents and affiliates and hold them harmless from any liability or expense which may arise out of acts performed or omitted by the Depositary or its Custodian or their respective directors, employees, agents and affiliates due to their negligence or bad faith.
 
If an action or proceeding (including, but not limited to, any governmental investigation, claim or dispute) in respect of which indemnity may be sought by either party is brought or asserted against the other party, the party seeking indemnification (the " Indemnitee ") shall promptly notify the other party (the “ Indemnitor ”) in writing of such proceeding giving reasonable details thereof.  The Indemnitor shall be entitled to participate in such proceeding and, to the extent no conflict of interest exists in the conduct of the defense, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee.  After notice from the Indemnitor to the Indemnitee of its election to assume the defense, and provided no conflict of interest exists, the Indemnitor shall not be liable to the Indemnitee for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the Indemnitee, in connection with the defense other than reasonable costs of investigation.  No compromise or settlement of such action or proceeding may be effected by either party without the other party’s consent (which shall not be unreasonably withheld) unless (i) there is no finding or admission of any violation of law and no effect on any other claims that may be made against such other party and (ii) the sole relief provided is monetary damages that are paid in full by the party seeking such compromise or settlement.
 
SECTION 5.09           Charges of Depositary.
 
The Company agrees to pay the fees and out-of-pocket expenses of the Depositary and those of any Registrar only in accordance with agreements in writing entered into between the Depositary and the Company from time to time.

 
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The following charges shall be incurred by any party depositing or withdrawing Shares or by any party surrendering American Depositary Shares or to whom American Depositary Shares are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the American Depositary Shares or Deposited Securities or a delivery of American Depositary Shares pursuant to Section 4.03), or by Owners, as applicable:  (1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of transfers of Shares generally on the Share register of the Company or Foreign Registrar and applicable to transfers of Shares to or from the name of the Depositary or its nominee or the Custodian or its nominee on the making of deposits or withdrawals hereunder, (3) such cable, telex and facsimile transmission expenses as are expressly provided in this Deposit Agreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency pursuant to Section 4.05, (5) a fee of $5.00 or less per 100 American Depositary Shares (or portion thereof) for the delivery of American Depositary Shares pursuant to Section 2.03, 4.03 or 4.04 and the surrender of American Depositary Shares pursuant to Section 2.05 or 6.02, (6) a fee of $.05 or less per American Depositary Share (or portion thereof) for any cash distribution made pursuant to this Deposit Agreement, including, but not limited to Sections 4.01 through 4.04 hereof, (7) a fee for the distribution of securities pursuant to Section 4.02, such fee being in an amount equal to the fee for the execution and delivery of American Depositary Shares referred to above which would have been charged as a result of the deposit of such securities (for purposes of this clause 7 treating all such securities as if they were Shares) but which securities are instead distributed by the Depositary to Owners, (8) in addition to any fee charged under clause 6, a fee of $.05 or less per American Depositary Share (or portion thereof) per annum for depositary services, which will be payable as provided in clause 9 below, and (9) any other charges payable by the Depositary, any of the Depositary's agents, including the Custodian, or the agents of the Depositary's agents in connection with the servicing of Shares or other Deposited Securities (which charge shall be assessed against Owners as of the date or dates set by the Depositary in accordance with Section 4.06 and shall be payable at the sole discretion of the Depositary by billing such Owners for such charge or by deducting such charge from one or more cash dividends or other cash distributions).
 
The Depositary, subject to Section 2.09 hereof, may own and deal in any class of securities of the Company and its affiliates and in American Depositary Shares.
 
SECTION 5.10           Retention of Depositary Documents.
 
The Depositary is authorized to destroy those documents, records, bills and other data compiled during the term of this Deposit Agreement at the times permitted by the laws or regulations governing the Depositary unless the Company requests that such papers be retained for a longer period or turned over to the Company or to a successor depositary.
 
SECTION 5.11           Exclusivity.
 
The Company agrees not to appoint any other depositary for issuance of American or global depositary shares or receipts so long as The Bank of New York Mellon is acting as Depositary hereunder.
 
SECTION 5.12           List of Restricted Securities Owners.
 
From time to time, the Company shall provide to the Depositary a list setting forth, to the actual knowledge of the Company, those persons or entities who beneficially own Restricted Securities and the Company shall update that list on a regular basis.  The Company agrees to advise in writing each of the persons or entities so listed that such Restricted Securities are ineligible for deposit hereunder.  The Depositary may rely on such a list or update but shall not be liable for any action or omission made in reliance thereon.

 
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ARTICLE 6.          AMENDMENT AND TERMINATION
 
SECTION 6.01           Amendment.
 
The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary without the consent of Owners or holders in any respect which they may deem necessary or desirable.  Any amendment which shall impose or increase any fees or charges (other than taxes and other governmental charges, registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or which shall otherwise prejudice any substantial existing right of Owners, shall, however, not become effective as to outstanding American Depositary Shares until the expiration of thirty days after notice of such amendment shall have been given to the Owners of outstanding American Depositary Shares. Every Owner and holder, at the time any amendment so becomes effective, shall be deemed, by continuing to hold American Depositary Shares or any interest therein, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Owner to surrender American Depositary Shares and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law.
 
SECTION 6.02           Termination.
 
The Company may at any time terminate this Deposit Agreement by instructing the Depositary to mail a notice of termination to the Owners of all American Depositary Shares then outstanding at least 30 days prior to the termination date included in such notice.  The Depositary may likewise terminate this Deposit Agreement if at any time 60 days shall have expired after the Depositary delivered to the Company a written resignation notice and if a successor depositary shall not have been appointed and accepted its appointment as provided in Section 5.04; in such case the Depositary shall mail a notice of termination to the Owners of all American Depositary Shares then outstanding at least 30 days prior to the termination date.  On and after the date of termination, the Owner of American Depositary Shares will, upon (a) surrender of such American Depositary Shares, (b) payment of the fee of the Depositary for the surrender of American Depositary Shares referred to in Section 2.05, and (c) payment of any applicable taxes or governmental charges, be entitled to delivery, to him or upon his order, of the amount of Deposited Securities represented by those American Depositary Shares.  If any American Depositary Shares shall remain outstanding after the date of termination, the Depositary thereafter shall discontinue the registration of transfers of American Depositary Shares, shall suspend the distribution of dividends to the Owners thereof, and shall not give any further notices or perform any further acts under this Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights and other property as provided in this Deposit Agreement, and shall continue to deliver Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, upon surrender of American Depositary Shares (after deducting, in each case, the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the terms and conditions of this Deposit Agreement, and any applicable taxes or governmental charges).

 
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At any time after the expiration of four months from the date of termination, the Depositary may sell the Deposited Securities then held under this Deposit Agreement and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, unsegregated and without liability for interest, for the pro rata benefit of the Owners of American Depositary Shares that have not theretofore been surrendered, such Owners thereupon becoming general creditors of the Depositary with respect to such net proceeds.  After making such sale, the Depositary shall be discharged from all obligations under this Deposit Agreement, except to account for such net proceeds and other cash (after deducting, in each case, the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the terms and conditions of this Deposit Agreement, and any applicable taxes or governmental charges.  Upon the termination of this Deposit Agreement, the Company shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary under Sections 5.08 and 5.09.
 
ARTICLE 7.          MISCELLANEOUS
 
SECTION 7.01           Counterparts.
 
This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of such counterparts shall constitute one and the same instrument.  Copies of this Deposit Agreement shall be filed with the Depositary and the Custodians and shall be open to inspection by any Owner or Holder during business hours.
 
SECTION 7.02           No Third Party Beneficiaries.
 
This Deposit Agreement is for the exclusive benefit of the parties hereto and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person.
 
SECTION 7.03           Severability.
 
In case any one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.

 
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SECTION 7.04           Owners and Holders as Parties; Binding Effect.
 
The Owners and Holders from time to time shall be parties to this Deposit Agreement and shall be bound by all of the terms and conditions hereof and of the Receipts by acceptance of American Depositary Shares or any interest therein.
 
SECTION 7.05           Notices.
 
Any and all notices to be given to the Company shall be deemed to have been duly given if personally delivered or sent by mail or cable, telex or facsimile transmission confirmed by letter, addressed to Wirelessinfo Solution Holding Ltd, 3 rd Floor, Borough A, Block A, No. 181 South Taibai Road, Xi’an, Shaanxi Province, People’s Republic of China, Attention: _____________ or any other place to which the Company may have transferred its principal office with notice to the Depositary.
 
Any and all notices to be given to the Depositary shall be deemed to have been duly given if in English and personally delivered or sent by first class mail or cable, telex or facsimile transmission confirmed by letter, addressed to The Bank of New York Mellon, 101 Barclay Street, New York, New York 10286, Attention:  American Depositary Receipt Administration, or any other place to which the Depositary may have transferred its Corporate Trust Office with notice to the Company.
 
Any and all notices to be given to any Owner shall be deemed to have been duly given if personally delivered or sent by first class mail or cable, telex or facsimile transmission confirmed by letter, addressed to such Owner at the address of such Owner as it appears on the transfer books for American Depositary Shares of the Depositary, or, if such Owner shall have filed with the Depositary a written request that notices intended for such Owner be mailed to some other address, at the address designated in such request.
 
Delivery of a notice sent by mail or cable, telex or facsimile transmission shall be deemed to be effected at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a cable, telex or facsimile transmission) is deposited, postage prepaid, in a post-office letter box.  The Depositary or the Company may, however, act upon any cable, telex or facsimile transmission received by it, notwithstanding that such cable, telex or facsimile transmission shall not subsequently be confirmed by letter as aforesaid.

 
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SECTION 7.06           Arbitration; Settlement of Disputes.
 
(a)  Any controversy, claim or cause of action brought by any party hereto against the Company arising out of or relating to the Shares or other Deposited Securities, the American Depositary Shares, the Receipts or this Agreement, or the breach hereof or thereof, shall be settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof; provided , however , that in the event of any third-party litigation to which the Depositary is a party and to which the Company may properly be joined, the Company may be so joined in any court in which such litigation is proceeding; and provided , further , that any such controversy, claim or cause of action brought by a party hereto against the Company relating to or based upon the provisions of the Federal securities laws of the United States or the rules and regulations promulgated thereunder shall be submitted to arbitration as provided in this Section 7.06 if, but only if, so elected by the claimant.
 
The place of the arbitration shall be The City of New York, State of New York, United States of America, and the language of the arbitration shall be English.
 
The number of arbitrators shall be three, each of whom shall be disinterested in the dispute or controversy, shall have no connection with any party thereto, and shall be an attorney experienced in international securities transactions.  Each party shall appoint one arbitrator and the two arbitrators shall select a third arbitrator who shall serve as chairperson of the tribunal.  If a dispute, controversy or cause of action shall involve more than two parties, the parties shall attempt to align themselves in two sides (i.e., claimant(s) and respondent(s)), each of which shall appoint one arbitrator as if there were only two parties to such dispute, controversy or cause of action.  If such alignment and appointment shall not have occurred within thirty (30) calendar days after the initiating party serves the arbitration demand, the American Arbitration Association shall appoint the three arbitrators, each of whom shall have the qualifications described above.  The parties and the American Arbitration Association may appoint from among the nationals of any country, whether or not a party is a national of that country.
 
The arbitral tribunal shall have no authority to award any consequential, special or punitive damages or other damages not measured by the prevailing party’s actual damages and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Deposit Agreement.
 
(b)  Any controversy, claim or cause of action arising out of or relating to the Shares or other Deposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement not subject to arbitration under this Section 7.06 shall be litigated in the Federal and state courts in the Borough of Manhattan, The City of New York and the Company hereby submits to the personal jurisdiction of the court in which such action or proceeding is brought.

 
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SECTION 7.07           Submission to Jurisdiction; Appointment of Agent for Service of Process; Jury Trial Waiver.
 
The Company hereby (i) irrevocably designates and appoints Corporation Service Company, 1133 Avenue of the Americas, Suite 3100, New York, New York 10036, in the State of New York, as the Company's authorized agent upon which process may be served in any suit or proceeding (including any arbitration proceeding) arising out of or relating to the Shares or Deposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement, (ii) consents and submits to the jurisdiction of any state or federal court in the State of New York in which any such suit or proceeding may be instituted, and (iii) agrees that service of process upon said authorized agent shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding.  The Company agrees to deliver, upon the execution and delivery of this Deposit Agreement, a written acceptance by such agent of its appointment as such agent.  The Company further agrees to take any and all action, including the filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment in full force and effect for so long as any American Depositary Shares or Receipts remain outstanding or this Deposit Agreement remains in force.  In the event the Company fails to continue such designation and appointment in full force and effect, the Company hereby waives personal service of process upon it and consents that any such service of process may be made by certified or registered mail, return receipt requested, directed to the Company at its address last specified for notices hereunder, and service so made shall be deemed completed five (5) days after the same shall have been so mailed.
 
EACH PARTY TO THIS DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH OWNER AND HOLDER) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE AMERICAN DEPOSITARY SHARES OR THE RECEIPTS, THIS DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR  THEREIN, OR THE BREACH HEREOF OR THEREOF, INCLUDING WITHOUT LIMITATION ANY QUESTION REGARDING EXISTENCE, VALIDITY OR TERMINATION (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
 
SECTION 7.08           Waiver of Immunities.
 
To the extent that the Company or any of its properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any respect thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Shares or Deposited Securities, the American Depositary Shares, the Receipts or this Agreement, the Company, to the fullest extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement.

 
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SECTION 7.09           Governing Law.
 
This Deposit Agreement and the Receipts shall be interpreted and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by the laws of the State of New York, except with respect to its authorization and execution by the Company, which shall be governed by the laws of the BVI.

 
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IN WITNESS WHEREOF, KINGTONE WIRELESSINFO SOLUTION HOLDING LTD and THE BANK OF NEW YORK MELLON have duly executed this Deposit Agreement as of the day and year first set forth above and all Owners and Holders shall become parties hereto upon acceptance by them of American Depositary Shares or any interest therein.
 
KINGTONE WIRELESSINFO SOLUTION HOLDING LTD
     
By:
  
 
Name:
 
Title:
 
 
THE BANK OF NEW YORK MELLON,
as Depositary
     
By:
  
 
Name:
 
Title:
 

 
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EXHIBIT A
 
AMERICAN DEPOSITARY SHARES
(Each American Depositary Share represents
_____ deposited Shares)
 
THE BANK OF NEW YORK MELLON
AMERICAN DEPOSITARY RECEIPT
FOR ORDINARY SHARES
OF
KINGTONE WIRELESSINFO SOLUTION HOLDING LTD
(INCORPORATED UNDER THE LAWS OF THE BRITISH VIRGIN ISLANDS)
 
The Bank of New York Mellon, as depositary (hereinafter called the “Depositary”), hereby certifies that___________ ____________________________________________, or registered assigns IS THE OWNER OF _____________________________
 
AMERICAN DEPOSITARY SHARES
 
representing deposited ordinary shares (herein called “Shares”) of  Kingtone Wirelessinfo Solution Holding Ltd, incorporated under the laws of the British Virgin Islands (herein called the “Company”).  At the date hereof, each American Depositary Share represents _____ Shares deposited or subject to deposit under the Deposit Agreement (as such term is hereinafter defined) at the principal Hong Kong office of The Hongkong and Shanghai Banking Corporation Limited (herein called the “Custodian”).  The Depositary's Corporate Trust Office is located at a different address than its principal executive office.  Its Corporate Trust Office is located at 101 Barclay Street, New York, N.Y. 10286, and its principal executive office is located at One Wall Street, New York, N.Y. 10286.
 
THE DEPOSITARY'S CORPORATE TRUST OFFICE ADDRESS IS
101 BARCLAY STREET, NEW YORK, N.Y. 10286

 
 

 

1.            THE DEPOSIT AGREEMENT .
 
This American Depositary Receipt is one of an issue (herein called "Receipts"), all issued and to be issued upon the terms and conditions set forth in the deposit agreement, dated as of __________, 2010 (herein called the "Deposit Agreement"), by and among the Company, the Depositary, and all Owners and Holders from time to time of American Depositary Shares issued thereunder, each of whom by accepting American Depositary Shares agrees to become a party thereto and become bound by all the terms and conditions thereof.  The Deposit Agreement sets forth the rights of Owners and holders and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cash from time to time received in respect of such Shares and held thereunder (such Shares, securities, property, and cash are herein called "Deposited Securities").  Copies of the Deposit Agreement are on file at the Depositary's Corporate Trust Office in New York City and at the office of the Custodian.
 
The statements made on the face and reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and are qualified by and subject to the detailed provisions of the Deposit Agreement, to which reference is hereby made.  Capitalized terms defined in the Deposit Agreement and not defined herein shall have the meanings set forth in the Deposit Agreement.
 
2.            SURRENDER OF AMERICAN DEPOSITARY SHARES AND WITHDRAWAL OF DEPOSITED SECURITIES .
 
Upon surrender at the Corporate Trust Office of the Depositary of American Depositary Shares, and upon payment of the fee of the Depositary provided in this Receipt, and subject to the terms and conditions of the Deposit Agreement, the Owner of those American Depositary Shares is entitled to delivery, to him or as instructed, of the amount of Deposited Securities at the time represented by those American Depositary Shares.  Such delivery will be made at the option of the Owner hereof, either at the office of the Custodian or at the Corporate Trust Office of the Depositary, provided that the forwarding of certificates for Shares or other Deposited Securities for such delivery at the Corporate Trust Office of the Depositary shall be at the risk and expense of the Owner hereof.
 

 
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3.            TRANSFERS, SPLIT-UPS, AND COMBINATIONS OF RECEIPTS .
 
Transfers of American Depositary Shares may be registered on the books of the Depositary by the Owner in person or by a duly authorized attorney, upon surrender of those American Depositary Shares properly endorsed for transfer or accompanied by proper instruments of transfer, in the case of a Receipt, or pursuant to a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10 of the Deposit Agreement), in the case of uncertificated American Depositary Shares, and funds sufficient to pay any applicable transfer taxes and the expenses of the Depositary and upon compliance with such regulations, if any, as the Depositary may establish for such purpose. This Receipt may be split into other such Receipts, or may be combined with other such Receipts into one Receipt, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered. The Depositary, upon surrender of certificated American Depositary Shares for the purpose of exchanging for uncertificated American Depositary Shares, shall cancel those certificated American Depositary Shares and send the Owner a statement confirming that the Owner is the Owner of uncertificated American Depositary Shares. The Depositary, upon receipt of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10 of the Deposit Agreement) from the Owner of uncertificated American Depositary Shares for the purpose of exchanging for certificated American Depositary Shares, shall cancel those uncertificated American Depositary Shares and deliver to the Owner the same number of certificated American Depositary Shares.  As a condition precedent to the delivery, registration of transfer, or surrender of any American Depositary Shares or split-up or combination of any Receipt or withdrawal of any Deposited Securities, the Depositary, the Custodian, or Registrar may require payment from the depositor of the Shares or the presenter of the Receipt or instruction for registration of transfer or surrender of American Depositary Shares not evidenced by a Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees as provided in the Deposit Agreement, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with any regulations the Depositary may establish consistent with the provisions of the Deposit Agreement.
 
The delivery of American Depositary Shares against deposit of Shares generally or against deposit of particular Shares may be suspended, or the transfer of American Depositary Shares in particular instances may be refused, or the registration of transfer of outstanding American Depositary Shares generally may be suspended, during any period when the transfer books of the Depositary are closed, or if any such action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission, or under any provision of the Deposit Agreement, or for any other reason, subject to the provisions of the following sentence. Notwithstanding anything to the contrary in the Deposit Agreement or this Receipt, the surrender of outstanding American Depositary Shares and withdrawal of Deposited Securities may not be suspended subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the Foreign Registrar, if applicable, or the deposit of Shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes and similar charges, and (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the American Depositary Shares or to the withdrawal of the Deposited Securities.  Without limitation of the foregoing, the Depositary shall not knowingly accept for deposit under the Deposit Agreement any Shares which would be required to be registered under the provisions of the Securities Act of 1933, unless a registration statement is in effect as to such Shares for such offer and sale.

 
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4.            LIABILITY OF OWNER FOR TAXES .
 
If any tax or other governmental charge shall become payable with respect to any American Depositary Shares or any Deposited Securities represented by any American Depositary Shares, such tax or other governmental charge shall be payable by the Owner to the Depositary.  The Depositary may refuse to register any transfer of those American Depositary Shares or any withdrawal of Deposited Securities represented by those American Depositary Shares until such payment is made, and may withhold any dividends or other distributions, or may sell for the account of the Owner any part or all of the Deposited Securities represented by those American Depositary Shares, and may apply such dividends or other distributions or the proceeds of any such sale in payment of such tax or other governmental charge and the Owner shall remain liable for any deficiency.
 
5.            WARRANTIES ON DEPOSIT OF SHARES .
 
Every person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant, that such Shares and each certificate therefor, if applicable, are validly issued, fully paid, nonassessable and free of any preemptive rights of the holders of outstanding Shares and that the person making such deposit is duly authorized so to do.  Every such person shall also be deemed to represent that the deposit of such Shares and the sale of American Depositary Shares representing such Shares by that person are not restricted under the Securities Act of 1933.  Such representations and warranties shall survive the deposit of Shares and delivery of American Depositary Shares.
 
6.            FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION .
 
Any person presenting Shares for deposit or any Owner or holder may be required from time to time to file with the Depositary or the Custodian such proof of citizenship or residence, exchange control approval, or such information relating to the registration on the books of the Company or the Foreign Registrar, if applicable, to execute such certificates and to make such representations and warranties, as the Depositary may deem necessary or proper.  The Depositary may withhold the delivery or registration of transfer of any American Depositary Shares or the distribution of any dividend or sale or distribution of rights or of the proceeds thereof or the delivery of any Deposited Securities until such proof or other information is filed or such certificates are executed or such representations and warranties made.  No Share shall be accepted for deposit unless accompanied by evidence satisfactory to the Depositary that any necessary approval has been granted by any governmental body in any relevant jurisdiction that is then performing the function of the regulation of currency exchange.

 
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7.            CHARGES OF DEPOSITARY .
 
The following charges shall be incurred by any party depositing or withdrawing Shares or by any party surrendering American Depositary Shares or to whom American Depositary Shares are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the American Depositary Shares or Deposited Securities or a delivery of American Depositary Shares pursuant to Section 4.03 of the Deposit Agreement), or by Owners, as applicable:  (1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of transfers of Shares generally on the Share register of the Company or Foreign Registrar and applicable to transfers of Shares to or from the name of the Depositary or its nominee or the Custodian or its nominee on the making of deposits or withdrawals under the terms of the Deposit Agreement, (3) such cable, telex and facsimile transmission expenses as are expressly provided in the Deposit Agreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency pursuant to Section 4.05 of the Deposit Agreement, (5) a fee of $5.00 or less per 100 American Depositary Shares (or portion thereof) for the delivery of American Depositary Shares pursuant to Section 2.03, 4.03 or 4.04 of the Deposit Agreement and the surrender of American Depositary Shares pursuant to Section 2.05 or 6.02 of the Deposit Agreement, (6) a fee of $.05 or less per American Depositary Share (or portion thereof) for any cash distribution made pursuant to the Deposit Agreement, including, but not limited to Sections 4.01 through 4.04 of the Deposit Agreement, (7) a fee for the distribution of securities pursuant to Section 4.02 of the Deposit Agreement, such fee being in an amount equal to the fee for the execution and delivery of American Depositary Shares referred to above which would have been charged as a result of the deposit of such securities (for purposes of this clause 7 treating all such securities as if they were Shares) but which securities are instead distributed by the Depositary to Owners, (8) in addition to any fee charged under clause 6, a fee of $.05 or less per American Depositary Share (or portion thereof) per annum for depositary services, which will be payable as provided in clause 9 below, (9) any other charges payable by the Depositary, any of the Depositary's agents, including the Custodian, or the agents of the Depositary's agents in connection with the servicing of Shares or other Deposited Securities (which charge shall be assessed against Owners as of the date or dates set by the Depositary in accordance with Section 4.06 of the Deposit Agreement and shall be payable at the sole discretion of the Depositary by billing such Owners for such charge or by deducting such charge from one or more cash dividends or other cash distributions).
 
The Depositary, subject to Article 8 hereof, may own and deal in any class of securities of the Company and its affiliates and in American Depositary Shares.

 
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8.            PRE-RELEASE OF RECEIPTS .
 
Notwithstanding Section 2.03 of the Deposit Agreement, the Depositary may deliver American Depositary Shares prior to the receipt of Shares pursuant to Section 2.02 of the Deposit Agreement (a “Pre-Release”).  The Depositary may, pursuant to Section 2.05 of the Deposit Agreement, deliver Shares upon the surrender of American Depositary Shares that have been Pre-Released, whether or not such cancellation is prior to the termination of such Pre-Release or the Depositary knows that such American Depositary Shares have been Pre-Released.  The Depositary may receive American Depositary Shares in lieu of Shares in satisfaction of a Pre-Release.  Each Pre-Release will be (a) preceded or accompanied by a written representation from the person to whom American Depositary Shares or Shares are to be delivered, that such person, or its customer, owns the Shares or American Depositary Shares to be remitted, as the case may be, (b) at all times fully collateralized with cash or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days notice, and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate.  The number of American Depositary Shares which are outstanding at any time as a result of Pre-Release will not normally exceed thirty percent (30%) of the Shares deposited under the Deposit Agreement; provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate.
 
The Depositary may retain for its own account any compensation received by it in connection with the foregoing.
 
9.            TITLE TO RECEIPTS .
 
It is a condition of this Receipt and every successive Owner and holder of this Receipt by accepting or holding the same consents and agrees that when properly endorsed or accompanied by proper instruments of transfer, shall be transferable as certificated registered securities under the laws of New York. American Depositary Shares not evidenced by Receipts shall be transferable as uncertificated registered securities under the laws of New York.  The Depositary, notwithstanding any notice to the contrary, may treat the Owner of American Depositary Shares as the absolute owner thereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in the Deposit Agreement and for all other purposes, and neither the Depositary nor the Company shall have any obligation or be subject to any liability under the Deposit Agreement to any Holder of American Depositary Shares unless that Holder is the Owner of those American Depositary Shares.
 
10.          VALIDITY OF RECEIPT .
 
This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or obligatory for any purpose, unless this Receipt shall have been executed by the Depositary by the manual signature of a duly authorized signatory of the Depositary; provided , however that such signature may be a facsimile if a Registrar for the Receipts shall have been appointed and such Receipts are countersigned by the manual signature of a duly authorized officer of the Registrar.

 
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11.          REPORTS; INSPECTION OF TRANSFER BOOKS .
 
The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and, accordingly, files reports with the Commission.  Those reports will be available for inspection and copying through the Commission’s EDGAR on the Internet at www.sec.gov or at public reference facilities maintained by the Commission located at 100 F Street, N.E., Washington, D.C. 20549.
 
The Depositary will make available for inspection by Owners at its Corporate Trust Office any reports, notices and other communications, including any proxy soliciting material, received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company.  The Depositary will also, upon written request by the Company, send to Owners copies of such reports when furnished by the Company pursuant to the Deposit Agreement.  Any such reports and communications, including any such proxy soliciting material, furnished to the Depositary by the Company shall be furnished in English to the extent such materials are required to be translated into English pursuant to any regulations of the Commission.
 
The Depositary will keep books, at its Corporate Trust Office, for the registration of American Depositary Shares and transfers of American Depositary Shares which at all reasonable times shall be open for inspection by the Owners, provided that such inspection shall not be for the purpose of communicating with Owners in the interest of a business or object other than the business of the Company or a matter related to the Deposit Agreement or the American Depositary Shares.
 
12.          DIVIDENDS AND DISTRIBUTIONS .
 
Whenever the Depositary receives any cash dividend or other cash distribution on any Deposited Securities, the Depositary will, if at the time of receipt thereof any amounts received in a foreign currency can in the judgment of the Depositary be converted on a reasonable basis into United States dollars transferable to the United States, and subject to the Deposit Agreement, convert such dividend or distribution into dollars and will distribute the amount thus received (net of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.09 of the Deposit Agreement) to the Owners entitled thereto; provided , however , that in the event that the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities an amount on account of taxes or other governmental charges, the amount distributed to the Owners of the American Depositary Shares representing such Deposited Securities shall be reduced accordingly.

 
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Subject to the provisions of Section 4.11 and 5.09 of the Deposit Agreement, whenever the Depositary receives any distribution other than a distribution described in Section 4.01, 4.03 or 4.04 of the Deposit Agreement, the Depositary will cause the securities or property received by it to be distributed to the Owners entitled thereto, in any manner that the Depositary may deem equitable and practicable for accomplishing such distribution; provided , however , that if in the opinion of the Depositary, after consultation with the Company to the extent practicable, such distribution cannot be made proportionately among the Owners of Receipts entitled thereto, or if for any other reason the Depositary deems such distribution not to be feasible, the Depositary may adopt such method as it may deem equitable and practicable for the purpose of effecting such distribution, including, but not limited to, the public or private sale of the securities or property thus received, or any part thereof, and the net proceeds of any such sale (net of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.09 of the Deposit Agreement) will be distributed by the Depositary to the Owners of Receipts entitled thereto all in the manner and subject to the conditions described in Section 4.01 of the Deposit Agreement.  The Depositary may withhold any distribution of securities under Section 4.02 of the Deposit Agreement if it has not received satisfactory assurances from the Company that the distribution does not require registration under the Securities Act of 1933.  The Depositary may sell, by public or private sale, an amount of securities or other property it would otherwise distribute under this Article that is sufficient to pay its fees and expenses in respect of that distribution.
 
If any distribution consists of a dividend in, or free distribution of, Shares, the Depositary may, and shall, subject to the following sentence, if the Company so requests in writing, deliver to the Owners entitled thereto, an aggregate number of American Depositary Shares representing the amount of Shares received as such dividend or free distribution, subject to the terms and conditions of the Deposit Agreement with respect to the deposit of Shares and issuance of American Depositary Shares and after deduction or the withholding of any tax or other governmental charge as provided in Section 4.11 of the Deposit Agreement and the payment of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.09 of the Deposit Agreement (and the Depositary may sell, by public or private sale, an amount of Shares received sufficient to pay its fees and expenses in respect of that  distribution).  The Depositary may withhold any such delivery of American Depositary Shares if it has not received  satisfactory assurances from the Company that such distribution does not require registration under the Securities Act of 1933. In lieu of delivering fractional American Depositary Shares in any such case, the Depositary will sell the amount of Shares represented by the aggregate of such fractions and distribute the net proceeds, all in the manner and subject to the conditions described in Section 4.01 of the Deposit Agreement.  If additional American Depositary Shares are not so delivered, each American Depositary Share shall thenceforth also represent the additional Shares distributed upon the Deposited Securities represented thereby.

 
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In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charge which the Depositary is obligated to withhold, the Depositary may by public or private sale dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner as the Depositary deems necessary and practicable to pay any such taxes or charges, and the Depositary shall distribute the net proceeds of any such sale after deduction of such taxes or charges to the Owners of Receipts entitled thereto.
 
13.          RIGHTS .
 
In the event that the Company shall offer or cause to be offered to the holders of any Deposited Securities any rights to subscribe for additional Shares or any rights of any other nature, the Depositary shall have discretion as to the procedure to be followed in making such rights available to any Owners or in disposing of such rights on behalf of any Owners and making the net proceeds available to such Owners or, if by the terms of such rights offering or for any other reason, the Depositary may not either make such rights available to any Owners or dispose of such rights and make the net proceeds available to such Owners, then the Depositary shall allow the rights to lapse.  If at the time of the offering of any rights the Depositary determines in its discretion that it is lawful and feasible to make such rights available to all or certain Owners but not to other Owners, the Depositary may distribute to any Owner to whom it determines the distribution to be lawful and feasible, in proportion to the number of American Depositary Shares held by such Owner, warrants or other instruments therefor in such form as it deems appropriate.
 
In circumstances in which rights would otherwise not be distributed, if an Owner requests the distribution of warrants or other instruments in order to exercise the rights allocable to the American Depositary Shares of such Owner under the Deposit Agreement, the Depositary will make such rights available to such Owner upon written notice from the Company to the Depositary that (a) the Company has elected in its sole discretion to permit such rights to be exercised and (b) such Owner has executed such documents as the Company has determined in its sole discretion are reasonably required under applicable law.
 
If the Depositary has distributed warrants or other instruments for rights to all or certain Owners, then upon instruction from such an Owner pursuant to such warrants or other instruments to the Depositary from such Owner to exercise such rights, upon payment by such Owner to the Depositary for the account of such Owner of an amount equal to the purchase price of the Shares to be received upon the exercise of the rights, and upon payment of the fees and expenses of the Depositary and any other charges as set forth in such warrants or other instruments, the Depositary shall, on behalf of such Owner, exercise the rights and purchase the Shares, and the Company shall cause the Shares so purchased to be delivered to the Depositary on behalf of such Owner.  As agent for such Owner, the Depositary will cause the Shares so purchased to be deposited pursuant to Section 2.02 of the Deposit Agreement, and shall, pursuant to Section 2.03 of the Deposit Agreement, deliver American Depositary Shares to such Owner.  In the case of a distribution pursuant to the second paragraph of this Article 13, such deposit shall be made, and depositary shares shall be delivered, under depositary arrangements which provide for issuance of depositary shares subject to the appropriate restrictions on sale, deposit, cancellation, and transfer under applicable United States laws.

 
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If the Depositary determines in its discretion that it is not lawful and feasible to make such rights available to all or certain Owners, it may sell the rights, warrants or other instruments in proportion to the number of American Depositary Shares held by the Owners to whom it has determined it may not lawfully or feasibly make such rights available, and allocate the net proceeds of such sales (net of the fees and expenses of the Depositary as provided in Section 5.09 of the Deposit Agreement and all taxes and governmental charges payable in connection with such rights and subject to the terms and conditions of the Deposit Agreement) for the account of such Owners otherwise entitled to such rights, warrants or other instruments, upon an averaged or other practical basis without regard to any distinctions among such Owners because of exchange restrictions or the date of delivery of any American Depositary Shares or otherwise.
 
The Depositary will not offer rights to Owners unless both the rights and the securities to which such rights relate are either exempt from registration under the Securities Act of 1933 with respect to a distribution to all Owners or are registered under the provisions of such Act; provided, that nothing in the Deposit Agreement shall create any obligation on the part of the Company to file a registration statement with respect to such rights or underlying securities or to endeavor to have such a registration statement declared effective.  If an Owner requests the distribution of warrants or other instruments, notwithstanding that there has been no such registration under the Securities Act of 1933, the Depositary shall not effect such distribution unless it has received an opinion from recognized counsel in the United States for the Company upon which the Depositary may rely that such distribution to such Owner is exempt from such registration.
 
The Depositary shall not be responsible for any failure to determine that it may be lawful or feasible to make such rights available to Owners in general or any Owner in particular.
 
14.          CONVERSION OF FOREIGN CURRENCY .
 
Whenever the Depositary or the Custodian shall receive foreign currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the Depositary be converted on a reasonable basis into Dollars and the resulting Dollars transferred to the United States, the Depositary shall convert or cause to be converted by sale or in any other manner that it may determine, such foreign currency into Dollars, and such Dollars shall be distributed to the Owners entitled thereto or, if the Depositary shall have distributed any warrants or other instruments which entitle the holders thereof to such Dollars, then to the holders of such warrants and/or instruments upon surrender thereof for cancellation.  Such distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Owners on account of exchange restrictions, the date of delivery of any American Depositary Shares or otherwise and shall be net of any expenses of conversion into Dollars incurred by the Depositary as provided in Section 5.09 of the Deposit Agreement.

 
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If such conversion or distribution can be effected only with the approval or license of any government or agency thereof, the Depositary shall file such application for approval or license, if any, as it may deem desirable.
 
If at any time the Depositary shall determine that in its judgment any foreign currency received by the Depositary or the Custodian is not convertible on a reasonable basis into Dollars transferable to the United States, or if any approval or license of any government or agency thereof which is required for such conversion is denied or in the opinion of the Depositary is not obtainable, or if any such approval or license is not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute the foreign currency (or an appropriate document evidencing the right to receive such foreign currency) received by the Depositary to, or in its discretion may hold such foreign currency uninvested and without liability for interest thereon for the respective accounts of, the Owners entitled to receive the same.
 
If any such conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the Owners entitled thereto, the Depositary may in its discretion make such conversion and distribution in Dollars to the extent permissible to the Owners entitled thereto and may distribute the balance of the foreign currency received by the Depositary to, or hold such balance uninvested and without liability for interest thereon for the respective accounts of, the Owners entitled thereto.
 
15.          RECORD DATES .
 
Whenever any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or whenever rights shall be issued with respect to the Deposited Securities, or whenever the Depositary shall receive notice of any meeting of holders of Shares or other Deposited Securities, or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each American Depositary Share, or whenever the Depositary shall find it necessary or convenient, the Depositary shall fix a record date, which shall the same as or as near as practicable to any corresponding record date established by the Company in respect of the Shares or other Deposited Securities (a) for the determination of the Owners who shall be (i) entitled to receive such dividend, distribution or rights or the net proceeds of the sale thereof, (ii) entitled to give instructions for the exercise of voting rights at any such meeting or (iii) responsible for any fee assessed by the Depositary pursuant to the Deposit Agreement, or (b) on or after which each American Depositary Share will represent the changed number of Shares, subject to the provisions of the Deposit Agreement.

 
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16.          VOTING OF DEPOSITED SECURITIES .
 
Upon receipt of notice of any meeting of holders of Shares or other Deposited Securities, if requested in writing by the Company, the Depositary shall, as soon as practicable thereafter, mail to the Owners of Receipts a notice, the form of which notice shall be in the sole discretion of the Depositary, which shall contain (a) such information as is contained in such notice of meeting received by the Depositary from the Company, (b) a statement that the Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of law and of the articles of association or similar documents of the Company, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the amount of Shares or other Deposited Securities represented by their respective American Depositary Shares and (c) a statement as to the manner in which such instructions may be given, including an express indication that instructions may be given or deemed given in accordance with the last sentence of this paragraph if no instruction is received, to the Depositary to give a discretionary proxy to a person designated by the Company.  Upon the written request of an Owner of American Depositary Shares on such record date, received on or before the date established by the Depositary for such purpose, the Depositary shall endeavor, in so far as practicable, to vote or cause to be voted the amount of Shares or other Deposited Securities represented by those American Depositary Shares in accordance with the instructions set forth in such request.  The Depositary shall not itself exercise any voting discretion over any Deposited Securities.  If (i) the Company instructed the Depositary to act under Section 4.07 of the Deposit Agreement and complied with the following paragraph and (ii) no instructions are received by the Depositary from an Owner with respect to American Depositary Shares of that Owner on or before the date established by the Depositary for such purpose, the Depositary shall deem that Owner to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to the amount of Deposited Securities represented by those American Depositary Shares and the Depositary shall give a discretionary proxy to a person designated by the Company to vote that amount of Deposited Securities, except that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writing, if applicable) that (x) the Company does not wish such proxy given, (y) substantial opposition exists or (z) such matter materially and adversely affects the rights of holders of Shares..
 
In order to give Owners a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Deposited Securities, if the Company will request the Depositary to act under Section 4.07 of the Deposit Agreement, the Company shall give the Depositary notice of any such meeting and details concerning the matters to be voted upon not less than 45 days prior to the meeting date.

 
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There can be no assurance that Owners generally or any Owner in particular will receive the notice described in this Section 4.07 sufficiently prior to the instruction cutoff date to ensure that the Depositary will vote the Shares or Deposited Securities in accordance with the instructions of any Owner.
 
17.          CHANGES AFFECTING DEPOSITED SECURITIES .
 
Upon any change in nominal value, change in par value, split-up, consolidation, or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger or consolidation, or sale of assets affecting the Company or to which it is a party, or upon the redemption or cancellation by the Company of the Deposited Securities, any securities, cash or property which shall be received by the Depositary or a Custodian in exchange for, in conversion of, in lieu of or in respect of Deposited Securities shall be treated as new Deposited Securities under the Deposit Agreement, and American Depositary Shares shall thenceforth represent, in addition to the existing Deposited Securities, the right to receive the new Deposited Securities so received, unless additional Receipts are delivered pursuant to the following sentence.  In any such case the Depositary may deliver additional American Depositary Shares as in the case of a dividend in Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing such new Deposited Securities.
 

 
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18.          LIABILITY OF THE COMPANY AND DEPOSITARY .
 
Neither the Depositary nor the Company nor any of their respective directors, employees, agents or affiliates shall incur any liability to any Owner or holder, (i) if by reason of any provision of any present or future law or regulation of the United States, the BVI or any other country, or of any governmental or regulatory authority, or by reason of any provision, present or future, of the memorandum and articles of association or any similar document of the Company, or by reason of any provision of any securities issued or distributed by the Company, or any offering or distribution thereof, or by reason of any act of God or war or terrorism or other circumstances beyond its control, the Depositary or the Company shall be prevented, delayed or forbidden from or be subject to any civil or criminal penalty on account of doing or performing any act or thing which by the terms of the Deposit Agreement or Deposited Securities it is provided shall be done or performed, (ii) by reason of any non-performance or delay, caused as aforesaid, in the performance of any act or thing which by the terms of the Deposit Agreement it is provided shall or may be done or performed, (iii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement, (iv) for the inability of any Owner or holder to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Owners or holders, or (v) for any special, consequential or punitive damages for any breach of the terms of the Deposit Agreement.  Where, by the terms of a distribution pursuant to Section 4.01, 4.02 or 4.03 of the Deposit Agreement, or an offering or distribution pursuant to Section 4.04 of the Deposit Agreement, or for any other reason, such distribution or offering may not be made available to Owners of Receipts, and the Depositary may not dispose of such distribution or offering on behalf of such Owners and make the net proceeds available to such Owners, then the Depositary shall not make such distribution or offering, and shall allow any rights, if applicable, to lapse.  Neither the Company (nor any of its directors, officers, employees, agents and affiliates) nor the Depositary assumes any obligation or shall be subject to any liability under the Deposit Agreement to Owners or holders, except that the Company and the Depositary agree to perform their obligations specifically set forth in the Deposit Agreement without negligence or bad faith.  The Depositary shall not be subject to any liability with respect to the validity or worth of the Deposited Securities.  Neither the Depositary nor the Company (nor any of its directors, officers, employees, agents and affiliates) shall be under any obligation to appear in, prosecute or defend any action, suit, or other proceeding in respect of any Deposited Securities or in respect of the American Depositary Shares, on behalf of any Owner or holder or other person.  Neither the Depositary nor the Company (nor any of its directors, officers, employees, agents and affiliates) shall be liable for any action or nonaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Owner or holder, or any other person believed by it in good faith to be competent to give such advice or information.  The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with a matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises, the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.  The Depositary shall not be liable for the acts or omissions of any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of Deposited Securities or otherwise.  The Depositary shall not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities or for the manner in which any such vote is cast or the effect of any such vote, provided that any such action or nonaction is in good faith.
 
  No disclaimer of liability under the Securities Act of 1933 is intended by any provision of the Deposit Agreement.
 
19.
RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF SUCCESSOR CUSTODIAN .
 
The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of its election so to do delivered to the Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement.  The Depositary may at any time be removed by the Company by 120 days prior written notice of such removal, to become effective upon the later of (i) the 120th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement.  The Depositary in its discretion may appoint a substitute or additional custodian or custodians.

 
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20.          AMENDMENT .
 
The form of the Receipts and any provisions of the Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary without the consent of Owners or holders in any respect which they may deem necessary or desirable.  Any amendment which shall impose or increase any fees or charges (other than taxes and other governmental charges, registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or which shall otherwise prejudice any substantial existing right of Owners, shall, however, not become effective as to outstanding American Depositary Shares until the expiration of thirty days after notice of such amendment shall have been given to the Owners of outstanding American Depositary Shares. Every Owner and holder of American Depositary Shares, at the time any amendment so becomes effective, shall be deemed, by continuing to hold American Depositary Shares or any interest therein, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Owner to surrender American Depositary Shares and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law.

 
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21.          TERMINATION OF DEPOSIT AGREEMENT .
 
The Company may terminate the Deposit Agreement by instructing the Depositary to mail notice of termination to the Owners of all American Depositary Shares then outstanding at least 30 days prior to the termination date included in such notice.  The Depositary may likewise terminate the Deposit Agreement, if at any time 60 days shall have expired after the Depositary delivered to the Company a written resignation notice and if a successor depositary shall not have been appointed and accepted its appointment as provided in the Deposit Agreement; in such case the Depositary shall mail a notice of termination to the Owners of all American Depositary Shares then outstanding at least 30 days prior to the termination date.  On and after the date of termination, the Owner of American Depositary Shares will, upon (a) surrender of such American Depositary Shares, (b) payment of the fee of the Depositary for the surrender of American Depositary Shares referred to in Section 2.05, and (c) payment of any applicable taxes or governmental charges, be entitled to delivery, to him or upon his order, of the amount of Deposited Securities represented by those American Depositary Shares.  If any American Depositary Shares shall remain outstanding after the date of termination, the Depositary thereafter shall discontinue the registration of transfers of American Depositary Shares, shall suspend the distribution of dividends to the Owners thereof, and shall not give any further notices or perform any further acts under the Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights and other property as provided in the Deposit Agreement, and shall continue to deliver Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, upon surrender of American Depositary Shares (after deducting, in each case, the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the terms and conditions of the Deposit Agreement, and any applicable taxes or governmental charges). At any time after the expiration of four months from the date of termination, the Depositary may sell the Deposited Securities then held under the Deposit Agreement and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it thereunder, unsegregated and without liability for interest, for the pro rata benefit of the Owners of American Depositary Shares that have not theretofore been surrendered, such Owners thereupon becoming general creditors of the Depositary with respect to such net proceeds. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement, except to account for such net proceeds and other cash (after deducting, in each case, the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the terms and conditions of the Deposit Agreement, and any applicable taxes or governmental charges).  Upon the termination of the Deposit Agreement, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary with respect to indemnification, charges, and expenses.
 
22.
DTC DIRECT REGISTRATION SYSTEM AND PROFILE MODIFICATION SYSTEM .
 
(a)           Notwithstanding the provisions of Section 2.04 of the Deposit Agreement, the parties acknowledge that the Direct Registration System (“DRS”) and Profile Modification System (“Profile”) shall apply to uncertificated American Depositary Shares upon acceptance thereof to DRS by DTC.  DRS is the system administered by DTC pursuant to which the Depositary may register the ownership of uncertificated American Depositary Shares, which ownership shall be evidenced by periodic statements issued by the Depositary to the Owners entitled thereto.  Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an Owner, to direct the Depositary to register a transfer of those American Depositary Shares to DTC or its nominee and to deliver those American Depositary Shares to the DTC account of that DTC participant without receipt by the Depositary of prior authorization from the Owner to register such transfer.
 

 
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(b)           In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties understand that the Depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of an Owner in requesting registration of transfer and delivery described in subsection (a) has the actual authority to act on behalf of the Owner (notwithstanding any requirements under the Uniform Commercial Code).  For the avoidance of doubt, the provisions of Sections 5.03 and 5.08 of the Deposit Agreement shall apply to the matters arising from the use of the DRS.  The parties agree that the Depositary’s reliance on and compliance with instructions received by the Depositary through the DRS/Profile System and in accordance with the Deposit Agreement, shall not constitute negligence or bad faith on the part of the Depositary.
 
23.
ARBITRATION; SETTLEMENT OF DISPUTES.
 
(a)  Any controversy, claim or cause of action brought by any party hereto against the Company arising out of or relating to the Shares or other Deposited Securities, the American Depositary Shares, the Receipts or this Agreement, or the breach hereof or thereof, shall be settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof; provided , however , that in the event of any third-party litigation to which the Depositary is a party and to which the Company may properly be joined, the Company may be so joined in any court in which such litigation is proceeding; and provided , further , that any such controversy, claim or cause of action brought by a party hereto against the Company relating to or based upon the provisions of the Federal securities laws of the United States or the rules and regulations promulgated thereunder shall be submitted to arbitration as provided in this Section 7.06 if, but only if, so elected by the claimant.
 
The place of the arbitration shall be The City of New York, State of New York, United States of America, and the language of the arbitration shall be English.
 
The number of arbitrators shall be three, each of whom shall be disinterested in the dispute or controversy, shall have no connection with any party thereto, and shall be an attorney experienced in international securities transactions.  Each party shall appoint one arbitrator and the two arbitrators shall select a third arbitrator who shall serve as chairperson of the tribunal.  If a dispute, controversy or cause of action shall involve more than two parties, the parties shall attempt to align themselves in two sides (i.e., claimant(s) and respondent(s)), each of which shall appoint one arbitrator as if there were only two parties to such dispute, controversy or cause of action.  If such alignment and appointment shall not have occurred within thirty (30) calendar days after the initiating party serves the arbitration demand, the American Arbitration Association shall appoint the three arbitrators, each of whom shall have the qualifications described above.  The parties and the American Arbitration Association may appoint from among the nationals of any country, whether or not a party is a national of that country.
 
The arbitral tribunal shall have no authority to award any consequential, special or punitive damages or other damages not measured by the prevailing party’s actual damages and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Deposit Agreement.

 
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(b)  Any controversy, claim or cause of action arising out of or relating to the Shares or other Deposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement not subject to arbitration under this Section 7.06 shall be litigated in the Federal and state courts in the Borough of Manhattan, The City of New York and the Company hereby submits to the personal jurisdiction of the court in which such action or proceeding is brought.
 
24.
SUBMISSION TO JURISDICTION; JURY TRIAL WAIVER; WAIVER OF IMMUNITIES .
 
In the Deposit Agreement, the Company has (i) appointed Corporation Service Company, 1133 Avenue of the Americas, Suite 3100, New York, New York 10036, in the State of New York, as the Company's authorized agent upon which process may be served in any suit or proceeding (including any arbitration proceeding) arising out of or relating to the Shares or Deposited Securities, the American Depositary Shares, the Receipts or this Agreement, (ii) consented and submitted to the jurisdiction of any state or federal court in the State of New York in which any such suit or proceeding may be instituted, and (iii) agreed that service of process upon said authorized agent shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding.
 
EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH OWNER AND HOLDER) THEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE AMERICAN DEPOSITARY SHARES OR THE RECEIPTS, THE DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF, INCLUDING WITHOUT LIMITATION ANY QUESTION REGARDING EXISTENCE, VALIDITY OR TERMINATION (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
 
To the extent that the Company or any of its properties, assets or revenues may have or hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any respect thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Shares or Deposited Securities, the American Depositary Shares, the Receipts or the Deposit Agreement, the Company, to the fullest extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement.
 

 
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25.
DISCLOSURE OF INTERESTS .
 
The Company may from time to time request Owners to provide information as to the capacity in which such Owners own or owned American Depositary Shares and regarding the identity of any other persons then or previously interested in such American Depositary Shares and the nature of such interest.  Each Owner agrees to provide any information requested by the Company or the Depositary pursuant to this Section 3.04.  The Depositary agrees to comply with reasonable written instructions received from the Company requesting that the Depositary forward any such requests to the Owners and to forward to the Company any such responses to such requests received by the Depositary.  The Depositary shall provide reasonable assistance to the Company, at the Company’s request and expense, in obtaining information sought by the Company pursuant to Section 3.04 of the Deposit Agreement.

 
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Exhibit 5.1

   
Harney Westwood & Riegels
1507 The Center
99 Queen’s Road Central
Hong Kong
Tel: +852 3607 5300
Fax: +852 2815 7676
www.harneys.com
 
 
[ ] April 2010
   
 
Your Ref        
   
 
Our Ref          040969.0001/MIG
   
 
Doc ID           118969_1
Kingtone Wirelessinfo Solution Holding Ltd.
3 rd Floor, Borough A, Block A
181 South Taibai Road
Xian
Shaanxi Province
People’s Republic of China



Dear Sirs

Kingtone Wirelessinfo Solution Holding Ltd.

We have acted as counsel as to British Virgin Islands law to Kingtone Wirelessinfo Solution Holding Ltd. (the “ Company ”) in connection with the Company’s registration statement on Form F-1 (the “ Registration Statement ”) filed on [ ] 2010 with the Securities and Exchange Commission under the Securities Act of 1933, as amended to date, relating to the public offer and sale by the Company of certain American Depositary Shares representing the Company’s ordinary shares of par value of US$0.001 each (the “ IPO Ordinary Shares ”). We are furnishing this opinion as Exhibit 5.1 to the Registration Statement.

1.
Documents Reviewed

For the purpose of this opinion, we have reviewed originals, copies, drafts or conformed copies of the following documents:

(a)
the written resolutions of the board of directors of the Company dated [ ] and the written resolutions of the shareholders of the Company dated [ ] (the “ Resolutions ”);

(b)
a certificate of incumbency dated [ ] 2010, issued by Portcullis TrustNet (BVI) Limited, the Company’s registered agent, a copy of which is attached as Annexure A (the “ Registered Agent s Certificate ”);

(c)
the public records of the Company on file and available for public inspection at the Registry of Corporate Affairs in the British Virgin Islands on [ ] 2010 including:

(i) 
the Company’s Certificate of Incorporation dated 27 October 2009; and
(ii) 
the Company’s Memorandum and Articles of Association (“ M&As ”);
 
 
Resident Partner:  M. Gagie
British Virgin Islands | Cayman Islands | Anguilla | London | Hong Kong

 
 
[ ] January 2010
Kingtone Wirelessinfo Solution Holding Ltd.
 
(d)
the records of proceedings on file with and available for inspection on [ ] 2010 at the British Virgin Islands High Court Registry (together with the records referred to in paragraph 1.3 above the “ Searches ”);

(e)
a certificate from a director of the Company addressed to this firm dated [ ] 2010, a copy of which is annexed hereto as Annexure B (the “ Director s Certificate ”); and

(f)
the Registration Statement.


2.
Assumptions

For the purposes of this opinion we have assumed without further enquiry:
 
(a)
the authenticity of all documents submitted to us as originals, the conformity with the originals of all documents submitted to us as copies and the authenticity of such originals;
 
(b)
the genuineness of all signatures and seals;
 
(c)
the accuracy and completeness of all corporate minutes, resolutions, certificates and records which we have seen;
 
(d)
that the information indicated by the Searches is and remains true and correct;
 
(e)
the accuracy of any and all representations of fact expressed in or implied by the documents we have examined;
 
(f)
that there is no provision of the law of any jurisdiction, other than the British Virgin Islands, which would have any implication in relation to the opinions expressed herein;
 
(g)
there is no contractual or other prohibition (other than as may arise by virtue of the laws of the British Virgin Islands) binding on the Company or on any other party prohibiting it from entering into and performing its obligations;
 
(h)
that no director of the Company has a financial interest in or other relationship to a party therein or to the transaction contemplated by the Registration Statement except as expressly disclosed in the Board Resolutions; and
 
(i)
that the correct procedure was carried out for the passing of the Board Resolutions and the Shareholder Resolutions (for example, all relevant interests of directors were declared, notice was given, a quorum was present etc.) and that the Board Resolutions and Shareholder Resolutions remain in full force and effect.
 
Save as aforesaid we have not been instructed to undertake and have not undertaken any further enquiry or due diligence in relation to the transaction the subject of this opinion. The following opinions are given only as to, and based on, circumstances and matters of fact existing at the date hereof and of which we are aware consequent upon the instructions we have received in relation to the matter the subject of this opinion and as to the laws of the British Virgin Islands as the same are in force at the date hereof.
 
 
2

 
 
3.
Opinions

Based upon, and subject to, the foregoing assumptions and the qualifications set out below, and having regard to such legal considerations as we deem relevant, we are of the opinion that:

(a)
the Company is a limited liability company incorporated under the BVI Business Companies Act, 2004 and is validly existing and in good standing under the laws of the British Virgin Islands;
 
(b)
the Company is authorised to issue a maximum of 100,000,000 ordinary shares with a par value of US$0.001; and
 
(c)
the issue of the IPO Ordinary Shares has been duly authorised. When issued, allotted and paid for as contemplated in the Registration Statement and when details of the issue are entered into the Company’s register of members, the IPO Ordinary Shares will be legally issued and allotted, fully paid and non-assessable.

4.
Qualifications

Except as specifically stated herein, we make no comment with respect to any representations and warranties which may be made by or with respect to the Company in the Registration Statement or otherwise with respect to the commercial terms of the transactions the subject of this opinion.

“Non-assessability” is not a legal concept under British Virgin Islands law, but when we describe the IPO Ordinary Shares herein as being “non-assessable” we mean, subject to any contrary provision in any agreement between the Company and any one of its members holding any of the IPO Ordinary Shares (but only with respect to such member), that no further sums are payable with respect to the issue of such shares and no member shall be bound by an alteration in the M&As after the date upon which it became a member if and so far as the alteration requires such member to take or subscribe for additional ordinary shares or in any way increases the member’s liability to contribute to the share capital of, or otherwise pay money to, the Company.

This opinion is issued solely in connection with the Registration Statement. We hereby consent to the use of this opinion in, and the filing hereof as an Exhibit to, the Registration Statement and further consent to the reference of our name under the headings of “Taxation”, “Enforceability of Civil Liabilities” and “Legal Matters” in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission issued thereunder.


Yours faithfully,
HARNEY WESTWOOD & RIEGELS
 
 
3

 
Exhibit 10.1
 
ENTRUSTED MANAGEMENT AGREEMENT

BETWEEN

LI TAO AND OTHER INDIVIDUALS

XI’AN TECHTEAM INVESTMENT HOLDING GROUP COMPANY

SHENZHEN CAPITAL GROUP CO., LTD

XI’AN HONGTU CAPITAL CO., LTD

SHAANXI YUANXING SECIENCE AND TECHNOLOGY CO., LTD

XI’AN KINGTONE INFORMATION TECHNOLOGY CO., LTD

AND

XI’AN SOFTECH CO., LTD

December 15, 2009
 

 

   
Entrusted Management Agreement
 
This Entrusted Management Agreement (the “Agreement” ) is entered into as of December 15, 2009 in Xi’an by:

Party A

1.          Li Tao and other seventeen individuals (collectively, the “ Individual Shareholders ”), collectively own 61.6% shares of Xi’an Kingtone Information Technology Co., Ltd, of which Li Tao owns 36.61% shares of Xi’an Kingtone Information Technology Co., Ltd ; the specific list of the Individual Shareholders is referred hereto as Exhibit A;

2.          Xi’an TechTeam Investment Holding Group Company, a limited liability company registered in Xi’an, and the registration number of its legal and valid Business License is 610131100003173; and it owns 25% shares of Xi’an Kingtone Information Technology Co., Ltd;

3.          Shenzhen Capital Group Co., Ltd a limited liability company registered in Shenzhen, and the registration number of its legal and valid Business License is 440301103269709; and it owns 7.42% shares of Xi’an Kingtone Information Technology Co., Ltd;

4.          Xi’an Hongtu Capital Co., Ltd, a limited liability company registered in Xi’an, and the registration number of its legal and valid Business License is 610100100085399; and it owns 3.30% shares of Xi’an Kingtone Information Technology Co., Ltd;

5.          Shaanxi Yuanxing Science and Technology Co., Ltd, a limited liability company registered in Xi’an, and the registration number of its legal and valid Business License is 610000100089857; and it owns 2.68% shares of Xi’an Kingtone Information Technology Co., Ltd;

6.          Xi’an Kingtone Information Technology Co., Ltd is an enterprise limited by shares which is incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China, the registration number of its legal and valid Business License is 610131100001233 and the legal registered address is the 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China.

and

Party B

Xi’an Softech Co., Ltd, a wholly foreign-owned enterprise registered in Xi’an; and the registration number of its legal and valid Business License is 610100400006807;

 
- 1 -

 
 

 
  Whereas,

1.         Party A constitutes Xi’an Kingtone Information Technology Co., Ltd (hereinafter referred to as “Kingtone Information” ) and all of its shareholders hold all issued and outstanding shares of Kingtone Information. Under this Agreement, Li Tao and other individuals, Xi’an TechTeam Investment Holding Group Company, Shenzhen Capital Group Co., Ltd, Xi’an Hongtu Capital Co., Ltd, Shaanxi Yuanxing Science and Technology Co., Ltd, Kingtone Information have acted collectively as one party to this Agreement;

2.          Xi’an Softech Co., Ltd is a wholly-foreign owned enterprise incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China, the registration number of its legal and valid Business License is 610100400006807, and the legal registered address is 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China .

3.         Party A desires to entrust Party B to manage and operate Kingtone Information;

4.         Party B agrees to accept such entrustment and to manage Kingtone Information on behalf of Party A.

Therefore, in accordance with laws and regulations of the People’s Republic of China, the Parties agree as follows after friendly consultation based on the principle of equality and mutual benefit.

Article 1        Entrusted Management

1.1      Party A agrees to entrust the management of Kingtone Information to Party B pursuant to the terms and conditions of this Agreement. Party B agrees to manage Kingtone Information in accordance with the terms and conditions of this Agreement.

1.2      The term of this Entrusted Management Agreement (the “Entrusted Period” ) shall be from the effective date of this Agreement to the earlier of the following:

(a)         the winding up of Kingtone Information, or
(b)         the termination date of this Entrusted Management Agreement to be determined by the Parties hereto, or
(c)         the date on which Party B completes the acquisition of Kingtone Information.

1.3      During the Entrusted Period, Party B shall be fully and exclusively responsible for the management of Kingtone Information. The management service includes without limitation the following:

 
- 2 -

 
 

  
(a)         Party B shall be fully and exclusively responsible for the operation of Kingtone Information, which includes the right to appoint and terminate executive director and the right to hire managerial and administrative personnel etc. Party A or its voting proxy shall make shareholder’s resolution and Board of Directors’ resolution based on the decision of Party B.
 
(b)         Party B has the full and exclusive right to manage and control all cash flow and assets of Party A. Kingtone Information shall open an entrusted account or designate an existing account as an entrusted account. Party B has the full and exclusive right to decide the use of the funds in the entrusted account. The authorized signature of the account shall be appointed or confirmed by Party B. All of the funds of Kingtone Information shall be kept in this account, including but not limited to its existing working capital and purchase price received from selling its production equipment, inventory, raw materials and accounts receivable to Party B (if any), all payments of funds shall be disbursed through this entrusted account, including but not limited to the payment of all existing accounts payable and operating expenses, payment of employees salaries and purchase of assets, and all revenues from its operation shall be kept in this account.
 
(c)         Party B shall have the full and exclusive right to control and administrate the financial affairs and daily operation of Kingtone Information, such as entering into and performance of contracts, and payment of taxes etc.

1.4      In consideration of the services provided by Party B hereunder, Party A shall pay the entrusted management fee to Party B which shall be equal to the earnings before tax (if any) of Kingtone Information. The entrusted management fee shall be as follows: during the term of this agreement, the entrusted management fee shall be equal to Kingtone Information’s estimated earnings before tax, being the monthly revenues after deduction of operating costs, expenses and taxes other than income tax. If the earnings before tax is zero, Kingtone Information is not required to pay the entrusted management fee; if Kingtone Information sustains losses, all such losses will be carried over to next month and deducted from next month’s entrusted management fee. Both Parties shall calculate, and Party A shall pay, the monthly entrusted management fee within 20 days of the following month. The above monthly payment shall be adjusted after the end of each quarter but before the filing of tax return for such quarter (the “Quarterly Adjustment” ), so as to make the after-tax profit of Kingtone Information of that quarter is zero. In addition, the above monthly payment shall be adjusted after the end of each fiscal year but before the filing for the yearly tax return (the “Annual Adjustment” ), so as to make the after-tax profit of Kingtone Information of that fiscal year is zero.

1.5      Party B shall assume all operation risks out of the entrusted management of Kingtone Information and bear all losses of Kingtone Information. If Kingtone Information has no sufficient funds to repay its debts, Party B is responsible for paying off these debts on behalf of Kingtone Information; if Kingtone Information’s net assets are lower than its registered capital, Party B is responsible for funding the deficit.

 
- 3 -

 
 

   
Article 2        Rights and Obligations of the Parties

2.1      During the term of this Agreement, Party A’s rights and obligations include:

(a)         to hand over Kingtone Information to Party B for entrusted management as of the effectiveness date of this Agreement and to hand over all of business materials together with Business License and corporate seal of Kingtone Information to Party B;
(b)         Party A has no right to make any decision regarding Kingtone Information’s operations without the prior written consent of Party B;
(c)         to have the right to know the business conditions of Kingtone Information at any time and provide proposals;
(d)         to assist Party B in carrying out the entrusted management in accordance with Party B’s requirement;
(e)         to perform its obligations pursuant to the Shareholders’ Voting Rights Proxy
Agreement, signed by and between Individual Shareholders, Xi’an TechTeam Investment Holding Group Company, Shenzhen Capital Group Co., Ltd, Xi’an Hongtu Capital Co., Ltd, Shaanxi Yuanxing Science and Technology Co., Ltd and Party B on December 15, 2009 in Xi’an , and not to violate the said agreement;
(f)          not to intervene Party B’s management over Kingtone Information in any form by making use of shareholder’s power;
(g)         not to entrust or grant their shareholders’ rights in Kingtone Information to a third party other than Party B without Party B’s consent;
(h)         not to otherwise entrust other third party other than Party B to manage Kingtone Information in any form without Party B’s prior written consent;
(i)          not to terminate this Agreement unilaterally with for any reason whatsoever; or
(j)          to enjoy other rights and perform other obligations under the Agreement.

2.2      During the term of this Agreement, Party B’s rights and obligations include:

(a)         to enjoy the full and exclusive right to manage Kingtone Information independently;
(b)         to enjoy the full and exclusive right to dispose of all assets of Kingtone Information;
(c)         to enjoy all profits and bear losses arising from Kingtone Information’s operations during the Entrusted Period;
(d)         to appoint executive director of Kingtone Information;
(e)         to appoint the legal representative, general manager, vice general manager, financial manager and other senior managerial personnel of Kingtone Information;
(f)          to convene shareholders’ meetings of Kingtone Information in accordance with the Shareholders’ Voting Rights Proxy Agreement and sign resolutions of shareholders’ meetings; and
(g)         to enjoy other rights and perform other obligations under the Agreement.

 

   
Article 3        Representations and Warranties

3.1      The Parties hereto hereby make the following representations and warranties to each other as of the date of this Agreement that:

(a)         has the right to enter into the Agreement and the ability to perform the same;
(b)         the execution and delivery of this Agreement by each party have been duly
authorized by all necessary corporate action;
(c)         the execution of this Agreement by the officer or representative of each party has been duly authorized
(d)         each party has no other reasons that will prevent this Agreement from  becoming a binding and effective agreement between both parties after execution;
(e)         the execution and performance of the obligations under this Agreement will not violate any provision of the business license, articles of association or other similar documents of its own;
(f)          violate any provision of the laws and regulations of PRC or other governmental or regulatory authority or approval;
(g)         violate or result in a breach of any contract or agreement to which the party is a party or by which it is bound.

3.2      The Parties hereto agree that the execution of this Agreement by Xi’an TechTeam Investment Holding Group Company, Shenzhen Capital Group Co., Ltd, Xi’an Hongtu Capital Co., Ltd and Shaanxi Yuanxing Science and Technology Co., Ltd (collectively, the “Institutional Shareholders” ) shall be on the condition that ReiZii Capital Management Ltd agrees to issue the designated shares of ReiZii to the Institutional Shareholders or any third party designated by them.

3.3      Party A and Party B agree that both parties will revise this Agreement to satisfy the Kingtone Information’ needs at times in good faith and on a best effort basis.

Article 4        Effectiveness

This Agreement shall take effect after it is duly executed by the authorized representatives of the parties hereto with seals affixed.

Article 5        Liability for Breach of Agreement

During the term of this Agreement, any violation of any provisions herein by either party constitutes breach of contract and the breaching party shall compensate the non-breaching party for the loss incurred as a result of this breach.

 
- 5 -

 
 

  
Article 6        Force Majeure

The failure of either party to perform all or part of the obligations under the Agreement due to force majeure shall not be deemed as breach of contract. The affected party shall present promptly valid evidence of such force majeure, and the failure of performance shall be settled through consultations between the parties hereto.

Article 7        Governing Law

The conclusion, validity, interpretation, and performance of this Agreement and the settlement of any disputes arising out of this Agreement shall be governed by the laws and regulations of the People’s Republic of China.

Article 8        Settlement of Dispute

Any disputes under the Agreement shall be settled at first through friendly consultation between the parties hereto. In case no settlement can be reached through consultation, each party shall have the right to submit such disputes to China International Economic and Trade Arbitration Commission. The arbitration award shall be final and binding on both parties.

Article 9        Confidentiality

9.1      The parties hereto agree to cause its employees or representatives who has access to and knowledge of the terms and conditions of this Agreement to keep strict confidentiality and not to disclose any of these terms and conditions to any third party without the expressive requirements under law or request from judicial authorities or governmental departments or the consent of the other party, otherwise such party or personnel shall assume corresponding legal liabilities.

9.2      The obligations of confidentiality under Section 1 of this Article shall survive after the termination of this Agreement.

Article 10        Severability

10.1    Any provision of this Agreement that is invalid or unenforceable due to the laws and regulations shall be ineffective without affecting in any way the remaining provisions hereof.

10.2    In the event of the foregoing paragraph, the parties hereto shall prepare supplemental agreement as soon as possible to replace the invalid provision through friendly consultation.

Article 11        Non-waiver of Rights

11.1    Any failure or delay by any party in exercising its rights under this Agreement shall not constitute a waiver of such right.

 
- 6 -

 
 

  
11.2    Any failure of any party to demand the other party to perform its obligations under this Agreement shall not be deemed as a waiver of its right to demand the other party to perform such obligations later.

11.3    If a party excuses the non-performance by other party of certain provisions under this Agreement, such excuse shall not be deemed to excuse any future non-performance by the other party of the same provision.

Article 12        Non-transferability

Unless otherwise specified under this Agreement, no party can assign or delegate any of the rights or obligations under this Agreement to any third party nor can it provide any guarantee to such third party or carry out other similar activities without the prior written consent from the other party.

Article 13        Miscellaneous

13.1    Any and all taxes arising from execution and performance of this Agreement and during the course of the entrusted management and operation shall be borne by the Parties respectively pursuant to the provisions of laws and regulations.

13.2    Any amendment entered into by the parties hereto after the effectiveness of this Agreement shall be an integral part of this Agreement and have the same legal effect as part of this Agreement. In case of any discrepancy between the amendment and this Agreement, the amendment shall prevail. In case of several amendments, the amendment with the latest date shall prevail.

13.3    This Agreement is executed by Chinese and English in duplicate and both the English version and Chinese version shall have the same effect. Each of the original Chinese and English versions of this Agreement shall be executed in twenty-four copies. Each party shall hold one original for each version.

(This space intentionally left blank)

 
- 7 -

 
 

  
IN WITNESS HEREOF, the Parties hereof have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

PARTY A:
 
Li Tao
 
(Signature): /s/ Li Tao
 
Chen Xue Tao

(Signature): /s/ Chen Xue Tao
 
Wang Wan Jiao

(Signature): /s/ Wang Wan Jiao
 
Wu Li

(Signature): /s/ Wu Li
 
Pu Wei

(Signature): /s/ Pu Wei
 
Zhang Yu Fan

(Signature): /s/ Zhang Yu Fan

 
- 8 -

 
 

  
Guo Ming
 
(Signature): /s/ Guo Ming
 
Zhang Wei
 
(Signature): /s/ Zhang Wei
 
Li Jian Ping
 
(Signature): /s/ Li Jian Ping
 
Qin Shu Ling
 
(Signature): /s/ Qin Shu Ling
 
Li Jing
 
(Signature): /s/ Li Jing
 
Zhang Xiao Ming
 
(Signature): /s/ Zhang Xiao Ming
 
Zhang Xiao Bin
(Signature): /s/ Zhang Xiao Bin
 
Wang Wei
 
(Signature): /s/ Wang Wei

 
- 9 -

 
 

  
Zhang Peng
 
(Signature): /s/ Zhang Peng
 
Xi Peng Guo
 
(Signature): /s/ Xi Peng Guo
 
Chen Xian Ying
 
(Signature): /s/ Chen Xian Ying
 
Ma Jun
 
(Signature): /s/ Ma Jun
 
Xi’an TechTeam Investment Holding Group Company
 
                   (Seal)
 
Legal Representative/Authorized Representative
 
(Signature): /s/ Li Tao
 
Shenzhen Capital Group Co., Ltd
 
                   (Seal)
 
Legal Representative/Authorized Representative
 
(Signature): /s/ Jin Hai Tao

 
- 10 -

 
 

  
Xi’an Hongtu Capital Co., Ltd
 
                   (Seal)
 
Legal Representative/Authorized Representative
 
(Signature): /s/ Xia Fu Xi
 
Shaanxi Yuanxing Science and Technology Co., Ltd  
 
                   (Seal)
 
Legal Representative/Authorized Representative
 
(Signature): /s/ Li Ke Chen
 
Xi’an Kingtone Information Technology Co., Ltd
 
                   (Seal)
 
Legal Representative/Authorized Representative
 
(Signature): /s/ Li Tao

 
- 11 -

 
 

  
PARTY B: Xi’an Softech Co., Ltd.

                   (Seal)
 
Legal Representative/Authorized Representative
 
(Signature): /s/ Wang Wan Jaio

 
- 12 -

 
 

  
Exhibit A
 
List of Individual Shareholders
 
Name
 
ID Card Number
 
Share Percentage
         
Li Tao
 
610103196511281613
 
36.61%
         
Chen Xue Tao
 
61010319710930165X
 
8.93%
         
Wang Wan Jiao
 
610104198109266162
 
5.35%
         
Wu Li
 
610111620918202
 
1.09%
         
Pu Wei
 
610104196910302123
 
1.04%
         
Zhang Yu Fan
 
610103196508063244
 
0.89%
         
Guo Ming
 
610113195801080017
 
0.89%
         
Zhang Wei
 
610103197802122043
 
0.89%
         
Li Jian Pin
 
610103681102368
 
0.89%
         
Qin Shu Ling
 
610113195503020446
 
0.89%
         
Li Jing
 
420500197212035246
 
0.89%
         
Zhang Xiao Ming
 
610113195303102930
 
0.89%
         
Zhang Xiao Bin
 
612325197911180016
 
0.53%
         
Wang Wei
 
610627198201080055
 
0.38%
         
Zhang Peng
 
622101196712220017
 
0.36%
         
Xi Peng Guo
 
610431197601031334
 
0.36%
         
Chen Xian Ying
 
610112750201523
 
0.36%
         
Ma Jun
  
612728196803210253
  
0.36%

 
- 13 -

 
Exhibit 10.2
 
EXCLUSIVE TECHNOLOGY SERVICE AGREEMENT

BETWEEN

      XI’AN KINGTONE INFORMATION TECHNOLOGY CO., LTD

AND

XI’AN SOFTECH CO., LTD

December 15, 2009

 
 

 

Exclusive Technology Service Agreement

This Exclusive Technology Service Agreement (the “Agreement” ) is entered into as of December 15 , 2009 in Xi’an by:         

Party A

Xi’an Kingtone Information Technology Co., Ltd (hereinafter referred to as “Kingtone Information” ) is an enterprise limited by shares which is incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China. The registration number of its legal and valid Business License is 610131100001233 and the legal registered address is the 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China.

and

Party B

Xi’an Softech Co., Ltd is a wholly-foreign owned enterprise registered in, and the registration number of its legal and valid Business License is 610100400006807 and its legal address is 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China.

Whereas, Party A and Party B (collectively the “Parties” ) intend to promote the development of their businesses through mutual cooperation and utilization of their advantages.

Therefore , the Parties agree as follows after friendly consultation through the principle of equality and mutual benefit.

Article 1      Technology Service

1.1          Party A hereby agree to engage Party B as the exclusive and sole technology service provider of Party A, and Party B hereof agree to accept such engagement.

1.2           Party A further agrees that, without prior written consent of Party B, during the term of this Agreement, Party A shall not engage any third party as the technology service provider of Party A .
1.3           Party A agrees that Part B has right to provide the same or similar technology services under this Agreement to any third party and also has right to appoint other person of parties to provide the technology services to Party A under this Agreement.

 
- 1 -

 

Article 2      Scope of Technolgy Service

2.1          During the term of this Agreement, Party B agrees to provide relevant technology services to Party A in accordance with the relevant terms and conditions of this Agreement (The scope of technology service is referred hereto as Exhibit A).

Article 3      Service Fee

3.1          Party B shall provide the statement of account to Party A pursuant to the price recognized by the Parties and the working amont provided by Party B. Party A shall pay the relevant service fees pursuant to the date and the amount indicated in the statement of account provided by Party B. Party A and Party B may make other arragements on the payment of service fee at any time through the mutual consent.

3.2          Party A hereto agrees and warrants that Party A shall pay off all the Service Fees pursuant to the Clause 3.1 above to Party B firstly, then Party A may pay the management fees to Party B in accordance with the Entrusted Management Agreement, by and among Party A, Li Tao and other individuals, Xi’an TechTeam Investment Holding Group Company, Shenzhen Capital Group Co., Ltd, Xi’an Hongtu Capital Co., Ltd, Shaanxi Yuanxing Science and Technology Co., Ltd, Party B on December 15, 2009 in Xi’an.

Article 4      Intellectual Property

4.1          The Parties hereby understand and agree that the technical datas, software, discovery, invention, development, commercial secrets, copyrights, documments and other materials prepared or improved by Party B which are used to provide the technolgy services under this Agreement shall exclusively belong to Party B, no matter whether the foregoing materials are protected by copyright or patent right.

4.2          Provided that Party A improves the foregoing materials , such development results shall be soly owned by Party B. Party A hereby tranfer all the rights, ownerships and interests in connection with such improvement to Party B.

Article 5      Representations and Warranties

5.1          Party A hereto hereby make the following representations and warranties to Party B as of the date of this Agreement that:

(a)         Party A is an enterprise limited by shares which is incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China;
(b)         Party A has the right to enter into the Agreement and the ability to perform the same; and the execution and delivery of this Agreement by Party A have been duly authorized by all necessary corporate action;

 
- 2 -

 

(c)         the execution and delivery of this Agreement will not violate any provision of the laws and regulations of PRC or other governmental or regulatory authority or approval;
(d)         the provisions of this Agreement constitute legal, valid and binding obligations on Party A upon the execution;

5.2          Party B hereto hereby make the following representations and warranties to Party A as of the date of this Agreement that:

(a)         Party B is a wholy foreign-owned enterprise which is incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China;
(b)        Party B has the right to enter into the Agreement and the ability to perform the same; and the execution and delivery of this Agreement by Party B have been duly authorized by all necessary corporate action;
(c)         the execution and delivery of this Agreement will not violate any provision of the laws and regulations of PRC or other governmental or regulatory authority or approval;
(d)         the provisions of this Agreement constitute legal, valid and binding obligations on Party B upon the execution;

Article 6      Effectiveness and Termination

This Agreement shall take effect after it is duly executed by the authorized representatives of the parties hereto with seals affixed and shall be terminated when any of the the following happens,

(a)         the winding up of Party A, or
(b)         the date on which Party B completes the acquisition of Party A, or
(c)         the termination date of this Agreement to be otherwise determined by the Parties hereto.
 
Article 7      Liability for Breach of Agreement
 
During the term of this Agreement, any violation of any provisions herein by either party constitutes breach of contract and the breaching party shall compensate the non-breaching party for the loss incurred as a result of this breach.

Article 8      Force Majeure

The failure of either party to perform all or part of the obligations under the Agreement due to force majeure shall not be deemed as breach of contract. The affected party shall present promptly valid evidence of such force majeure, and the failure of performance shall be settled through consultations between the parties hereto.

 
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Article 9       Confidentiality

9.1          The parties hereto agree to cause its employees or representatives who has access to and knowledge of the terms and conditions of this Agreement to keep strict confidentiality and not to disclose any of these terms and conditions to any third party without the expressive requirements under law or request from judicial authorities or governmental departments or the consent of the other party, otherwise such party or personnel shall assume corresponding legal liabilities.

9.2          The obligations of confidentiality under Section 1 of this Article shall survive after the termination of this Agreement.

Article 10      Applicable Law and Dispute Resolution

10.1        The execution, validity, interpretation and performance of this Agreement and the disputes resolution under this Agreement shall be governed by the laws of PRC.

10.2        The Parties shall strive to settle any dispute arising from the interpretation or performance of this Agreement through friendly consultation. In case no settlement can be reached through consultation within thirty (30) days after such dispute is raised, each party can submit such matter to China International Economic and Trade Arbitration Commission in accordance with its rules. The arbitration award shall be final, conclusive and binding upon both Parties.

Article 11      Non-transferability

Unless otherwise specified under this Agreement, no party can assign or delegate any of the rights or obligations under this Agreement to any third party nor can it provide any guarantee to such third party or carry out other similar activities without the prior written consent from the other party.

Article 12      Severability

12.1        Any provision of this Agreement that is invalid or unenforceable due to the laws and regulations shall be ineffective without affecting in any way the remaining provisions hereof.

12.2        In the event of the foregoing paragraph, the parties hereto shall prepare supplemental agreement as soon as possible to replace the invalid provision through friendly consultation.

Article 13      Amendment, Modification and Supplement

Any amendment and supplement to this Agreement shall be made by the Parties in writing. The amendment and supplement duly executed by each Party shall be deemed an integral part of this Agreement and shall have the same legal effect as this Agreement.

 
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Article 14      Miscellaneous

14.1        Any and all taxes arising from execution and performance of this Agreement and during the course of providing service shall be borne by the Parties respectively pursuant to the provisions of laws and regulations.

14.2        Any amendment entered into by the parties hereto after the effectiveness of this Agreement shall be an integral part of this Agreement and have the same legal effect as part of this Agreement. In case of any discrepancy between the amendment and this Agreement, the amendment shall prevail. In case of several amendments, the amendment with the latest date shall prevail.

14.3        This Agreement is executed by Chinese and English in duplicate and both the English version and Chinese version shall have the same effect. Each of the original Chinese and English versions of this Agreement shall be executed in two copies. Each party shall hold one original for each version.
(This space intentionally left blank)

 
- 5 -

 
 
IN WITNESS HEREOF, the Parties hereof have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

Party A: Xi’an Kingtone Information Technology Co., Ltd
 
 (Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Li Tao
 
 
PARTY B: Xi’an Softech Co., Ltd.
 
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Wang Wan Jiao
 

 
- 6 -

 

Exhibit A
 
Scope of Service
 
Party B shall provide the following services to Party A:
 
Consultation of the research and development of information management technology;
Consultation of production of software products;
Consultation of communication technology and computer network engineering;
Other services required by Party A

 
- 7 -

 
Exhibit 10.3
 
SHAREHOLDERS' VOTING PROXY AGREEMENT
 
BETWEEN
 
LI TAO AND OTHER INDIVIDUALS
 
XI’AN TECHTEAM INVESTMENT HOLDING GROUP
COMPANY
 
SHENZHEN CAPITAL GROUP CO., LTD
 
XI’AN HONGTU CAPITAL CO., LTD
 
SHAANXI YUANXING SECIENCE AND TECHNOLOGY CO.,
LTD
 
AND
 
XI’AN SOFTECH CO., LTD

 
 

 


December 15, 2009
 
SHAREHOLDERS’ VOTING PROXY AGREEMENT
 
This Shareholders’ Voting Proxy Agreement (the “Agreement” ) is entered into as of December 15, 2009 among the following parties in Xi’an:
     
Party A: Xi’an Softech Co., Ltd
Registered Address: 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China
Legal Representative: Wang Wan Jiao

and

Party B: Li Tao and other seventeen individuals (collectively, the “ Individual Shareholders ”), the specific list of the Individual Shareholders is referred herero as Exhibit A

Party C: Xi’an TechTeam Investment Holding Group Company
Registered Address: 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China
Legal Representative: Li Tao

Party D: Shenzhen Capital Group Co., Ltd
Registered Address: District B, 11/F OF Investment Mall, No.4009, Shennan Avenue, Futian District, Shenzhen City
Legal Representative: Jin Hai Tao

Party E: Xi’an Hongtu Capital Co., Ltd
Registered Address: 7/F of Xi’an Tourism Mall, No.27, South two links, Beilin District, Xi’an City
Legal Representative: Xia Fu Xi

Party F: Shaanxi Yuanxing Science and Technology Co., Ltd
Registered Address: 18/F of Xin Ji Yuan Square, Gaoxin Road, Xi’an City
Legal Representative: Chen Li Ke

In this Agreement, Party A, Party B, Party C, Party D, Party E and Party F are called collectively as the “Parties” , and each of them is called as the “Party” . Party B, Party C, Party D, Party E and Party F are collectively called the “Grantors” and respectively called “Each of the Grantors” .

WHEREAS,

1.          Party A is a wholly foreign-owned enterprise incorporated under the laws of the People’s Republic of China;

 
- 1 -

 

2.           As of the date of this Agreement, the Grantors are shareholders of Kingtone Information Technology Co., Ltd (hereinafter referred to as “Kingtone Information” ) and collectively legally hold all of the equity interest of Kingtone Information, of which Party B holds 61.6%, Party C holds 25% Party D holds 7.42%, Party E holds 3.30%, Party F holds 2.68%.

3.          Each of the Grantors desires to appoint the persons designated by Party A to exercise its shareholder’s voting rights at the shareholders’ meeting of Kingtone Information (“Voting Rights” ) and Party A is willing to designate such persons.

Therefore, the Parties hereby have reached the following agreement upon friendly consultations:

 
Article 1

Each of the Grantors hereby agrees to irrevocably appoint the persons designated by Party A with the exclusive right to exercise, on his behalf, all of his Voting Rights in accordance with the laws and Kingtone Information’s Articles of Association, including but not limited to the rights to sell or transfer all or any of his equity interests of Kingtone Information, and to appoint and elect the directors and Chairman as the authorized legal representative of Kingtone Information.

 
Article 2

The persons designated by Party B shall be the full board of Party B (the “Proxy Holders”).
Party B agrees that it shall maintain a board of directors, and members of which shall be the member of the board of directors of the overseas parent company of Party B; the members of the board of directors of the overseas parent company of Party B who are employed only for purpose to satisfy future listing or financing requirement, need not be necessary to be members of the board of directors of Party B.

 
Article 3

Party A agrees to designate such Proxy Holders pursuant to Section 1 of this Agreement, who shall represent each of the Grantors to exercise his Voting Rights pursuant to this Agreement.

 
Article 4

All Parties to this Agreement hereby acknowledge that, regardless of any change in the equity interests of Kingtone Information, each of the Grantors shall appoint the person designated by Party A with all Voting Rights. All Parties to this Agreement agree, Party A, can not transfer his equity interests (the “Transferor” ) of Kingtone Information to any individual or company (other than Party A or the individuals or entities designated by Party A).
 
 
- 2 -

 

 
Article 5

Each of the Grantors hereby acknowledges that he/she will withdraw the appointment of the persons designated by Party A if Party A change such designated person and reappoint the substituted persons designated by Party A as the new Proxy Holders to exercise his/her Voting Rights at the shareholder’s meeting of Kingtone Information.

 
Article 6

All authorizations made under this Agreement shall be conclusive and binding upon the Grantors and each and every act and thing effected by the Proxy Holders pursuant hereto shall be as good, valid and effectual as if the same had been done by the Grantors. The Grantors hereby irrevocably and unconditionally undertake at all times hereafter to ratify and confirm whatsoever the Proxy Holders shall lawfully do or cause to be done by virtue of all such authorizations conferred by this Agreement.

 
Article 7

The Grantors hereby irrevocably and unconditionally undertake at all times to indemnify and keep indemnified each of the Proxy Holders against any and all actions, proceedings, claims, costs, expenses and liabilities whatsoever arising from the exercise or purported exercise of any of the powers conferred or purported to be conferred by this Agreement.

 
Article 8

This Agreement has been duly executed by the parties’ authorized representatives as of the date first set forth above and shall become effective upon execution.

 
Article 9

This Agreement shall not be terminated prior to the completion of acquisition of all of the equity interests in, or all assets or business of, Kingtone Information by Party A;

 
Article 10

Any amendment and termination of this Agreement shall be in written and agreed upon by the Parties.

 
Article 11

The conclusion, validity, interpretation, and performance of this Agreement and the settlement of any disputes arising out of this Agreement shall be governed by the laws and regulations of the People’s Republic of China.
 
- 3 -

 
 
Article 12

This Agreement is executed in both Chinese and English in twenty-three copies; each Party holds one and each original copy which has the same legal effect. Both the English version and Chinese version shall have the same effect.
 
(This space intentionally left blank)
 
IN WITNESS HEREOF, the Parties hereof have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
 
PARTY A: Xi’an Softech Co., Ltd
 
(Seal)
 
Legal Representative/Authorized Representative
   
(Signature): 
 /s/ Wang Wan Jiao
   
PARTY B:
 
   
Li Tao
 
   
(Signature):
 /s/ Li Tao
   
Chen Xue Tao
   
(Signature):
 /s/ Chen Xue Tao
 
 
- 4 -

 

Wang Wan Jiao
   
(Signature):
 /s/ Wang Wan Jiao
   
Wu Li
 
   
(Signature): 
 /s/ Wu Li
   
Pu Wei
 
   
(Signature):
 /s/ Pu Wei
   
Zhang Yu Fan 
   
(Signature):
 /s/ Zhang Yu Fan
   
Guo Ming
   
(Signature):
 /s/ Guo Ming
   
Zhang Wei
   
(Signature):
 /s/ Zhang Wei
   
Li Jian Ping
   
(Signature):
 /s/ Li Jian Ping
   
Qin Shu Ling
   
(Signature):
 /s/ Qin Shu Ling

 
- 5 -

 

Li Jing
 
   
(Signature):
 /s/ Li Jing
   
Zhang Xiao Ming
   
(Signature):
 /s/ Zhang Xiao Ming
   
Zhang Xiao Bin
   
(Signature):
 /s/ Zhang Xiao Bin
   
Wang Wei
 
   
(Signature):
 /s/ Wang Wei
   
Zhang Peng
   
(Signature):
 /s/ Zhang Peng
   
Xi Peng Guo
   
(Signature):
 /s/ Xi Peng Gou
   
Chen Xian Ying
   
(Signature): 
 /s/ Chen Xian Ying
   
Ma Jun
   
(Signature):
 /s/ Ma Jun

 
- 6 -

 

PARTY C: Xi’an TechTeam Investment Holding Group Company
 
(Seal)
 
Legal Representative/Authorized Representative
   
(Signature):
 /s/ Li Tao
   
PARTY D: Shenzhen Capital Group Co., Ltd
 
(Seal)
 
Legal Representative/Authorized Representative
   
(Signature): 
/s/ Jin Hai Tao
   
PARTY E: Xi’an Hongtu Capital Co., Ltd
   
(Seal)
   
Legal Representative/Authorized Representative
   
(Signature):
/s/ Xia Fu Xi

 
- 7 -

 

PARTY F : Shaanxi Yuanxing Science and Technology Co., Ltd
 
(Seal)
 
Legal Representative/Authorized Representative
   
(Signature): 
 /s/ Li Ke Chen

 
- 8 -

 

Exhibit A
 
List of Individual Shareholders
 
Name
 
ID Card Number
   
Share Percentage
 
             
Li Tao
   
610103196511281613
      36.61 %
                 
Chen Xue Tao
   
61010319710930165X 
      8.93 %
                 
Wang Wan Jiao
   
610104198109266162
      5.35 %
                 
Wu Li
   
610111620918202
      1.09 %
                 
Pu Wei
   
610104196910302123
      1.04 %
                 
Zhang Yu Fan
   
610103196508063244
      0.89 %
                 
Guo Ming
   
610113195801080017
      0.89 %
                 
Zhang Wei
   
610103197802122043
      0.89 %
                 
Li Jian Pin
   
610103681102368
      0.89 %
                 
Qin Shu Ling
   
610113195503020446
      0.89 %
                 
Li Jing
   
420500197212035246
      0.89 %
                 
Zhang Xiao Ming
   
610113195303102930
      0.89 %
                 
Zhang Xiao Bin
   
612325197911180016
      0.53 %
                 
Wang Wei
   
610627198201080055
      0.38 %
                 
Zhang Peng
   
622101196712220017
      0.36 %
                 
Xi Peng Guo
   
610431197601031334
      0.36 %
                 
Chen Xian Ying
   
610112750201523
      0.36 %
                 
Ma Jun
   
612728196803210253
      0.36 %
 
 
- 9 -

 
Exhibit 10.4
 
EXCLUSIVE OPTION AGREEMENT

AMONG

XI’AN SOFTECH CO., LTD

AND

LI TAO AND OTHER INDIVIDUALS

XI’AN TECHTEAM INVESTMENT HOLDING GROUP COMPANY

SHENZHEN CAPITAL GROUP CO., LTD

XI’AN HONGTU CAPITAL CO., LTD

SHAANXI YUANXING SECIENCE AND TECHNOLOGY CO., LTD

AND

XI’AN KINGTONE INFORMATION TECHNOLOGY CO., LTD
 
December 15, 2009
 

 
EXCLUSIVE OPTION AGREEMENT

This Exclusive Option Agreement (the “Agreement ) is entered into as of  December 15, 2009 among the following Parties in Xi’an.

Party A: Xi’an Softech Co., Ltd
Registered Address: 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China
Legal Representative: Wang Wan Jiao

Party B: Li Tao and other seventeen individuals (collectively, the “ Individual Shareholders ”), the specific list of the Individual Shareholders is referred herero as Exhibit A

Party C: Xi’an TechTeam Investment Holding Group Company
Registered Address: 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China
Legal Representative: Li Tao

Party D: Shenzhen Capital Group Co., Ltd
Registered Address: District B, 11/F OF Investment Mall, No.4009, Shennan Avenue, Futian District, Shenzhen City
Legal Representative: Jin Hai Tao

Party E: Xi’an Hongtu Capital Co., Ltd
Registered Address: 7/F of Xi’an Tourism Mall, No.27, South two links, Beilin District, Xi’an City
Legal Representative: Xia Fu Xi

Party F: Shaanxi Yuanxing Science and Technology Co., Ltd
Registered Address: 18/F of Xin Ji Yuan Square, Gaoxin Road, Xi’an City
Legal Representative: Chen Li Ke

Party G: Xi’an Kingtone Information Technology Co., Ltd
Registered Address: 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China
Legal Representative: Li Tao

In this Agreement, Party A, Party B, Party C, Party D, Party E, Party F and Party G are called collectively as the “Parties” and each of them is called as the “Party” . Party B, Party C, Party D, Party E and Party F are collectively called as the “All Shareholders” .

 
1

 

WHEREAS,

1.          Party A is a wholly foreign-owned enterprise incorporated under the laws of the People’s Republic of China (the “PRC” );

2.          Party G is a company limited by shares incorporated in Xi’an and with business license issued by the Xi’an Administration for Industry and Commerce;

3.           As of the date of this Agreement, Party B, Party C, Party D, Party E and Party F are shareholders of Xi’an Kingtone Information Technology Co., Ltd (hereinafter referred to as “Kingtone Information” ) and collectively legally hold all of the equity interest of Kingtone Information, of which Party B holds 61.6%, Party C holds 25% Party D holds 7.42%, Party E holds 3.30%, Party F holds 2.68%.

NOW, THEREFORE , the Parties through mutual negotiations hereby enter into this Agreement according to the following terms and conditions:

Article 1    The Grant and Exercise of Purchase Option

1.1      Grant: All Shareholders hereby grant Party A an irrevocable exclusive purchase option to purchase all or part of the shares of Party G, currently owned by any of Party B and Party C, Party D, Party E and Party F; Party G further hereby grant Party A an irrevocable exclusive purchase option to purchase all or part of the assets and business of Party G, in each case in accordance with Article 1.3 of this contract (the “Option” ). The aforesaid purchase options are irrevocable and shall be exercised only by Party A (or the qualified persons appointed by Party A). The term “person” used herein shall include any entity, corporation, partnership, joint venture and non-corporate organizations.

1.2      Exercise Procedures

1.2.1              Party A shall notify All Shareholders in writing prior to exercising its option (the “Option Notice” hereinafter).

1.2.2              The next day upon receipt of the Option Notice, All Shareholders and Kingtone Information, together with Party A (or the qualified person appointed by Party A), shall promptly compile a whole set of documents (the “Transfer Documents” ) to be submitted to the government bodies for approving the shares or assets and business transfer in connection with the Option exercise so that the shares or assets and business transfer can be transferred, in whole or in part.

1.2.3              Upon the completion of the compilation of all the Transfer Documents and the Transfer Documents being confirmed by Party A, All Shareholders and Party G shall promptly and unconditionally obtain, together with Party A (or the qualified person appointed by Party A), all approvals, permissions, registrations, documents and other necessary approvals to effectuate the transfer of the shares and remaining assets and business of Party G in connection with the Option exercise.

 
2

 

1.3      Exercise Condition: Party A may immediately exercise the option of acquiring the equity interests in or remaining assets and business of Party G whenever Party A considers it necessary to acquire Party G and it is doable in accordance with PRC laws and regulations.

Article 2    Acquisition

Party A and All Shareholders shall enter into relevant agreements regarding the price of acquisition based on the circumstances of the exercise of option. Party A has the discretion to decide the time and arrangement of the acquisition, provided that the acquisition will not violate any PRC laws or regulations then in effect.

Article 3    Representations and Warranties

3.1      Each party hereto represents to the other Parties that: (i) it has all the necessary rights, powers and authorizations to enter into this Agreement and perform its duties and obligations hereunder; (ii) All Shareholders warrant, represent and guarantee that this Agreement, the Restructuring Exercise or the Listing shall be in compliance with any and all applicable PRC laws and shall indemnify, defend and hold harmless Party A and Party G for all fines, penalties, damages or claims sustained by Party A or Party G arising out of Party B, Party C, Party D, Party E and Party F’s violation of this section; and (iii) the execution or performance of this Agreement shall not violate any contract or agreement to which it is a party or by which it or its assets are bounded.

3.2      All Shareholders and Party G hereto represent to Party A that: With respect to the equity interest held by All Shareholders in Party G, (i)   Party B, Party C, Party D, Party E and Party F are legally registered shareholders of party G and have paid Party G the full amount of their respective portions of Party G's registered capital required under the PRC laws; (ii)   except Pledge of Equity Agreement, signed by and between All Shareholders and Party A on December 15, 2009 in Xi’an, none of Party B, Party C, Party D, Party E and Party F has mortgaged or pledged his/her shares of Party G, and noe of them has granted any security interest or borrow against his/her shares of Party G in any form; and (iii) none of Party B, Party C, Party D, Party E and Party has sold or will sell to any third party its equity interests in Party G.

3.3      With respect to the assets of Party G which may be transferred to Party A at Party A’s option hereunder, (i) Party G owns all such assets and has not mortgaged or pledged or otherwise encumber such assets; and (ii) Party G has not sold or will sell to any third party such assets.

3.4      Party G hereto represents to Party A that: (i) it is a company limited by shares duly registered and validly existing under the PRC law; and (ii) its business operations are in compliance with applicable laws of the PRC in all material aspects.

 
3

 

Article 4    Covenants

The Parties further agree as follows:

4.1      Before Party A has acquired all the equity/assets and business of Party G by exercising the purchase option provided hereunder, Party G shall not:

4.1.1     sell, assign, mortgage or otherwise dispose of, or create any encumbrance on, any of its assets, operations or any legal or beneficiary interests with respect to its revenues (unless such sale, assignment, mortgage, disposal or encumbrance is relating to its daily operation or has been disclosed to and agreed upon by Party A in writing);

4.1.2     enter into any transaction which may materially affect its assets, liability, operation, shareholders’ equity or other legal rights (unless such transaction is relating to its daily operation or has been disclosed to and agreed upon by Party A in writing); and

4.1.3      distribute any dividend to its shareholders in any manner.

4.2      Before Party A has acquired all the equity/assets/business of Party G by exercising the purchase option provided hereunder, All Shareholders shall not:

4.2.1     sell, assign, mortgage or otherwise dispose of, or create any encumbrance on, any of the equity held by them in Party G, except for the pledge of such shares made according to the Pledge of Equity Agreement, signed by and between All Shareholders and Party A on December 15, 2009 in Xi’an.

4.3      Before Party A has acquired all the equity/assets/business of Party G by exercising the purchase option provided hereunder, All Shareholders and/or Party G shall not individually or collectively:

4.3.1     supplement, alter or amend the articles of association of Party G in any manner to the extent that such supplement, alteration or amendment may have a material effect on Party G's assets, liability, operation, shareholders’ equity or other legal rights;

4.3.2     cause Party G to enter into any transaction to the extent such transaction may have a material effect on Party G's assets, liability, operation, shareholders’ equity or other legal rights (unless such transaction is relating to Party G's daily operation or has been disclosed to and agreed upon by Party A in writing); and

 
4

 

4.4      Non Competition:

When Party A exercises the Option, each of Party B, Party C and Party D, Party E and Party F irrevocably and unconditionally agree and undertake to Party A that it will not without the prior written consent of Party A:

(a)         be directly or indirectly engaged or concerned (whether as an employee, agent, independent contractor, consultant, advisor or otherwise) in the conduct of any business competing with Party A’s Business (the “Business” );
(b)        carry on for his, her or its own account either alone or in partnership or be concerned as a director or shareholder in any company engaged in any business competing with the Business;
(c)         assist any person, firm or company with technical advice or assistance in relation to any business competing with the Business
(d)        solicit or entice away or attempt to solicit or entice away the custom of any person, firm, company or organization who shall at any time have been a customer, client, distributor or agent of Party A or in the habit of dealing with Party A;
(e)         solicit or entice away or attempt to solicit or entice away from Party A any person who is an officer, manager or employee of Party A whether or not such person would commit a breach of his contract of employment by reason of leaving Party A;
(f)         in relation to any trade, business or company, use any name in such a way as to be capable of or likely to be confused with the name of Party A and shall use all reasonable endeavors to procure that no such name shall be used by any other person, firm or company;
(g)        otherwise be interested, directly or indirectly, in any business competing with the Business.

Article 5    Assignment of Agreement

5.1      All Shareholders and Party G shall not transfer their rights and obligations under this Agreement to any third party without the prior written consent of Party A.

5.2      Each of Party B, Party C and Party D, Party E, Party F and Party G hereby agrees that Party A shall have the right to transfer all of its rights and obligation under this Agreement to any third party whenever it desires. Any such transfer shall only be subject to a written notice sent to Party B, Party C and Party D, Party E and Party F and Party G by Party A, and no any further consent from Party B, Party C and Party D, Party E, Party F and Party G will be required.

Article 6    Confidentiality

The Parties acknowledge and confirm that any oral or written materials exchanged by the Parties in connection with this Agreement are confidential. The Parties shall maintain the secrecy and confidentiality of all such materials. Without the written approval by the other Parties, any Party shall not disclose to any third party any relevant materials, but the following circumstances shall be excluded:

 
5

 

6.1      The materials is known or will be known by the public (except for any materials disclosed to the public by the Party who receives such materials);

6.2      The materials are required to be disclosed under the applicable laws or the rules or provisions of stock exchange; or

6.3      The materials disclosed by each Party to its legal or financial consultant relate to the transaction contemplated under this Agreement, and such legal or financial consultant shall comply with the confidentiality set forth in this Section. The disclosure of the confidential materials by an employee of any Party shall be deemed disclosure of such materials by such Party, and such Party shall be liable for breaching the contract. This Article 6 shall survive this Agreement even if this Agreement is invalid, amended, revoked, terminated or unenforceable by any reason.

Article 7    Breach of Contract

Any violation of any provision hereof, any incomplete or mistaken performance of any obligation provided hereunder, any misrepresentation made hereunder, any material nondisclosure or omission of any material fact, or any failure to perform any covenants provided hereunder by any Party shall constitute a breach of this Agreement. The breaching Party shall be liable for any such breach pursuant to the applicable laws.

Article 8    Applicable Law and Dispute Resolution

8.1      Applicable Law

The execution, validity, interpretation and performance of this Agreement and the disputes resolution under this Agreement shall be governed by the laws of PRC.

8.2      Dispute Resolution

The Parties shall strive to settle any dispute arising from the interpretation or performance of this Agreement through friendly consultation. In case no settlement can be reached through consultation within thirty (30) days after such dispute is raised, each party can submit such matter to China International Economic and Trade Arbitration Commission in accordance with its rules. The arbitration award shall be final, conclusive and binding upon both Parties.

Article 9    Effectiveness and Termination

9.1      This Agreement shall be effective upon the execution hereof by all Parties hereto and shall remain effective thereafter.

 
6

 


9.2      This Agreement may not be terminated without the unanimous consent of all the Parties except that Party A may, by giving thirty days prior notice to the other Parties hereto, terminate this Agreement.

Article 10    Miscellaneous

10.1    Amendment, Modification and Supplement

Any amendment and supplement to this Agreement shall be made by the Parties in writing. The amendment and supplement duly executed by each Party shall be deemed an integral part of this Agreement and shall have the same legal effect as this Agreement.

10.2    Entire Agreement

The Parties acknowledge that this Agreement constitutes the entire agreement of the Parties with respect to the subject matters therein and supersedes and replaces all prior or contemporaneous agreements and understandings in oral or written form.

10.3    Severability

If any provision of this Agreement is adjudicated to be invalid or non-enforceable according to relevant PRC laws of the PRC, such a provision shall be deemed invalid only to the extent the PRC laws are applicable in China, and the validity, legality and enforceability of the other provisions hereof shall not be affected or impaired in any way. The Parties shall, through consultation based on the principal of fairness, replace such invalid, illegal or non-enforceable provision with valid provision so that any substituted provision may bring the similar economic effects as those intended by the invalid, illegal or non-enforceable provision.

10.4    Headings

The headings contained in this Agreement are for the convenience of reference only and shall not in any other way affect the interpretation, explanation or the meaning of the provisions of this Agreement.

10.5    Language and Copies

This Agreement is written in Chinese and English and both the English version and Chinese version shall have the same effect. This Agreement is executed in twenty-four copies for each version; each Party holds one and each original copy has the same legal effect.

10.6    Successor

This Agreement shall bind and benefit the successor or the transferee of each Party.

(This space intentionally left blank)

 
7

 
 
IN WITNESS HEREOF, the Parties hereof have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

PARTY A: Xi’an Softech Co., Ltd.
 
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Wang Wan Jiao
 
     
PARTY B:
 
   
Li Tao
 
   
(Signature):
/s/ Li Tao
 
     
Chen Xue Tao
 
     
(Signature):
/s/ Chen Xue Tao
 
     
Wang Wan Jiao
 
     
(Signature):
/s/ Wang Wan Jiao
 
     
Wu Li
 
   
(Signature):
/s/ Wu Li
 

 
8

 
 
Pu Wei
 
   
(Signature):
/s/ Pu Wei
 
     
Zhang Yu Fan
 
     
(Signature):
/s/ Zhang Yu Fan
 
     
Guo Ming
 
     
(Signature):
/s/ Guo Ming
 
     
Zhang Wei
 
     
(Signature):
/s/ Zhang Wei
 
     
Li Jian Ping
 
     
(Signature):
/s/ Li Jian Ping
 
     
Qin Shu Ling
 
     
(Signature):
/s/ Qin Shu Ling
 
     
Li Jing
 
     
(Signature):
/s/ Li Jing
 

 
9

 
 
Zhang Xiao Ming
 
     
(Signature):
/s/ Zhang Xiao Ming
 
     
Zhang Xiao Bin
 
     
(Signature):
/s/ Zhang Xiao Bin
 
     
Wang Wei
 
     
(Signature):
/s/ Wang Wei
 
     
Zhang Peng
 
     
(Signature):
/s/ Zhang Peng
 
     
Xi Peng Guo
 
     
(Signature):
/s/ Xi Peng Guo
 
     
Chen Xian Ying
 
     
(Signature):
/s/ Chen Xian Ying
 
     
Ma Jun
 
     
(Signature):
/s/ Ma Jun
 

 
10

 

PARTY C: Xi’an TechTeam Investment Holding Group Company
     
(Seal)
 
     
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Li Tao
 
     
PARTY D: Shenzhen Capital Group Co., Ltd
 
   
(Seal)
 
     
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Jin Hai Tao
 
     
PARTY E: Xi’an Hongtu Capital Co., Ltd
 
   
(Seal)
 
     
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Xia Fu Xi
 
     
PARTY F : Shaanxi Yuanxing Science and Technology Co., Ltd
     
(Seal)
 
     
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Li Ke Chen
 

 
11

 
 
PARTY G: Xi’an Kingtone Information Technology Co., Ltd
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Li Tao
 

 
12

 

Exhibit A
 
List of Individual Shareholders

Name
 
ID Card Number
 
Share Percentage
         
Li Tao
 
610103196511281613
 
36.61%
         
Chen Xue Tao
 
61010319710930165X
 
8.93%
         
Wang Wan Jiao
 
610104198109266162
 
5.35%
         
Wu Li
 
610111620918202
 
1.09%
         
Pu Wei
 
610104196910302123
 
1.04%
         
Zhang Yu Fan
 
610103196508063244
 
0.89%
         
Guo Ming
 
610113195801080017
 
0.89%
         
Zhang Wei
 
610103197802122043
 
0.89%
         
Li Jian Pin
 
610103681102368
 
0.89%
         
Qin Shu Ling
 
610113195503020446
 
0.89%
         
Li Jing
 
420500197212035246
 
0.89%
         
Zhang Xiao Ming
 
610113195303102930
 
0.89%
         
Zhang Xiao Bin
 
612325197911180016
 
0.53%
         
Wang Wei
 
610627198201080055
 
0.38%
         
Zhang Peng
 
622101196712220017
 
0.36%
         
Xi Peng Guo
 
610431197601031334
 
0.36%
         
Chen Xian Ying
 
610112750201523
 
0.36%
         
Ma Jun
  
612728196803210253
  
0.36%

 
13

 
Exhibit 10.5
 
PLEDGE OF EQUITY AGREEMENT
 
BETWEEN

LI TAO AND OTHER INDIVIDUALS

XI’AN TECHTEAM INVESTMENT HOLDING GROUP
 COMPANY

SHENZHEN CAPITAL GROUP CO., LTD

XI’AN HONGTU CAPITAL CO., LTD

SHAANXI YUANXING SECIENCE AND TECHNOLOGY CO.,
LTD
 
AND
 
XI’AN SOFTECH CO., LTD
 
December 15, 2009

 
 

 

PLEDGE OF EQUITY AGREEMENT

This Pledge of Equity Agreement ( “the Agreement” ) is executed on December 15, 2009 in Xi’an by:

Pledgeors (hereinafter collectively referred to as “Party A” ):

1.            Li Tao and other seventeen individuals (collectively, the “ Individual Shareholders ”), the specific list of the Individual Shareholders is referred herero as Exhibit A;

2.            Xi’an TechTeam Investment Holding Group Company, a limited liability company registered in Xi’an, and the registration number of its legal and valid Business License is 610131100003173;

3.            Shenzhen Capital Group Co., Ltd a limited liability company registered in Shenzhen, and the registration number of its legal and valid Business License is 440301103269709;

4.            Xi’an Hongtu Capital Co., Ltd, a limited liability company registered in Xi’an, and the registration number of its legal and valid Business License is 610100100085399;

5.            Shaanxi Yuanxing Science and Technology Co., Ltd, a limited liability company registered in 610000100089857,;

and

Pledgee (hereinafter referred to as “Party B” ):

6.            Xi’an Softech Co., Ltd, a wholly foreign-owned enterprise registered in Xi’an; and the registration number of its legal and valid Business License is 610100400006807;

Whereas,

1.              Party A consists of all of the shareholders of Xi’an Kingtone Information Technology Co., Ltd (hereinafter referred to as “Kingtone Information” ), who legally hold all of the equity interest of   Kingtone   Information, of which the Individual Shareholders hold 61.6%, Xi’an TechTeam Investment Holding Group Company holds 25% Shenzhen Capital Group Co., Ltd holds 7.42%, Xi’an Hongtu Capital Co., Ltd holds 3.30%, Shaanxi Yuanxing Science and Technology Co., Ltd holds 2.68%, representing 100% of the capital stock of Kingtone   Information.

 
2

 

2.             Party B is a wholly-foreign owned enterprise incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China, the registration number of its legal and valid Business License is 610100400006807, and the legal registered address is 3/F of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China.

3.             Xi’an Kingtone Information Technology Co., Ltd is an enterprise limited by shares which is incorporated and existing within the territory of China in accordance with the law of the People’s Republic of China, the registration number of its legal and valid Business License is 610131100001233 and the legal registered address is the third floor of District A, the Industry Office Building, No.181 of Tai Bai Southern Road, Xi’an City, China.

4.             Party B intends to acquire all of the equity interests or assets of Kingtone Information. Prior to the completion of such acquisition, Party B agrees to provide exclusive technology service to Kingtone Information. In order to protect the interests of Party B, Party A agrees to pledge the 100% of equity interest of Kingtone Information they own to Party B.

5.             Party B accepts the pledge of the equity interest by Party A.

Therefore, in accordance with applicable laws and regulations of the People’s Republic of China, the Parties hereto reach the Agreement through friendly negotiation on the principle of equality and mutual benefit and abide by.

Article 1     Guaranteed Obligations

The equity interest is being pledged to guarantee all of the rights and interests Party B is entitled to under all of the following listed agreements by and between Party A and Party B:

(a)       Entrusted Management Agreement, by and among Party A, Kingtone Information and Party B on December 15, 2009 in Xi’an;
 
(b)       Exclusive Technology Service Agreement, by and between Kingtone Information and Party B on December 15, 2009 in Xi’an;
 
(c)       Exclusive Option Agreement by and among Party A, Kingtone Information and Party B on December 15, 2009 in Xi’an; and
 
(d)       Shareholders’ Voting Proxy Agreement, by and between Party A and Party B on December 15, 2009 in Xi’an.

Article 2     Pledged Properties

Party A pledges, by way of first priority pledge, all of its rights, title and interest, in, to and under all or any part of:

 
3

 
 
(a)      100% of the equity interest in Kingtone Information;
(b)      100% of the registered capital ( “Registered Capital” ) of Kingtone Information;
(c)      all investment certificates and other documents in respect of the Registered Capital of Kingtone Information;
(d)      all money, dividends, interest and benefits at any time arising in respect of all the equity interest and Registered Capital of Kingtone Information; and
(e)      all voting rights and all other rights and benefits attaching to or accruing to the equity interest or the Registered Capital of Kingtone Information to Party B.

Article 3     Scope of Guaranteed Obligations

The scope of the guaranteed obligations is all rights and interests Party B is entitled to in accordance with all the agreements signed by and between Party A and Party B.

Article 4     Pledge Procedure and Registration

Party A shall process the registration procedures with Xi’an Administration for Industry and Commerce concerning the pledged equity interest and ensure that all other approval(s) from or registration with relevant PRC authorities is granted or duly secured.

Article 5     Transfer of Pledged Equity Interest

Party A shall not transfer any of the pledged equity interest without the prior written consent of Party B during the term of this agreement.

Article 6     Effectiveness, Modification and Termination

6.1            This Agreement shall go into effect when it is signed by the authorized representatives of the Parties with seals affixed;

6.2            Upon the effectiveness of this Agreement and unless otherwise agreed upon by the parties hereto, neither party may modify or terminate this Agreement. Any modification or termination shall be in writing after both parties’ consultations. The provisions of this Agreement remain binding on both parties prior to any written agreement on modification or termination.

Article 7     Governing Law

The execution, validity, interpretation and performance of this Agreement and the disputes resolution under this Agreement shall be governed by the laws of PRC.

 
4

 

Article 8     Liability for Breach of Agreement

Upon the effectiveness of this Agreement, the Parties hereto shall perform their respective obligations under the Agreement. Any failure to perform the obligations stipulated in the Agreement, in part or in whole, shall be deemed as breach of contract and the breaching party shall compensate the non-breaching party for the loss incurred as a result of the breach.

Article 9     Settlement of Dispute

The parties shall strive to settle any dispute arising from the interpretation or performance of this Agreement through friendly consultation. In case no settlement can be reached through consultation within thirty (30) days after such dispute is raised, each party can submit such matter to China International Economic and Trade Arbitration Commission in accordance with its rules then in effect. The arbitration award shall be final, conclusive and binding upon both parties.

Article 10     Severability

10.1            Any provision of this Agreement that is invalid or unenforceable due to the laws and regulations shall be ineffective without affecting in any way the remaining provisions hereof.

10.2            In the event of the foregoing paragraph, the parties hereto shall prepare supplemental agreement as soon as possible to replace the invalid provision through friendly consultation.

Article 11     Miscellaneous

11.1            The headings contained in this Agreement are for the convenience of reference only and shall not in any other way affect the interpretation of the provisions of this Agreement.

11.2            The Agreement shall be executed in twenty-five copies, both in Chinese and English. Each party holds one Chinese and one English original, and the remaining shall be kept for completing relevant procedures. Each copy shall have equal legal force, and both the English version and Chinese version shall have the same effect.

(This space intentionally left blank)

 
5

 

IN WITNESS HEREOF, the Parties hereof have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
 
PARTY A:
 
   
Li Tao
 
   
(Signature):
/s/ Li Tao
 
   
Chen Xue Tao
 
   
(Signature):
/s/ Chen Xue Tao
 
   
Wang Wan Jiao
 
   
(Signature):
/s/ Wang Wan Jiao    
 
   
Wu Li
 
   
(Signature):
/s/ Wu Li
 
   
Pu Wei
 
   
(Signature):
/s/ Pu Wei
 

 
6

 
 
Zhang Yu Fan
 
   
(Signature):
/s/ Zhang Yu Fan
 
   
Guo Ming
 
   
(Signature):
/s/ Guo Ming
 
   
Zhang Wei
 
   
(Signature):
/s/ Zhang Wei
 
   
Li Jian Ping
 
   
(Signature):
/s/ Li Jian Ping
 
   
Qin Shu Ling
 
   
(Signature):
/s/ Qin Shu Ling
 
   
Li Jing
 
   
(Signature):
/s/ Li Jing
 
   
Zhang Xiao Ming
 
   
(Signature):
/s/ Zhang Xiao Ming
 
 
 
7

 
 
Zhang Xiao Bin
 
   
(Signature):
/s/ Zhang Xiao Bin
 
   
Wang Wei
 
   
(Signature):
/s/ Wang Wei
 
   
Zhang Peng
 
   
(Signature):
/s/ Zhang Peng
 
   
Xi Peng Guo
 
   
(Signature):
/s/ Xi Peng Guo    
 
   
Chen Xian Ying
 
   
(Signature):
/s/ Chen Xian Ying
 
   
Ma Jun
 
   
(Signature):
/s/ Ma Jun
 
 
 
8

 
 
Xi’an TechTeam Investment Holding Group Company
 
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Li Tao
 
   
Shenzhen Capital Group Co., Ltd
 
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Jin Hai Tao
 
   
Xi’an Hongtu Capital Co., Ltd
 
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Xia Fu Xi
 
   
Shaanxi Yuanxing Science and Technology Co., Ltd
 
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Li Ke Chen
 

 
9

 
 
PARTY B: Xi’an Softech Co., Ltd
 
   
(Seal)
 
   
Legal Representative/Authorized Representative
 
   
(Signature):
/s/ Wang Wan Jiao
 

 
10

 

Exhibit A
 
List of Individual Shareholders
 
Name
 
ID Card Number
   
Share Percentage
 
             
Li Tao
    610103196511281613       36.61 %
                 
Chen Xue Tao
    61010319710930165X         8.93 %
                 
Wang Wan Jiao
    610104198109266162       5.35 %
                 
Wu Li
    610111620918202       1.09 %
                 
Pu Wei
    610104196910302123       1.04 %
                 
Zhang Yu Fan
    610103196508063244       0.89 %
                 
Guo Ming
    610113195801080017       0.89 %
                 
Zhang Wei
    610103197802122043       0.89 %
                 
Li Jian Pin
   
610103681102368
      0.89 %
                 
Qin Shu Ling
   
610113195503020446
      0.89 %
                 
Li Jing
   
420500197212035246
      0.89 %
                 
Zhang Xiao Ming
   
610113195303102930
      0.89 %
                 
Zhang Xiao Bin
   
612325197911180016
      0.53 %
                 
Wang Wei
    610627198201080055       0.38 %
                 
Zhang Peng
   
622101196712220017
      0.36 %
                 
Xi Peng Guo
 
ID Card Number
      0.36 %
               
Chen Xian Ying
   
610103196511281613
      0.36 %
                 
Ma Jun
    61010319710930165X          0.36 %
 
 
11

 
Exhibit 10.6
 
Contract No. Xi’an City Commercial Bank (Xincheng) Loan No. 2009 24.

Loan Contract
 
Name: Xi’an Kingtone Information Co., Ltd
Account Bank: Xi’an City Commercial Bank Xincheng Branch
Signed Date: 2009
 
Xi’an City Commercial Bank

 
 

 

Borrower: Xi’an Kingtone Information Co., Ltd
Lender: Xi’an City Commercial Bank Xincheng Branch
Surety: Xi’an Yuansheng Industry Co., Ltd,

This Contract is made in line with the Contract Law of the People's Republic of China and The General Provisions of Loans of the People's Bank of China to specify the rights and obligations of parties involved.

Article 1
Type of the Loan: Short-term mortgage

Article 2
Amount of the loan (RMB in words): twenty three million five hundred thousand RMB

Article 3
Purpose of the loan: Repayment of the old loan, that is, to repay the loan from Xi’an City Commercial Bank (Xincheng), which was loaned in 2008 and with the contract No. 39.

Article 4
Life of the loan: from September 28, 2009 to September 27, 2010 .

Article 5
Interest rate of loan: The monthly interest rate under this Contract is 6.6375‰ The interest should be settled on the monthly basis . In case of national adjustment in interest rate, the interest shall be calculated as per the national stipulation on the interest rate as of the adjusting day.

Article 6
Source of Repayment Capital and Type of Repayment of Loan
 
1.
Source of Repayment Capital
 
1)
           operation income                             
 
2)
                         None                                         
 
3)
The entire assets
 
4)
Other Property excluding from the above-mentioned capital source.
 
2.
Type of Repayment of Loan

The Borrower shall repay the principal and interest once the loan is due. In case of failure to pay the due amount by the borrower, the Lender shall be entitled to collect the amount from the Account opened by the Borrower.

Article 7
Guaranty Terms (Item 1 of this Article applies to the loan on guarantee; item 2 of this Article is applicable to the Mortgage Loan, Item 3 is applicable to Pledge Loan.)

 
 

 

1. The surety invited by the Borrower to witness the borrower’s loan and subject to the lender’s approval shall sign the guarantee contract with the lender (Xi’an City Commercial Bank Xincheng branch No. 24). In case of failing to repay the principle and interest, the surety shall assume the joint liability and pay the principle and interest.

2.  The Borrower (or the third party) mortgaged the land use right of Xi’an Yuansheng Industry Co., Ltd (refer to the mortgage list.). Upon lender’s inspection, the mortgaged property can be as the guarantee. The mortgage contract is signed by and between the mortgager and the lender with the contract No. 24. In case of failing to pay the due principal and interest, the lender can deposit the property.

3. The borrower (or the third party) impawned no property.

Article 8
The legal representative of the borrower, who assumes the joint liability shall pay the loan interest on time and render the repayment on time.

Article 9
During the validation of contract, the borrower shall utilize the loan according to the agreed purpose stipulated in this contract, which shall be checked by the lender. The borrower shall provide the necessary information about loan utilization to the lender.

Article 10
Alternation and Cancellation of the Contract
1.
Any party herein shall not alter or cancel the contract unless other stipulations on General Terms of Loan.

2.
In case that one party requests to alter or cancel the contract, another party’s written consent shall be obtained.
 
3.
In case of alternation or cancellation, the principal or the interest payable shall be repaid in accordance with the contract herein.

4.
The borrower or surety shall inform the change of legal representative’s name, address, or investment subject. Otherwise, the lender will send the corresponding documents to the former address and the borrower or surety’s breach herein can be regarded.

Article 11
Liability for Breach of Contract
1.
The borrower shall provide the complete loan certificate to the lender within thirty days (postponed if it is holiday) since the signing of the contract. In the meantime, the penalty will be calculated in accordance with the loan interest rate stipulated herein and overdue days.

 
 

 

 
2.
Upon receiving the complete loan certificate sent by the borrower, the lender shall transfer the loan to the borrower’s account within thirty days (postponed if it is holiday) since the execution hereof. In case of the delayed transfer by the lender, the lender shall pay the penalty to the borrower on the basis of the overdue days and stipulated interest rate herein.
     
  3.
In case the utilization of loan is not satisfied with the contract herein, which the lender has found, the lender has the right to claim partial or entire loan. In terms of the loan, which the borrower did not properly utilize, the lender shall calculate the fine in accordance with stipulations of the bank. In case any of the following situation arise, the lender can announce the termination of the contract herein prior to the expiration, claim partial or entire loan from the borrower and negotiate with other banks to clear off the loan:
1) loan fraud; 2) attempt to escape the lender’s inspection by transferring the fund, which was the source the repayment hereunder; 3) failure to repay the loan due to the economic disputes with the third party; 4) the borrower’s failure to repay the principal or interest in the due period; 5) secretly withdraw, transfer or fictitious capital; 6) other actions affecting the safety of loan. The contract herein can be regarded as the written notice, which the borrower was agreed to deduct the deposit under the borrower’s issuing bank.

4. Prior to the settlement of the principal and interest, the borrower shall issue the written notice to the lender before such ownership change as undertaking, lease, joint operation, merge, system reform, separation, trusteeship, cooperation with foreign companies and reach the consensus on the repayment of the loan or specify the transfer of liability. Upon the change of ownership, the lender has the right to assess the asset and property change. Otherwise, the borrower will be regarded as breach of contract herein and the lender can claim the loan.

5. The borrower shall repay the principal and interest in accordance with the stipulation herein. In case of failure to repay the principal and interest, the lender can charge the compound interest in accordance with the corresponding laws and regulations.

 
 

 

6. In case the borrower intends to delay the repayment of the loan, the borrower shall apply for the extension period ten days in advance of the expiration. In case of failure to apply the extension period or the overdue extension period and the borrower can not repay the loan in the due period, the lender has the right to claim the loan and charge the penalty in accordance with the bank stipulations.

7. In case of failure to repay the loan in the due period, the borrower shall assume all legal expenses.

8. In case the borrower repays the loan in advance of the expiration of contract herein, the lender has the right to charge the interest from the borrower in accordance with the stipulated contract period.

Article 12
Other Items
None

Article 13
Other items, which are not stipulated herein, shall be executed in accordance with national laws and regulations and correspond financial regulations.

Article 14
Method to solve the disputes
 
1.
The disputes arising during the execution of contract herein shall be solved through negotiation. Otherwise, the disputes shall be brought to Local People’s Court of Law of lender’s jurisdiction.

 
2.
In case of failure to repay the loan upon the expiration of loan,  the borrower and surety shall voluntarily accept the punishment in accordance with the forceful and effective notarial certificate

Article 15
The application of loan, withdrawal installment, repayment plan, receipts for installment withdraw, postponed repayment agreement and other material concerning with the contract herein shall be regarded as an integral part of the contract herein.

Article 16
The contract herein, an integral part of the surety contract, will becomes valid after signatures from parties herein and legal representative.

Article 17
The contract herein is made into five copies, two copies to the borrower herein, and one copy each for the lender, surety and notary herein.

 
 

 
 
Borrower (Seal)
Legal Representative: (Signature)
/s/ Tao Li

Borrower’s Address: 3/F Borough A, Block A, No.181, South Taibai Road, Xi’an

Lender: (Seal)
Legal Representative: (Signature)
/s/ An Hua Wang

Lender’s Address: No.139, North Avenue, Xi’an City
 
Surety: (seal)
Legal Representative: (Signature)
/s/ Xiu Yiang Zhang

Surety’s Address: Room 1201, Unit 4, 2F Gaoke Garden, Gaoxin District, Xi’an
 
Date: September 14, 2009


Exhibit 10.7
 
Contract No. Xi’an City Commercial Bank (Xincheng) Loan No. 2009 24.

Mortgage Agreement

Name: Xi’an Yuansheng Industry Co., Ltd
Account Bank: Xi’an City Commercial Bank Xincheng Branch
Signed Date: 2009

 
 

 

Xi’an City Commercial Bank

Mortgager (Borrower or the third party): Xi’an Yuansheng Industry Co., Ltd
Mortgagee (Lender): Xi’an City Commercial Bank Xincheng Branch

The mortgage is willing to provide collateral mortgage to the mortgage for the purpose of securing the realization of lender’s loan right. This Agreement is formulated on the basis of friendly negotiation between the mortgager and mortgagee.

Article 1   The creditor’s right of collateral mortgage is the loan under the Loan agreement No. 2009 24 of Xi’an City Commercial Bank Xincheng Branch, which the Borrower-Xi’an Kingtone Information Technology Co., Ltd had borrowed, with the amount of twenty three million five hundred thousand RMB and term of one year, from September 28, 2009 to September 27, 2010

 
 

 

Article 2   The mortgage scope herein includes the principal of the loan, interest (also the compound interest and fine which arose due to the borrower’s breach of loan contract.), liquidated damages, cost to execute the mortgage right.

Article 3   The mortgage should have fully disposition on the property under mortgage, which will be listed on the mortgage form hereunder. The mortgage form is considered to be an integral part of this Agreement.

Article 4   Commitments of the mortgager:
 
1.
Fully known the contents of the mentioned Loan Contract; this Mortgage had truly expressed the willingness of the mortgager.
 
2.
Enjoying the ownership right or right of disposal to the collateral security;
 
3.
During the mortgage period, the mortgage is liable to well keep, maintain and repair the collateral security. In case the mortgagee is willing to know more information of the mortgaged property, the mortgager shall cooperate on this issue and offer a truthful report.
 
4.
The mortgagor shall keep the original cope of property certificate hereunder listed upon the effective date herein (other laws and stipulations will be followed, if any.).
 
1)
_____ NONE _______________
 
5.
The collateral mortgage, which the mortgagee requests to insure, the mortgager is liable to complete all insurance proceedings and also the extension period upon expiration. The insurance policy shall be under mortgagee’s custody.
 
6.
The mortgager is liable to carry out the evaluation, notarization, insurance, appraisal, registration, transportation and storage of collateral mortgage and shall assume all costs arising from above.

Article 5   During the period of mortgage, the mortgager shall inform the mortgagee the capital decrease raised by the mortgager and offer the mortgaged property or other effective mortgage, equal in value, within ten days after the decrease.

 
 

 

Article 6   In case there is a loss of collateral mortgage within the insured scope or a decrease in the value of collateral mortgage caused by the third person during the period of mortgage, the insurance indemnity or damages shall be 1) deposited into the account assigned by the mortgagee and can not be utilized by the mortgager during the mortgage; 2) or repay the loan in advance upon mortgager’s consent(choose one during signing the contract).

Article 7   In case the collateral mortgage is destroyed during the mortgage, the mortgager shall inform the mortgagee in advance and offer the collateral mortgage  again or other effective guarantee.

Article 8   In case the collateral mortgage is the rented property of the mortgager, a written notice shall be sent to the mortgagee prior to making this mortgage agreement. The mortgagee’s written consent shall be obtained in case the mortgager rents the collateral mortgage during the mortgage period.

Article 9   During the period of mortgage, the mortgager can receive certain amount of money by transferring the collateral mortgage, which, however, 1) shall be deposited to the account assigned by the mortgagee and can not by utilized during the mortgage period; 2) or the borrower repay the loan in advance upon mortgager’s consent(choose one during signing the contract).

Article 10   A timely written notice shall be issued to the mortgagee in case of any of the following situations occur.

 
1.
Change in operational system, such as undertaking, lease, joint operation, merge, system reform, separation, trusteeship, cooperation with foreign companies and etc.;
 
2.
Involving significant economic disputes or lawsuit (the involving amount over 1/2 of the loan amount or the case is the first instance carried through by intermediate people's court or above);
 
3.
Disputes in ownership of the collateral mortgage;
 
4.
Recession, dismissal, suspension of business for rectification, application for auction, suspension of business license, application for bankruptcy, or revocation;
 
5.
Change of registered capital, residing address, telephone, or legal representative;

 
 

 

In case the Item 1 occurs, the mortgager shall notify the mortgagee thirty days in advance; in terms of other items, the notice shall be given to the mortgagee within three days.

Article 11   The mortgager shall compensate the loss to the mortgagee due to the mortgager’s breach of Agreement herein.

Article 12   In the event of collecting the loan ahead of time stipulated in the Loan agreement and failure to fully pay off the debt under the Loan Contract, the mortgagee has the right to legally dispose the collateral mortgage in advance so as to collect the principal and interest.

Article 13   The written notice from the mortgager shall be received in advance upon the effectiveness of the Agreement herein. The mortgager is liable to report the change to the register organ.

Article 14   In the event of failure to pay off the debt by the borrower upon the expiration of the Loan Agreement, the mortgage shall specify the auction institution to conduct the bottomless auction, or sell off in accordance with the law.

Article 15   This Agreement is separated from the Loan Agreement, that is, this Mortgage Agreement still prevails even if the Loan Agreement is null and void.

Article 16   In case of failure to repay the debt in accordance with the Loan Agreement upon the expiration of loan, the borrower or mortgager shall voluntarily accept the forcible execution by the people's court of law.

Article 17   The disputes arising during execution of the Agreement herein by the mortgager and mortgagee shall be solved through friendly negotiation. Otherwise, the lawsuit can be brought to the local people's court of law.
Article 18   Other items negotiated by the two parties:
The mortgager shall not set the mortgage plan on the collateral mortgage without the written notice from the mortgagee.
 
 
 

 

Article 19    The Agreement herein is made into five copies, two copies to the mortgagee herein.

Mortgager’s Address:
Mortgagee’s Address:
Room 1201, Unit 4, 2F Gaoke Garden,
No.139, North Avenue, Xi’an City
Gaoxin District, Xi’an
 
   
Issuing Bank: Xi’an Beilin Rural Credit Cooperation North Wenyi Branch
Account:04020112011108701
 
Telephone: 029-88231591
Telephone:029-87232274
Fax:029-88231590
Fax:029-87232274
Postcode:710065
Postcode:710003
Annex: Mortgage List
 
   
Mortgager: (Seal)
Mortgagee: (Seal)
   
Legal Representative: (Signature) /s/ Xiu Yiang Zhang            
Legal Representative: (Signature) /s/ An Hua Wang          
   
Date: September 14, 2009
Date: September 14, 2009
 
 
 

 

Mortgage List

Name
 
Quantity
 
Location
 
Certificate
 
Estimated Value
 
Notes
Land
 
201.53 acreage
 
East Part of Caotan Farm, Weiyang District, Xi’an
 
No.011 2009 State-owned Weiyang District, Xi’an
 
99.16million
   
Land
 
29.61 acreage
 
East Part of Caotan Farm, Weiyang District, Xi’an
 
No.012 2009 State-owned Weiyang District, Xi’an
 
15.55million
   

Mortgager: (Seal)
Mortgagee: (Seal)
   
Legal Representative: (signature) /s/ Xiu Yiang Zhang            
Legal Representative: (signature) /s/ An Hua Wang        
   
Date: Sept. 14, 2009
Date: Sept. 14, 2009

 
 

 

Exhibit 10.8

CALL OPTION AGREEMENT

This CALL OPTION AGREEMENT (this “ Agreement ”) is made and entered into as of December 15,  2009 (the “ Effective Date ”), among __________ with the ID number ______________, a resident of the People’s Republic of China (the “ Purchaser ”) and Sha Li with the ID number _________________, a resident of Singapore and Xtra Heights Management Ltd incorporated in the British Virgin Islands (the “Xtra” ) (Sha Li and Xtra, collectively referred to herein as the “ Seller ”).  Purchaser and Seller are also referred to herein together as the “ Parties ” and individually as a “ Party .”
RECITALS

WHEREAS ,   Xtra Heights Management Ltd ( “Xtra” ) incorporated in the British Virgin Islands owns __________________ shares of ReiZii Capital Management Ltd incorporated in the British Virgin Islands (the “ReiZii” ) which represent _____% of the total issued and outstanding capital stock of the ReiZii as of the date of this Agreement. ReiZii owns 100% equity interest of Topsky Info-tech Holdings Pte. Ltd (the “Singapore Company” ), which is the parent company of Xi’an Softech Co., Ltd (the “ Company ”).

WHEREAS , the Seller has agreed with the Purchaser to enter into this Agreement, as a condition to the Purchaser to provide services to Xi’an Softech Co., Ltd, a PRC company, which is the wholly owned subsidiary of Singapore Company, as its deputy general manager;

WHEREAS , the Seller has determined that it is in his best interest to receive benefits from the Purchaser’s performance as the deputy general manager of the Company;

WHEREAS , the Seller desires to grant to Purchaser an option to acquire (____________) of the shares of ReiZii issued to her (for purposes of this Agreement, including the Call Right described herein, the “ Seller’s Shares ”) pursuant to the terms and conditions set forth herein;

NOW, THEREFORE , the Parties, in consideration of the foregoing premises and the terms, covenants and conditions set forth below, and for other good and valuable consideration, receipt of which is acknowledged, hereby agree as follows:

AGREEMENT

1.
DEFINITIONS; INTERPRETATION

1.1.           Terms Defined in this Agreement . The following terms when used in this Agreement shall have the following definitions:

Bankruptcy Law ” means any Law of any jurisdiction relating to bankruptcy, insolvency, corporate reorganization, company arrangement, civil rehabilitation, special liquidation, moratorium, readjustment of debt, appointment of a conservator, trustee or receiver, or similar debtor relief.

Business Day ” means any day on which commercial banks are required to be open in the United States.

Call Price ” means, with respect to any exercise of the Call Right, US Dollar 0.0001 per share of the Seller’s Shares subject to any Call Exercise Notice.

Conditions ” means Conditions 1 through 4, as defined below, in the aggregate.

Condition 1 ” means: the entry by the Purchaser and the Company into a binding employment agreement for a term of not less than five years for Purchaser to serve as the Company’s deputy general manager.

 

 

Condition 2 ” means the Company achieving not less than 0.5 million US Dollar in consolidated after-tax net income, as determined under United States Generally Accepted Accounting Principles consistently applied (“ US GAAP ”) for the fiscal year ended September 30, 2010.

Condition 3 ” means the Company achieving not less than 1 million US Dollar in consolidated after-tax profits, as determined under US GAAP, for the fiscal year ending September 30, 2011.

Condition 4 ” means the Company achieving not less than 2 million US Dollar  in consolidated after-tax profits, as determined under US GAAP, for the fiscal year ending September 30, 2012.

" Distributions " means any cash proceeds arising from or in respect of, or in exchange for, or accruing to or in consequence of the Seller’s Shares from the date hereof to the Expiration Date, including without limitation, the Dividends.

" Dividends " means the dividends declared by the ReiZii and (or) the Xtra and accrued in respect of the Seller’s Shares (whether or not such dividends shall have been paid and received by the Purchaser or his Nominee(s)).

Government Authority ” means any: (a) nation, 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 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 Person and any court or other tribunal); or (d) individual, Person or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.

Law ” means any federal, state, local, municipal, foreign or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, code, order, edict, decree, proclamation, treaty, convention, rule, regulation, permit, ruling, directive, pronouncement, requirement (licensing or otherwise), specification, determination, decision, opinion or interpretation that is, has been or may in the future be issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Government Authority.

" Nominee " means such person nominated by the Purchaser in the Transfer Notice to be the transferee of the Call Right or the Seller’s Shares;

Person ” means any individual, firm, company, corporation, limited liability company, unincorporated association, partnership, trust, joint venture, governmental authority or other entity, and shall include any successor (by merger or otherwise) of such entity.

Transfer Notice ” means the notice substantially in the form set out in Appendix B .

1.2.           Interpretation .

(a)            Certain Terms . The words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “including” is not limited and means “including without limitation.”

(b)            Section References; Titles and Subtitles . Unless otherwise noted, all references to Sections herein are to Sections of this Agreement. The titles, captions and headings of this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

(c)            Reference to Entities, Agreements, Statutes . Unless otherwise expressly provided herein, (i) references to a Person include its successors and permitted assigns, (ii) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements and other modifications thereto or supplements thereof and (iii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such statute or regulation.

 
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2.            CALL RIGHT

2.1.           Call Right . The Purchaser shall have, during the Exercise Period (as defined below), and when a Condition is met, the right and option to purchase from the Seller, and upon the exercise of such right and option the Seller shall have the obligation to sell to the Purchaser or his Nominee(s), a portion of the Seller’s Shares identified in the Call Exercise Notice (the “ Call Right ”). Purchaser or Nominee(s) shall be permitted to purchase, and Seller shall be obligated to sell, the following number of Seller’s Shares upon the attainment of the following Conditions:

Condition
 
Number of Seller’s Shares as to which there is a Call Right
 
       
Condition 1
    50 %
         
Condition 2
    20 %
         
Condition 3
    20 %
         
Condition 4
    10 %

However, in case that the Company achieves not less than 2 million US Dollar in after-tax profits, as determined under US GAAP, for the fiscal year ending September 30, 2011, then the Purchaser or his Nominee(s) shall be permitted to purchase and the Seller shall be obligated to sell 30% of the Shares owned by the Seller and it shall be considered that both Condition 3 and Condition 4 have been met; for purpose of avoiding doubt,  there will be no more call right to be granted to the Purchaser even if the Company achieves not less than2 million US Dollar in after-tax profits, as determined under US GAAP, for the fiscal year ending September 30, 2012.
However, in case that the abovementioned Conditions or any of the Conditions are not satisfied as a result of Force Majeure (as defined below), the Purchaser shall still be entitled to the Distributions in respect of the Seller’s Shares for his services to the Company. “Force Majeure” hereto means an event beyond the reasonable control of either party including, but not limited to, acts of nature, fire, war, terrorism, labor strikes, acts or regulations of government agencies, general economic conditions, etc.
Notwithstanding anything in this Agreement, in case that the Seller violates any provisions of this Agreement, the Purchaser shall receive an irrevocable Call Right to any and all of the Seller’s Shares then held by the Seller, without any regard to the Conditions being met. The Purchaser shall be entitled to exercise such Call Right immediately and the Seller shall transfer to the Purchaser or his Nominee(s) all  the Seller’s Shares immediately upon the Purchaser’s or his Nominee(s)’s exercise of such Call Right.

2.2.           Call Period . The Call Right shall be exercisable by Purchaser, by delivering a Call Exercise Notice at any time during the period (the “ Exercise Period ”) commencing on the date hereof and ending at 6:30 p.m. (New York time) on the fifth anniversary date therefrom (such date or the earlier expiration of the Call Right is referred to herein as the “ Expiration Date ”).

2.3.           Nominees : The Purchaser may, at any time during the Exercise Period, at his sole discretion, nominate one or more person(s) (each a “Nominee” ) to be the transferee(s) of whole or part of his Call Right, who shall hold and/or exercise the transferred Call Right on behalf of the Purchaser.

2.4.           Exercise Process . In order to exercise the Call Right during the Exercise Period, the Purchaser or his Nominee(s) shall deliver to the Seller, a written notice of such exercise substantially in the form attached hereto as Appendix A (a “ Call Exercise Notice ”) to such address or facsimile number as set forth therein. The Call Exercise Notice shall indicate the number of the Seller’s Shares as to which the Purchaser or his Nominee(s) is/are then exercising his Call Right and the aggregate Call Price. Provided the Call Exercise Notice is delivered in accordance with Section 5.4 to the Seller on or before 6:30 p.m. (New York time) on a Business Day, the date of exercise (the “ Exercise Date ”) of the Call Right shall be the date of such delivery of such Call Exercise Notice. In the event the Call Exercise Notice is delivered after 6:30 p.m. (New York time) on a Business Day or on a day which is not a Business Day, the Exercise Date shall be deemed to be the first Business Day after the date of such delivery of such Call Exercise Notice. The delivery of a Call Exercise Notice in accordance herewith shall constitute a binding obligation (a) on the part of the Purchaser or his Nominee(s) to purchase, and (b) on the part of the Seller to sell, the Seller’s Shares subject to such Call Exercise Notice in accordance with the terms of this Agreement.

 
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2.5.           Call Price . If the Call Right is exercised pursuant to this Section 2, as payment for the Seller’s Shares being purchased by the Purchaser or Nominee(s) pursuant to the Call Right, such Purchaser or Nominee(s) shall pay the aggregate Call Price to the Seller within fifteen (15) Business Days of the Exercise Date.

2.6            Delivery of the Shares . Upon the receipt of a Call Exercise Notice, the Seller shall deliver, or take all steps necessary to cause to be delivered the Seller’s Shares being purchased pursuant to such Call Exercise Notice within three (3) Business Days of the date of a Call Exercise Notice.

2.7
Transfer Notice : In case that the Purchaser transfers any or all of his Call Right to one or more Nominees in accordance with Section 2.3 above, the Purchaser shall provide a Transfer Notice to the Seller.

2.8            Voting Trust : The Seller hereby agrees to irrevocably appoint the Purchaser with the exclusive right to exercise, on his behalf, all of his voting rights of the Seller’s Shares in accordance with the relevant laws and Articles of Association of the Xtra and the ReiZii; the Purchaser shall have right to vote on behalf of the Seller to vote for relevant issues including but not limited to selling or transferring all or any of his shares of the Xtra and the ReiZii, and to appoint and elect the directors of the Xtra, the ReiZii, the Singapore Company and the Company before all Seller’s Shares are transferred to the Purchaser. The Purchaser agrees to accept such authorization.

3.             ENCUMBRANCES; TRANSFERS, SET-OFF AND WITHHOLDINGS

3.1.           Encumbrances . Upon exercise of the Call Right, the Seller’s Shares being purchased shall be sold, transferred and delivered to the Purchaser free and clear of any claim, pledge, charge, lien, preemptive rights, restrictions on transfers (except as required by securities laws of the United States), proxies, voting agreements and any other encumbrance whatsoever.

3.2            Transfers . Prior to the Expiration Date, the Seller shall continue to own, free and clear of any hypothecation, pledge, mortgage or other encumbrance, except pursuant to this Agreement and except in favor of the Collateral Agent (as defined below) for the benefit of the Purchaser, such amount of the Seller’s Shares as may be required from time to time in order for the Purchaser to exercise his Call Right in full.

3.3.           Set-off . The Purchaser shall be entitled to receive all of the Seller’s Shares subject to the exercise of a Call Right, and for the purposes of this Agreement, Seller hereby waives, as against the Purchaser or his Nominee(s), all rights of set-off or counterclaim that would or might otherwise be available to the Seller.

3.4            Escrow of the Seller’s Shares .

(a)           Upon execution of this Agreement, the Seller shall deliver to Global Law Office, with an address at 15th Floor, Tower 1, China Central Place, No.81 Jianguo Road, Beijing, China 100025, as Collateral Agent (the “ Collateral Agent ”), stock certificates representing the Seller’s Shares. The stock certificates representing the Seller’s Shares (together with duly executed stock powers in blank) shall be held by the Collateral Agent.

(b)           Upon receipt of a Call Exercise Notice, the Collateral Agent shall promptly deliver the Seller’s Shares being purchased pursuant to such Call Exercise Notice in accordance with the instructions set forth therein.  In the event that the Collateral Agent shall receive notice from the Parties that the Conditions have not been met, the Seller’s Shares shall be distributed in accordance with their instructions.
 
 
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4.            REPRESENTATIONS WARRANTIES AND COVENANTS.

4.1.           Representations and Warranties by the Seller . The Seller represents and warrants to the Purchaser that:

(a)            Valid and Binding Obligations . This Agreement, and all agreements and documents executed and delivered pursuant to this Agreement, constitute valid and binding obligations of the Seller, enforceable against such Seller in accordance with its terms, subject to applicable Bankruptcy Laws and other laws or equitable principles of general application affecting the rights of creditors generally.

(b)            No Conflicts . Neither the execution or delivery of this Agreement by the Seller nor the fulfillment or compliance by the Seller with any of the terms hereof shall, with or without the giving of notice and/or the passage of time, (i) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under,  any contract or any judgment, decree or order to which Seller is subject or by which the Seller is bound, or (ii) require any consent, license, permit, authorization, approval or other action by any Person or Government Authority which has not yet been obtained or received. The execution, delivery and performance of this Agreement by the Seller or compliance with the provisions hereof by the Seller do not, and shall not, violate any provision of any Law to which the Seller is subject or by which it is bound.

(c)            No Actions . There are no lawsuits, actions (or to the best knowledge of the Seller, investigations), claims or demands from any other third party, or other proceedings pending or, to the best of the knowledge of the Seller, threatened against the Seller which, if resolved in a manner adverse to the Seller, would adversely affect the right or ability of the Seller to carry out its obligations set forth in this Agreement (the “Actions” ) as of the execution of this Agreement. The Seller further warrants and covenants that such actions will not occur after the execution of this Agreement.

(d)            Title . The Seller owns the Seller’s Shares free and clear of any claim, pledge, charge, lien, preemptive rights, restrictions on transfers, proxies, voting agreements and any other encumbrance whatsoever, except as contemplated by this Agreement. The Seller has not entered into or is a party to any agreement that would cause the Seller to not own such Seller’s Shares free and clear of any encumbrance, except as contemplated by this Agreement.

(e)            Exercise of Rights . Without first obtaining written instruction from the Purchaser, the Seller will not exercise any rights in connection with the Seller’s Shares to which the Seller is entitled as of the date of this Agreement, including but not limited to voting rights, share transfer right, dividends rights, preemptive right or any rights in connection with pledge, proxy, charge, lien. The Seller further warrants and covenants that it will, unconditionally and immediately, exercise any rights in connection with the Seller’s Shares in compliance with the Purchaser’s written instruction upon its receipt of such written instruction.

4.2            Representations and Warranties by Purchaser . The Purchaser represents and warrants to the Seller that:

(a)            Valid and Binding Obligations . This Agreement, and all agreements and documents executed and delivered pursuant to this Agreement, constitute valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to applicable Bankruptcy Laws and other laws or equitable principles of general application affecting the rights of creditors generally.

(b)            No Conflicts . Neither the execution nor delivery of this Agreement by the Purchaser nor the fulfillment or compliance by the Purchaser with any of the terms hereof shall, with or without the giving of notice and/or the passage of time, (i) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract or any judgment, decree or order to which Purchaser is subject or by which Purchaser is bound, or (ii) require any consent, license, permit, authorization, approval or other action by any Person or Government Authority which has not yet been obtained or received. The execution, delivery and performance of this Agreement by the Purchaser or compliance with the provisions hereof by the Purchaser do not, and shall not, violate any provision of any Law to which Purchaser is subject or by which it is bound.

(c)            No Actions . There are no lawsuits, actions (or to the best knowledge of the Purchaser, investigations), claims or demands or other proceedings pending or, to the best of the knowledge of the Purchaser, threatened against the Purchaser which, if resolved in a manner adverse to the Purchaser, would adversely affect the right or ability of the Purchaser to carry out his obligations set forth in this Agreement.

 
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4.3
Covenants .

(a)           Without the prior written consent of the Purchaser, the Seller shall vote the Seller’s Shares such that the ReiZii and (or) the Xtra shall not, (i) issue or create any new shares, equity, registered capital, ownership interest, or equity-linked securities, or any options or warrants that are directly convertible into, or exercisable or exchangeable for, shares, equity, registered capital, ownership interest, or equity-linked securities of the ReiZii and (or) the Xtra, or other similar equivalent arrangements, (ii) alter the shareholding structure of the ReiZii, the Xtra and (or) the Singapore Company, (iii) cancel or otherwise alter the Seller’s Shares, (iv) amend the charter or the by-laws of the ReiZii, the Xtra and (or) the Singapore Company, (v) liquidate or wind up the ReiZii, the Xtra and (or) the Singapore Company, (vi) sell, transfer, assign, hypothecate or otherwise reduce the value of any assets held by the ReiZii and (or) the Xtra, including but without limitation, any and all shares of the Singapore Company held by ReiZii and the Company held by the Singapore Company or (vi) act or omit to act in such a way that would be detrimental to the interest of the Purchaser in the Seller’s Shares, (vii) transfer, assign, pledge, hypothecate or vest any option on his shares in the ReiZii to any third party.  The Seller shall cause the ReiZii, the Xtra, the Singapore Company and the Company to disclose to the Purchaser true copies of all the financial, legal and commercial documents of the Xtra, the ReiZii, the Singapore Company and the Company and the resolutions of the shareholders and the board of directors.

(b)           The Seller agrees that the Purchaser or his Nominee(s) shall be entitled to all the Distributions in respect of the Seller’s Shares.  In the event that any such Distributions have been received by the Seller for any reason, the Seller shall, at the request of the Purchaser, pay an amount equivalent to the Distributions received by him to the Purchaser or his Nominee(s) at the time of the exercise of the Call Right by the Purchaser or his Nominee(s).

(c)           The transaction contemplated hereunder and any information exchanged between the Parties pursuant to this Agreement will be held in complete and strict confidence by the concerned Parties and their respective advisors, and will not be disclosed to any person except: (i) to the Parties’ respective officers, directors, employees, agents, representatives, advisors, counsel and consultants that reasonably require such information and who agree to comply with the obligation of non-disclosure pursuant to this Agreement; (ii) with the express prior written consent of the other Party; or (iii) as may be required to comply with any applicable law, order, regulation or ruling, or an order, request or direction of a government agency; provided, however, that the foregoing shall not apply to information that: (1) was known to the receiving Party prior to its first receipt from the other Party; (2) becomes a matter of public knowledge without the fault of the receiving Party; or (3) is lawfully received by the Party from a third person with no restrictions on its further dissemination.

(d)           If at any time: (i) the Seller fails to deliver the Seller’s Shares in accordance with this Agreement, if such failure is not remedied on or before the third Business Day after notice of such failure is given to the Seller by the Purchaser; (ii) the Seller fails to comply with or perform any agreement, covenant or obligation to be complied with or performed by the Seller in accordance with this Agreement if such failure is not remedied on or before the third Business Day after notice of such failure is given to the Seller by the Purchaser; or (iii) the Seller (1) becomes insolvent or is unable to pay his debts or fails or admits in writing his inability generally to pay his debts as they become due; (2) makes a general assignment, arrangement or composition with or for the benefit of his creditors; (3) institutes or has instituted against him a proceeding seeking a judgment of insolvency or bankruptcy or any relief under any Bankruptcy Law, (4) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for him or for all or substantially all his assets; (5) has a secured party that takes possession of all or substantially all his assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all his assets, (6) causes or is subject to any event with respect to him which, under the applicable Law, has an analogous effect to any of the events described in clauses (1) through (5); or (7) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts, then the Call Right shall become immediately exercisable in respect of all of the Seller’s Shares without further regard to the occurrence of any of the Conditions as per Section 2 of this Agreement.

 
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5.            MISCELLANEOUS.

5.1.           Governing Law; Jurisdiction . This Agreement shall be construed according to, and the rights of the Parties shall be governed by, the laws of the State of New York, without reference to any conflict of laws principle that would cause the application of the laws of any jurisdiction other than [New York],. Each Party hereby irrevocably submits to the exclusive jurisdiction of the federal and state courts sitting in the City of [New York],, for the adjudication of any dispute hereunder or in connection herewith, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that such, suit, action or proceeding is brought in an inconvenient forum, or that the venue of such suit, action or proceeding is improper.

5.2.           Successors and Assigns . No Party may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other Party. The provisions hereof shall inure to the benefit of, and be binding upon, the successors and permitted assigns of the Parties.

5.3.           Entire Agreement; Amendment . This Agreement constitutes the full and entire understanding and agreement between and among the Parties with regard to the subject matter hereof. Any term of this Agreement may be amended only with the written consent of each Party.

5.4.           Notices and Other Communications . Any and all notices, requests, demands and other communications required or otherwise contemplated to be made under this Agreement shall be in writing and shall be provided by one or more of the following means and shall be deemed to have been duly given (a) if delivered personally, when received, (b) if transmitted by facsimile, on the date of transmission with receipt of a transmittal confirmation, or (c) if by an internationally recognized overnight courier service, one Business Day after deposit with such courier service. All such notices, requests, demands and other communications shall be addressed to such address or facsimile number as a party may have specified to the other parties in writing delivered in accordance with this Section 5.4.

5.5.           Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any Person hereunder, upon any breach or default under this Agreement, shall impair any such right, power or remedy nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Person hereunder of any breach or default under this Agreement, or any waiver on the part of any Person of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing and signed by the waiving or consenting Person.

5.6.           Severability . If any provision of this Agreement is found to be invalid or unenforceable, then such provision shall be construed, to the extent feasible, so as to render the provision enforceable and to provide for the consummation of the transactions contemplated hereby on substantially the same terms as originally set forth herein, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect unless the severed provision is essential to the rights or benefits intended by the Parties. In such event, the Parties shall use best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most nearly affects the Parties’ intent in entering into this Agreement.

5.7            Construction . The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rules of strict construction will be applied against any Party.

5.8.           Further Assurances . The Parties shall perform such acts, execute and deliver such instruments and documents and do all other such things as may be reasonably necessary to effect the transactions contemplated hereby.

5.9.           Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Execution and delivery of this Agreement by exchange of facsimile copies bearing the facsimile signature of a Party shall constitute a valid and binding execution and delivery of this Agreement by such Party.

 
7

 

[ R emainder of the Page Intentionally Left Blank ]

 
8

 

IN WITNESS WHEREOF , the Parties have executed this Agreement as of the date first written above.

 
Purchaser :
   
   
   
 
Seller :
   
   
 
Xtra Heights Management Ltd
   
   
 
Sha Li

Acknowledged and agreed to:
 
Collateral Agent :
 
   
Global Law Office
 
   
By:
 
Name:
 
 
 
9

 

APPENDIX A
Form of Exercise Notice

[Date]
[________________] (the “Seller” )
[________________]
[________________]
Attention: [_______]

 
Re:
Call Option Agreement dated   [    ] 2009 (the “ Call Option Agreement ”) among ________ ( “Purchaser” ) and Xtra Heights Management Ltd and Sha Li (Xtra Heights Management Ltd and Sha Li, collectively referred to herein as the “ Seller ”).

Dear Sir:

In accordance with Section 2.4 of the Call Option Agreement, Purchaser hereby provides this notice of exercise of the Call Right in the manner specified below:

 
(a)
The Purchaser hereby exercises its Call Rights with respect to Seller’s Shares pursuant to the Call Option Agreement.

 
(b)
The Purchaser intends to buy [    ] Seller’s Shares and shall pay the sum of US Dollar____________ to the Seller.

Dated: _______________, ______
 
   
 
   
 
 
10

 

APPENDIX B

Form of Transfer Notice

To           :          [                                    ] (the “Seller” )

From       :          [                                    ] (the “Purchaser” )

I, the undersigned, refer to the Call Option Agreement (the " Call Option Agreement ") dated [    ] 2009 made between Purchaser and Seller.  Terms defined in the Call Option Agreement shall have the same meanings as used herein.

I hereby give you notice that I will transfer to [ Nominees' names ] the following portion of the Call Right, expressed in terms of the number of Seller’s Shares represented by the portion of the Call Right transferred in accordance with the terms and conditions of the Call Option Agreement,.

Nominees
 
Option Shares to be Transferred
     

Dated [ ]

Yours faithfully
 
   
    
   
Name:
 
  [Purchaser]
 
 
 
 
11

 

Exhibit 10.9

EMPLOYMENT AGREEMENT
 
THIS EMPLOYMENT AGREEMENT ( the “Agreement” ) is made as of _______________, 2009 between Xi’an Softech Co., Ltd. (the "Company" ), a wholly foreign-owned company organized under the law of the People's Republic of China (the "PRC" ), and _______________ ( "___________" , ID No.: _________________). The Company and the Chen Xian Ying are also referred to herein together as the “ Parties ” and individually as a “ Party .”
 
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
1.      Employment.
 
The Company shall employ _____________, and ______________ hereby accept employment with the Company, upon the terms and conditions set forth in this Agreement for a period beginning on the date hereof and ending on the fifth anniversary date (the “ Initial Employment Period” ); and this Agreement shall automatically be renewed on the same terms and conditions set forth herein as modified from time to time by the parties hereto for additional one-year periods as soon as the expiration of the Initial Employment Period, unless the Company or _______________ gives the other party written notice of the election not to renew the Employment Period at least 30 days prior to any such renewal date.
 
2.      Position and Duties.
 
(a)    During the Employment Period, __________ shall be appointed or seconded to the Company to serve as the ________________ and shall have the normal duties, responsibilities, functions and authority of the ________________. During the Employment Period,  Chen Xian Ying shall render such technology research and application services to the Company and its affiliates which are consistent with ________________'s position as the Executive director may from time to time direct.
 
(b)   During the Employment Period, ____________ shall perform his duties, responsibilities and functions to the Company hereunder to the best of his abilities in a diligent, trustworthy, professional and efficient manner and shall comply with the Company’s policies and procedures in all material respects.  In performing his duties and exercising his authority under the Agreement, _________________ shall support the work of general manager and execute the business and strategic plans approved from time to time by the Company and shall expand the Company’s businesses and operate profitably and in conformity with the business and strategic plans.
 
(c)     ______________’s position shall be based at the current principal executive offices in Xi’an, PRC, or any other location of the Company in the PRC as mutually agreed by the executive director and ________________.
 
3.      Compensation and Benefits.
 
 
 

 

(a)    During the Employment Period, ________________'s base salary shall be RMB ___________ per annum or such other rate as the Company may determine from time to time (as adjusted from time to time, the "Base Salary" ), which salary shall be payable by the Company in regular installments in accordance with the Company's general payroll practices (in effect from time to time).  The Company shall also purchase social insurances and provide welfare and benefits to ________________ according to the applicable national and local labor laws and regulations.
 
(b)    In addition to the Base Salary, the executive director may, in its sole discretion, award a bonus (the “ Performance Bonus” ) to _____________________ with respect to each fiscal year during the Employment Period. The reference amount for Performance Bonus shall be equal to 25% of the Base Salary.  The actual amount of the Performance Bonus awarded shall be dependent upon the degree to which certain financial targets of the Company, as established annually by the executive director, are achieved.
 
(c)    All amounts payable to ___________________ as compensation hereunder shall be subject to all required and customary withholding by the Company.
 
4.      Working Hours
 
____________________ shall work five days a week and eight hours a day.
 
5.      Working Environment and Employment Safety
 
(a)    the Company shall provide the ____________________ with a working environment that complies with national regulations with respect to workplace health and safety.
 
(b)   the Company shall provide ____________________ with necessary working conditions and set up other necessary employee protection mechanism in accordance with the national and local regulations.
 
6.      Termination.
 
The Company may terminate the employment of _______________ before the Employment Period expires immediately upon issuing a written notice to ________________ after occurrence of any of the following events:
 
(i)            ______________ has materially violated any of the Company's rules or policies;
 
(ii)           ______________ has committed an act of gross negligence or graft which causes substantial damage or adverse effect to the Company's interests;
 
(iii)          _______________ has been charged or convicted with criminal liabilities in accordance with the laws.
 
 
 

 

7.      Confidential Information
 
(a)    Obligation to Maintain Confidentiality. ___________ acknowledges that the continued success of the Company depends upon the use and protection of a large body of confidential and proprietary information.  All of such confidential and proprietary information now existing or to be developed in the future will be referred to in this Agreement as "Confidential Information."  Confidential Information includes, without specific limitation, the information, observations and data obtained by him during the course of his performance under this Agreement concerning the business and affairs of the Company and its affiliates, information concerning acquisition opportunities in or reasonably related to the Company's or its affiliates' business or industry of which ____________ becomes aware during the Employment Period, the persons or entities that are current, former or prospective suppliers or customers of any one or more of them during __________’s course of performance under this Agreement, as well as development, transition and transformation plans, methodologies and methods of doing business, strategic, marketing and expansion plans, including plans regarding planned and potential sales, financial and business plans, employee lists and telephone numbers, locations of sales representatives, new and existing programs and services, prices and terms, customer service, integration processes, requirements and costs of providing service, support and equipment.  Therefore, ______________ agrees that during the Employment Period and at anytime thereafter he shall not disclose to any unauthorized person or use for his own account any of such Confidential Information without executive director 's prior written consent, unless and to the extent that any Confidential Information (i) becomes generally known to and available for use by the public other than as a result of _______'s acts or omissions to act or (ii) is required to be disclosed pursuant to any applicable law or court order.  _________ agrees to deliver to the Company at the end of the employment period, or at any other time the Company may request in writing, all memoranda, notes, plans, records, reports and other documents (and copies thereof) relating to the business of the Company or its affiliate (including, without limitation, all Confidential Information) that he may then possess or have under his control.
 
(b)   Ownership of Intellectual Property.  _________ agrees to make prompt and full disclosure to the Company or its affiliate, as the case may be, all ideas, discoveries, trade secrets, inventions, innovations, improvements, developments, methods of doing business, processes, programs, designs, analyses, drawings, reports, data, software, firmware, logos and all similar or related information  (whether or not patentable and whether or not reduced to practice) that relate to the Company's or its affiliate's actual or anticipated business, research and development, or existing or future products or services and that are conceived, developed, acquired, contributed to, made, or reduced to practice by _____________ (either solely or jointly with others) while employed by the Company and for a period of one (1) year thereafter (collectively, "Work Product" ), provided that such period of one year only applies to the inventions, utility models and designs which are related to ________________'s duties and responsibilities to the Company.  The ownership of all rights under intellectual property laws of any work falling within the definition of Work Product shall vest in the Company.
 
(c)    Third Party Information. __________ understands that the Company will receive from third parties confidential or proprietary information ( "Third Party Information" ) subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes.  During the Employment Period and thereafter, and without in any way limiting the provisions of Section 7(a) above, ________________ will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than personnel of the Company or its affiliates who need to know such information in connection with their work for the Company or such affiliates) or use, except in connection with his work for the Company or its affiliates, Third Party Information unless expressly authorized by the executive director in writing.
 
8.      _________________'s Representations.  _______________ hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Deputy _____________________ do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which ________________ is a party or by which he is bound, and (ii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of ________________, enforceable in accordance with its terms.  ________________ hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein.
 
 
 

 

9.      Survival.   Sections 7, 8, 9, 15, 16 and 18 inclusive, shall survive and continue in full force in accordance with their terms notwithstanding the expiration or termination of the Employment Period.
 
10.   Notices.  Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, sent by reputable overnight courier service or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:
 
Notices to ________________:
 
 _____________
Address: 3/F, District A, the Industry Office Building, No.181 of Tai Bai South Road, Xi’an City, Shaanxi Province, China
 Tel:   029-88231591
 Fax: 029-88231590
 Attention: ___________

Notices to the Company:
 
Xi’an Softech Co., Ltd
Address: 3/F, District A, the Industry Office Building, No.181 of Tai Bai South Road, Xi’an City, Shaanxi Province, China
 Tel:   029-88231591
 Fax: 029-88231590
 Attention: Li Tao                                   
 
or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party.  Any notice under this Agreement shall be deemed to have been given when so delivered, sent or mailed.
 
11.   Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any action in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
 
12.   Complete Agreement.  This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
 
 
 

 

13.   No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
 
14.   Choice of Law.  All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the applicable laws of the People's Republic of China, without giving effect to any choice of law or conflict of law rules or provisions.
 
15.   Arbitration.  Each party hereto agrees that any claim or dispute ( "Claim" ) arising out of or relating to the rights and obligations acknowledged and agreed to in this Agreement and the employment of ________________ by the Company (including, without limitation, disputes and claims regarding employment discrimination, sexual harassment, termination and discharge), whether such Claim arose or the facts on which such Claim is based occurred prior to or after the execution and delivery of adoption of this Agreement shall be resolved according to the following procedures:
 
(a)           consultation between ________________ and the Company to resolve the Claim;
 
(b)           if no resolution with respect to a Claim is reached through consultation within thirty (30) days after the commencement of the same, either party may, within sixty (60) days after the occurrence of the Claim, submit the Claim to a local labor dispute arbitration tribunal for arbitration; and
 
(c)           either party may appeal the arbitration award rendered by such local labor dispute arbitration tribunal to a competent People's Court within fifteen (15) days after the issuance of such award.
 
16.   Amendment and Waiver.  The provisions of this Agreement may be amended or waived only with the prior written consent of a majority of the executive director (excluding ________________) on the one hand and ________________ on the other hand, and no course of conduct or course of dealing or failure or delay by any party hereto in enforcing or exercising any of the provisions of this Agreement (including, without limitation, the Company’s right to terminate the Employment Period for Cause) shall affect the validity, binding effect or enforceability of this Agreement or be deemed to be an implied waiver of any provision of this Agreement.
 
17.   ________________'s Cooperation.  During the Employment Period and thereafter, ________________ shall cooperate with the Company and its affiliates in any internal investigation, any administrative, regulatory or judicial investigation or proceeding or any dispute with a third party as reasonably requested by the Company (including, without limitation, ________________ being available to the Company upon reasonable notice for interviews and factual investigations, appearing at the Company's request to give testimony without requiring service of a subpoena or other legal process, volunteering to the Company all pertinent information and turning over to the Company all relevant documents which are or may come into ________________'s possession, all at times and on schedules that are reasonably consistent with ________________'s other permitted activities and commitments).
 
 
 

 

18.   Counterparts.  This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
 
 
 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
 
Xi’an Softech Co., Ltd
   
By:
  
   
Name: 
  
   
Title:
  
   

  
 

(Signature): 
  

 
 

 
 

Exhibit 10.10
 
Term Sheet
 
Each of the undersigned purchasers (the “Purchasers” ) and Sha Li, a Singapore resident ( “Seller” ), hereby enter into this term sheet ( “Term Sheet” ) as of 27 October 2009.
 
Seller:
 
Sha Li, a Singapore resident , owns 100% equity interests of ReiZii Capital Management Ltd, a British Virgin Islands corporation (the “Company”),  and is the sole shareholder of the Company.
     
Purchasers:
 
Chen Xian Ying, Li Jian Ping, Li Tao, Ma Jun, Pu Wei, Wang Wei, Wu Li, Xi Peng Guo, Zhang Peng, Zhang Wei, Zhang Xiao Bin and Zhang Yu Fan who are all PRC residents ( each a “Purchaser” , collectively referred to herein as the “ Purchasers ”).
     
   
The Seller and the Purchasers are also referred to herein together as the “ Parties ” and individually as a “ Party .”
     
Securities Offered:
 
All the ordinary shares  including the shares issued to Sha Li as a result of the Reorganization (as defined below) of the Company  directly or indirectly owned by Sha Li, par value $0.001 per share of the Company (the “ Seller’s Shares”), subject to the Conditions (as defined below) required to be met.
     
   
Reorganization: Within two months as of the date of this Term Sheet, any merger, reorganization, restructuring, reverse stock split, consolidation in which the Company is involved, or sale of all or substantially all of the Company or the Company's assets or any similar transaction or related transactions, including but not limited to the new issuance of the ordinary shares of the Company.
     
Conditions:
 
means Conditions 1 through 4, as defined below, in the aggregate
     
   
Condition 1 ” means: the entry by each of the Purchasers and the PRC subsidiary of the Company (hereinafter referred to as the “WFOE”) into a binding employment agreement for a term of not less than five years for Purchasers to serve for WOFE. PRC hereto means the People’s Republic of China excluding Hong Kong, Macau and Taiwan.
     
   
Condition 2 ” means the WFOE achieving not less than 0.5 million US Dollar in consolidated after-tax net income, as determined under United States Generally Accepted Accounting Principles consistently applied (“ US GAAP ”) for the fiscal year ended September 30, 2010.
     
   
Condition 3 ” means the WFOE achieving not less than 1 million US Dollar in consolidated after-tax profits, as determined under US GAAP, for the fiscal year ending September 30, 2011.
     
   
 “ Condition 4 ” means the WFOE achieving not less than 2 million US Dollar  in consolidated after-tax profits, as determined under US GAAP, for the fiscal year ending September 30, 2012.

 
1

 
 
   
The Company is going to establish a foreign invested company (hereinafter referred to as the “WFOE”) in the PRC within two months as of the date hereto.
 
However, in case that the abovementioned  Conditions or any of the Conditions are not  satisfied as a result of Force Majeure (as defined below), the Purchasers shall still be entitled to the Distributions (as defined below) in respect of the Seller’s Shares for their services to the WFOE.  “Distributions” hereto means any cash proceeds arising from or in respect of, or in exchange for, or accruing to or in consequence of the Seller’s Shares from the date hereof to the Expiration Date, including without limitation, the dividends. “Force Majeure”  hereto means an event beyond the reasonable control of either party including, but not limited to, acts of nature, fire, war, terrorism, labor strikes, acts or regulations of government agencies, general economic conditions, etc.)
     
Call Right:
 
 
The Purchasers shall have, during the Exercise Period (as defined below), and when each of the above Conditions is met, the right and option to purchase from the Seller, and upon the exercise of such right and option the Seller shall have the obligation to sell to the Purchaser or his Nominee(s), a portion of the Seller’s Shares identified in the Call Exercise Notice (the “ Call Right ”). Purchasers or Nominee(s) shall be permitted to purchase, and Seller shall be obligated to sell, the following number of Seller’s Shares upon the attainment of the following Conditions:

Condition
 
Number of Seller’s Shares as to which
there is a Call Right
 
       
Condition 1
    50 %
         
Condition 2
    20 %
         
Condition 3
    20 %
         
Condition 4
    10 %
 

 
Exercise Period:
 
The Call Right shall be exercisable by Purchasers, by delivering a call exercise notice at any time during the period (the “ Exercise Period ”) commencing on the date hereof and ending at 6:30 p.m. (New York time) on the fifth anniversary date therefrom (such date or the earlier expiration of the Call Right is referred to herein as the “ Expiration Date ”).
     
   
$0.001 per share of the Seller’s Shares;
     
Call Price and Payment Time:
 
If the Call Right is exercised, as payment for the Seller’s Shares being purchased by the Purchaser or their nominee(s) pursuant to the Call Right, such Purchasers or their nominee(s) shall pay the aggregate Call Price to the Seller within fifteen (15) Business Days of the exercise date.
     
   
Business Day hereto means any day on which commercial banks are required to be open in the United States.
     
Delivery of the Seller’ Shares:
 
Upon the receipt of a call exercise notice, the Seller shall deliver, or take all steps necessary to cause to be delivered the Seller’s Shares being purchased pursuant to such call exercise notice within three (3) Business Days of the date of a call exercise notice.
     
Voting Trust:
 
The Seller hereby agrees to irrevocably appoint the Purchasers with the exclusive right to exercise, on his behalf, all of her voting rights of the Seller’s Shares in accordance with the relevant laws and Articles of Association of the Company; the Purchasers shall have right to vote on behalf of the Seller to vote for relevant issues including but not limited to selling or transferring all or any of his shares of the Company, and to appoint and elect the directors of the Company before all Seller’s Shares are transferred to the Purchasers. The Purchasers agrees to accept such authorization.
     
Escrow of the Seller’s Shares
 
Upon of the execution of the formal Call Option Agreements in substantially the form set forth herein this Term Sheet, the Seller shall deliver to Global Law Office, with an address at 15th Floor, Tower 1, China Central Place, No.81 Jianguo Road, Beijing, China 100025, as Collateral Agent (the “ Collateral Agent ”), stock certificates representing the Seller’s Shares. The stock certificates representing the Seller’s Shares (together with duly executed stock powers in blank) shall be held by the Collateral Agent.
     
   
 Upon receipt of a call exercise notice, the Collateral Agent shall promptly deliver the Seller’s Shares being purchased pursuant to such call exercise notice in accordance with the instructions set forth therein.  In the event that the Collateral Agent shall receive notice from the Parties that the Conditions have not been met, the Seller’s Shares shall be distributed in accordance with their instructions.
     
Transfer of the Seller’s Shares:
 
Prior to the Expiration Date, the Seller shall continue to own, free and clear of any hypothecation, pledge, mortgage or other encumbrance, except pursuant to this Term Sheet and except in favor of the Collateral Agent (as defined below) for the benefit of the Purchasers, such amount of the Seller’s Shares as may be required from time to time in order for the Purchaser to exercise his Call Right in full.

 
 

 
 
Governing Law; Jurisdiction:
 
This Term Sheet shall be construed according to, and the rights of the Seller and Purchasers shall be governed by, the laws of the State of New York, without reference to any conflict of laws principle that would cause the application of the laws of any jurisdiction other than New York. The Seller and Purchasers hereby irrevocably submits to the exclusive jurisdiction of the federal and state courts sitting in the City of New York, for the adjudication of any dispute hereunder or in connection herewith, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that such, suit, action or proceeding is brought in an inconvenient forum, or that the venue of such suit, action or proceeding is improper.
     
Call Option Agreement:
 
The formal call option agreements (“Call Option Agreements”  in substantially the form and contents set forth herein shall be achieved among each of the Purchasers and the Seller within two months as of the date hereof.
     
Effectiveness of the Term Sheet:
 
This Term Sheet shall express the intention of Parties to enter into a binding agreement and shall not be regarded as effective and legally binding on the Parties hereto. However, if within the abovementioned two month term the following two conditions are met:
(a) this Term Sheet is not terminated by the Parties; and
(b) the execution of the formal Call Option Agreements;
then this Term Sheet shall be regarded as effective and legally binding from the date of execution of this Term Sheet.
     
Language:
 
The Tem Sheet is executed in English by the Parties hereto.
 
(This space intentionally left blank)
 
 
 

 
 
Signature Page
 
Seller: Sha Li
 
(Signature): 
/s/ Sha Li
 
     
Purchasers:
 
Li Tao
     
  (Signature):
/s/ Li Tao
 
     
Wu Li
   
     
(Signature):
/s/ Wu Li
 
     
Pu Wei
   
     
(Signature):
/s/ Pu Wei
 
     
Zhang Yu Fan
     
(Signature):
/s/ Zhang Yu Fan
 
     
Zhang Wei
     
(Signature):
/s/ Zhang Wei
 
     
Li Jian Ping
   
     
(Signature):
/s/ Li Jian Pin
 

 
1

 
 
Zhang Xiao Bin
     
(Signature):
/s/ Zhang Xiao Bin
 
     
Wang Wei
     
(Signature):
/s/ Wang Wei
 
     
Zhang Peng
     
(Signature): 
/s/ Zhang Peng
 
     
Xi Peng Guo
     
(Signature):
/s/ Xi Peng Guo
 
     
Chen Xian Ying
     
(Signature):
/s/ Chen Xian Ying
 
     
Ma Jun
   
     
(Signature):
/s/ Ma Jun
 

 
 

 
 

Exhibit 10.11

Contract No. LHJN-002-08
Processing Contract for the Complete Equipment Installation of Drip Fertilizer

Party A: Shaanxi Techteam Jinong Humic Acid Products Co., Ltd.
Party B: Xi’an Kingtone Information Co., Ltd

NOW, THEREFORE, in consideration of the Contract Law of People’s Republic of China as well as agreements made by the Parties herein through mutual friendly negotiation, both Parties hereto agree as follows:

I Name of the Complete Equipment
The process, equipment, and complete manufacturing design and installation for the production line of compound liquid fertilizer with the annual capacity of 30,000 tons;

II Processing Method
  Design, manufacturing, installation and debugging for the production line of the compound liquid fertilizer;

III. Price
   Total amount: RMB 4 million, that is four million RMB (refer to the Contract List)

IV Quality Requirement
 
1.
Capacity: 5tons per hour solid fertilizer
 
2.
Homogeneous degree: CV ≤5%
 
3.
Manufacturing the specification, type and quality in accordance with the Contract List
 
4.
Equipment, pipelines and etc. are painted into Party B’s standard color.
 
5.
The design of equipment; manufacturing and supply of the complete equipment and auxiliary material; the installation and debugging of the entire equipment.
 
6.
The piping material, wind pipe, dust pipe, material hopper, Square Material pipe and etc shall be manufactured and installed in accordance with Party A’s design.
 
7.
Electric device: supplied and installed in accordance with the design requirements (excluding the installation of lighting device)
 
8.
Manufacturing and installing the platform, guardrail, ladder stand, supporters and etc as per the design requirements.

V Term of the Project
 
1.
Party B shall enter the working site of Party B and conduct the installation 60 days within the receiving of Party A’s prepayment and installation notice for conducting the civil engineering upon signing the contract.
Installation term: 25 days; 20 days for installation and 5 days for debugging.

 
 

 

2. Adjournment for the term of project: In the event of the following situations, the term of project can be adjourned accordingly upon party A’s written approval:
1) In the event of eight hours stoppage due to the consecutive blackout during the installation and debugging, the project term can be postponed one day;
2) Fail to timely supply the installing material by Party A (see to the appendix for the installing material)
3) fail to carry out the work (installation and debugging) due to Party A’s reason
4) Force Majeure (earthquake, sever weather, fire, flood, government policies and etc.)
3. Party B must submit a written report 3 days after the occurrence above and the representative of Party A must reply within three days. In case of the overdue days, Party B shall regard the confirmation of adjournment by Party A.

VI. Method and terms of payment
 
1.
Method of payment: telegraphic transfer. Party A must pay the amount to the bank account officially stipulated by Party B.
 
2.
Terms of payment:
1)
Party A shall prepay 20% of the contract within ten days upon signing the contract, that is eight hundred thousand RMB
2)
65% of the contract amount to Party B prior to the delivery, that is two million six hundred thousand RMB
3)
10% of the contract amount, that is four hundred thousand RMB upon receiving the full amount of invoice provided by Party B after the installation and debugging
4)
5% contract amount, which will be the guarantee fee, that is two hundred thousand, shall be pay off 6-month successful running after the acceptance.

VII Method and const of Transportation
Party B shall be liable to the free transportation. The equipment will be transported to the factory of Shaanxi Techteam Jinong Humic Acid Products Co., Ltd by car.

VIII Party A’s Responsibilities
1.
Construct the major factory workshops and frames according to the Party B’s design requirements.
2.
After equipments are arrived at the destination, Party A should assist Party B to unload the equipments and appropriately manage them.
3.
Provide a lockable warehouse for Party B at the installation period to store important or portable equipments.
4.
Provide free construction sites, working and drinking water. Set up electricity instruments without asking any cost.
5.
Arrange ____ operation workers of important positions to study with the shifts at the installation period and assist to do some side works for the free training.
6.
Connect the electricity on time. Prepare the raw materials on time and arrange workers to make experiments with full load.

 
 

 

IX Party B’s Responsibilities
1.
Party B is responsible for setting up all required tools on the site and appropriately managing all equipments on the site.
2.
Abide by all regulations or rules of Party A at the construction period. Construction and technical staffs are responsible for accommodations and foods by themselves. But Party A should provide convenience.
3.
Pay electricity fee to Party A based on the real usage and local rate.
4.
Train relative operation staffs without any cost.
5.
Provide after-sales service. The quality warranty period of the equipments and installation is 1 year after acceptance. But it does not exceed 18 months. Party B should provide relative free substitute equipments or parts. Party B is responsible for all costs or lost of Party A because of the quality issue at the quality warranty period. Otherwise, Party B can charge cost fee based on the maintenance costs. Party B should provide all life time maintenance service.
6.
When quality issue or operation issue comes up, Party B should make response and get to the site to fix the issues within 48 hours after receiving the call.
7.
Party B should abide by safety regulations strictly to make sure the construction work is doing safely and in a good manner. Party B is responsible for the body safety and other safety duties of all working staffs.
8.
Party B should work, manufacture, install, and debug by using its technologies and equipments according to the technical requirements of the agreement. Party B should accept the inspections or supervising from Party A.

X Responsibility for breach of contract
 
1.
Party B must compensate Party A 500 RMB per day in the even of failing to complete the installation and debugging within stipulated time.
 
2.
In the event Party A fails to pay the contract amount in accordance with the contract, the overdue amount will be regarded as the late fee and calculated by 3‰ per day. Meanwhile, Party A shall not use the equipment.
 
3.
In case of failing to complete the project in due time due to Party A’s fault, Party A must compensate 500 RMB per day to Party B. Provided that the accumulated stoppage has exceeded 30 days, Party B has the right to withdraw the site till the working condition is favorable to Party A .
 
4.
In the event of failing to conduct the load debugging after 20- day successful unload debugging with the fault of Party A, the remaining contract amount must be settled first and notify Party B’s debugging after the favorable load debugging, the cost of which must be assumed by Party A. In the event of failing to be on site within 7 days upon receiving the notice, the travel expense shall be assumed by Party B.
 
5.
In case of failing to meet the capacity and quality requirements due to Party B’s design faults in specification and type, Party B must replace the disqualified equipment without of charge and the project term shall not be adjourned.
 
6.
Party A must organize the acceptance work in one week after receiving Party B’s acceptance notice. If not, the work can be accepted. In case of using the equipment to produce by Party A without acceptance and permission, the work can be regarded and the guarantee period can be from as of day.

 
 

 

 
7.
In the even of breach the contract by any party, one party shall assume the responsibility and losses to the other party.

XI Settlement of disputes
 Any dispute arising out of, or in connection with this Agreement shall be first settled by both Parties hereto through mutual negotiation in good faith. In case no successful settlement is reached thereby, either party hereto may submit such dispute to local people’s Court for arbitration.

XII Others
1.
Party A shall be liable to the civil engineering.
2.
In the event of losses caused by the force majeure, Party B must be responsible for the losses to the equipment and party A for the project.
3.
Party B shall submit the as-build material one original three copies to Party A within ten days upon acceptance.
4. Party B enters the factory and construct. Two parties sign up the construction safety agreement.
5. The project contract lists and technology flow charts work as the attachments of the contract and have the same legal validity as the contract.

XIII For other events not mentioned on the contract, two parties can make additional agreement after negotiation that will have the same legal validity as the contract after two parties sign up or seal it.

XIV The contract is valid after two parties sign up or seal it. The contract has one type four copies. Each party will keep two copies. The contract lists have the same legal validity as the contract.

Party B:
Xi’an Kingtone Information Co., Ltd.(Seal)

Party A:
Shanxi TechTeam Jilong Humic Acid Products Co., Ltd.(Seal)

Date of Signing up: June 19 2008

 
 

 

Acceptance Report

Name of the Project
P rocessing Contract for the Complete Equipment of Drip Fertilizer
   
Consigner(Party A)
Shaanxi Techteam Jinong Humic Acid Products Co., Ltd
   
Consignee(Party B)
Xi’an Kingtone Information Co., Ltd
   
Scope of the Acceptance
1.
Consistence of the production line design, manufacturing and supply of the complete equipment and auxiliary material, installation and debugging with the processing contract and Contract List.
   
Capacity: 5tons per hour solid fertilizer
   
Homogeneous degree: CV ≤5%
 
2.
Consistence of the piping material, wind pipe, dust pipe, material hopper, Square Material pipe and etc with Party A’s design.
 
3.
Whether the electric device supplied and installed in accordance with the design requirements (excluding the installation of lighting device)
     
 
4.
Whether the platform, guardrail, ladder stand, supporters and etc Manufactured and installed as per the design requirements.
   
Whether the application software is complete.
 
5.
Whether the drawings and materials are complete and updated.
 
6.
whether the components and spares are completed
 
7.
whether the expected results has been achieved by the training
 
8.
Whether the project term is favorable with the contract.
   
Conclusion
All items above are satisfying upon initial acceptance and trial operation. The official operation can be conducted upon final acceptance.
 
 
 

 

Party A
/s/ Yan Zhuang       Date: 6/20/2009
   
Party B
/s/ Peng Zhang       Date: 6/20/2009
 
 
 

 

Exhibit 10.12

Contract for an Integrated & Wireless Pipeline Control System
Of Shaanxi Techteam Jinong Humic Acid Products Co., Ltd

 
 Contract No.: LHJN-08-08
 
 Singing at:  Xi’an
 
Date: 2008-10-20

Party A: Shaanxi Techteam Jinong Humic Acid Products Co., Ltd
Party B: Xi’an Kingtone Information Co., Ltd
 
NOW, THEREFORE, in consideration of the mutual promises, covenants as well as agreements made by the Parties herein through mutual friendly negotiation on issues in respect of integrated pipeline control system, both Parties hereto agree as follows:

I Scope and Cost of the Project

1. Scope (refer to the Technical Agreement)

(1) Developing the automatic systematic software for production line; establishing an integrated computer network for the wireless automatic control and management; achieving the in-house and wireless automatic control and management on data collection and production.

  (2) Reforming the automatic system for the former production line so as to adapt to the control and management system of Phase II.

 (3) Responsible for the supply, installation and test of the transmitter, adjusting valve, O-type electrical ball valve, flow meter, level gauge, resistance temperature and site meters in the drawings of this project.

(4) Party B shall be liable to the purchase and assort all wires& cables, cable tray, pipeline, mobile device and other needed materials.

  (5) The official operation of all devices mentioned above can be conducted upon installation, test, technical service and after-sales service. Twelve months least after service shall be guaranteed.

2. Cost
The total cost of this project shall be five thousand two hundred thousand RMB.

 
 

 

List for the Cost:
List for the Cost of Jinong Project
Project No.                                                                                         Currency: RMB
No.
 
Name
 
Quantity
 
Unit
 
Price
 
Notes
Mobile & Wireless Control and Management
1
 
Mobile Control and Management
 
1
 
set
 
200,000
   
Audio Monitoring
1
 
Audio Monitoring
 
1
 
set
 
280,000
   
Control System
1
 
Control System
 
1
 
set
 
980,000
   
Meter
Meter(Phase I)
                   
1
 
Radar hydraulic gauge
 
9
 
set
 
216,000
   
Meter(Phase II)
                   
1
 
Integrated Temperature Control
 
18
 
set
 
99,000
   
2
 
Pressure Gauge
 
20
 
set
 
14,000
   
3
 
Intelligent pressure transmitter
 
2
 
piece
 
18,000
   
4
 
Electromagnetic Flowmeter
 
33
 
piece
 
495,000
   
5
 
Radar (magnetic flap.) Level Gauge
 
15
 
piece
 
380,000
   
6
 
electrical ball valve
 
39
 
piece
 
663,000
   
7
 
UPS
 
2
 
piece
 
15,000
   
Main Installing Material
1
 
Main Installing Material (Phase I)
 
1
 
item
 
300,000
   
2
 
Main Installing Material (Phase II)
 
1
 
item
 
600,000
   
Project Cost
1
 
Installing Fee (Phase I)
 
1
 
item
 
80,000
   
2
 
Electric Reforming Fee( Phase I)
 
1
 
item
 
100,000
   
3
 
Installing Fee (Phase II)
 
1
 
item
 
760,000
   
Total
 
5,200,000
   

II. Quality requirements, technical standards, terms and conditions for products’ quality: the entire project must be suitable for the requirements of Technical Agreement and relevant standards. Party B is liable to grant 12 months’ warranty period since the project running and provide a life long warranty to all meters. Party B shall dispatch the personal within 24 hours since Party A’s calling or lodge a proposal for Party A’s approval.

 
 

 

III Delivery time, place and manner: The duration of this project is two months as of the validation of the agreement. The delivery place is the site of Shaanxi Techteam Jinong Humic Acid Products Co., Ltd, which is appointed by Party A.

IV Transportation and Logistic fees (trucks): Vehicle transport; the contract has taken such expenses as transportation and logistic fee into account.

V Packing requirement, supply and recycle of the packing material: binding package; all packing materials are non-recycle.

VI Place, standards and method of acceptance: The acceptance work is conducted in accordance with the quality standards of the contract, technical agreement and relevant national standards for acceptance.

VII Payment, Settlement and Installment, Invoice date: 30% prepayment of the project within ten days upon validation of this contract; 30% total amount of the project within ten days as of delivering the devices to the appointed place and satisfying acceptance of device; 30% total amount of the project within ten days upon satisfying acceptance of the project; the rest 10% will be regarded as the guarantee fee and pay off after the project successfully runs one year without problems.

VIII In the event Party A requires to increase or decrease the workload after the validation of the contract herein, the project can be carried out on the basis of the changed design or Party A’s alternation. Thus the total amount for the contract shall be adjusted accordingly.

IX Settlement of disputes: Any dispute arising out of, or in connection with this Agreement shall be first settled by both Parties hereto through mutual negotiation in good faith. In case no successful settlement is reached thereby, either party hereto may submit such dispute to Xi’an Commission for arbitration.

X This contract shall take effect as from the date on which the same is duly signed and sealed by both Parties hereto. This contract is made in two originals and four duplicates with each party hereto holding one (1) original and two duplicate thereof.

XI Others Stipulations
Any supplemental agreement so entered into by both Parties and this contract shall be equally authentic and each of which when duly executed shall be of equal force in law.

Validity of contract: from the effective day of the contract to the completion of the project

 
 

 

Parties hereto may revise or negotiate matters not mentioned herein.

Name of the Company(Seal)
 
Shaanxi Techteam Jinong Humic Acid Products Co., Ltd
 
Xi’an Kingtone Information Co., Ltd
Address:
 
No.6, GuhauRoad, Yangling
 
3F, Borough A, Block A, No.181 South Taibai Road
Telephone
 
029-87211523
 
029-88231591
         
Fax
 
029-87033921
 
029-88231590
         
Date
  
10/20/2008
  
10/20/2008
 
 
 

 

Acceptance Report

Name of the Project
 
Development for Jinong Integrated  & Wireless Pipeline Control System
     
Consigner(Party A)
 
Shaanxi Techteam Jinong Humic Acid Products Co., Ltd
     
Consignee(Party B)
 
Xi’an Kingtone Information Co., Ltd
     
Scope of the Acceptance
 
The developed applications provided shall be in line with Technical Agreement;
The developed applications shall fully reach the standards for utilization.
The supply, installation and test for the transmitter, adjusting valve, o-type electric ball valve, flow meter, level gauge, resistance temperature, and meters have been completed.
The supply, installation and test for the wireless, wire& cable, cable tray, pipeline, and other needed material have been completed.
All the paperwork and construction records for acceptance shall be updated and completed.
The relevant training has been fully carried out.
The project shall be completed in due time.
     
Conclusion
 
All items above are satisfying upon initial acceptance and trial operation. The official operation can be conducted upon final acceptance.
     
Party A
 
/s/Yan Zhuang       Date: 6/20/2009
     
Party B
  
/s/ Peng Zhang       Date: 6/20/2009
 
 
 

 

Exhibit 10.13

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

The Yangzhuanghe Refine Chemical Project System Of
The Refine Chemical Company of Shanxi Yanchang Petroleum Group

Installation and Construction Subcontract

Construction Party: Yangzhuanghe Refine Chemical Project Headquarter of the Refine Chemical Company of Shanxi Yanchang Petroleum Group
General Contract Party: ShanXi Chemical Construction Co.,Ltd
Subcontract Party: Xi’an Kingtone Information Technology Co.,Ltd.
Contract Number: yzhaz-026
Effective Date: 2008-10-15

 
1

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

Part One
Construction Party (Full Name): The yangzhuanghe Refine Chemical Chemical Project Headquarter of the Refine Chemical Company of Shanxi Yanchang Petroleum Group
Contract Party (Full Name): ShanXi Chemical Constructions Co.,Ltd
Subcontract Party (Full Name): Xi’an Kingtone Information Technology Co.,Ltd.

According to The Law of People’s Republic of China, The Construction Law of People’s Republic of China, and other related laws and administrative regulations, based on equal, free will, fair, and honest principles, all parties come to the agreement for the project of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting of Yangzhuanghe Refine Chemical Project System.

1.
Summary Information of the project
1.1
Project Name: HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting of Yangzhuanghe Refine Chemical Project System.
1.2
Project Location: Huijiahe Village of Qiaoshan Town of Luochuan County of Shanxi Province
1.3
Project Content: Project Name: HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting of Yangzhuanghe Refine Chemical Project System.
1.4
Quality Standard: Good

2.
Contract Scope
Major content of contract scope:
Mobile & Automatic Control Part of Huijiahe Product Petroleum Tank 1 (Renovation, Unit 211), Mobile & Automatic Control Part of Huijiahe Product Petroleum Tank 2 (Renovation, Unit 212), Mobile & Automatic Control Part of Huijiahe Product Petroleum Tank 3 (Renovation, Unit 213), Mobile & Automatic Control Part of Huijiahe Product Petroleum Train Pump Room (Renovation, Unit 214), Mobile & Automatic Control Part of Huijiahe Product Petroleum Adjusting (New, Unit 216), Mobile & Automatic Control Part of Product Petroleum Tank Control Room (New, Unit 217), Mobile & Automatic Control Part of Huijiahe Product Petroleum Tank 4 and Pump Room (New, Unit 218), Mobile & Automatic Control Part of Huijiahe Raw Product Petroleum pump Room (Renovation, Unit 214/1), Mobile & Automatic Control Part of Product Petroleum Adjusting Supply Renovation Drain System and Polluted Water Collection Supply (Unit 219/1), Mobile & Automatic Control Part of Product Petroleum Adjusting Supply Renovation Drain System and Poluted Water Upgrade Pump (Unit 219/2), and Mobile & Automatic Control Part of Product Petroleum Adjusting Supply Renovation Fire Protection and Alert System (Unit 219/3). The project contents of the contract refer to the units mentioned above. The detail contents of project refer to the specific contents of the technical agreements.

3.
Contract Time Line
Scheduled Start Time: 2008-10-15
End Time: 2009-1-31

 
2

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.
Contract Price
21,600,000 (Twenty One Million Six Hundred Thousand, Supply Material Cost 18,000,000, Installation Cost 3,600,000). The contract is general contract. The price is one time price.
The final price will be based on the relative regulations of Shan’xi Chemical Construction Co. Ltd,. The final price will deduct 2.5% of total price as administrative fee, tax, water fee, and electricity fee.
4.1 Two parties come to the agreement as the following:
4.1.1 Tax; tax will be deducted by general contract party from the processing fund of subcontract.

5.
Two Party Representatives
5.1 General Contract Representative
Name: Keshe Li
Address: Hu Village Huangling County
Contact Phone: 13891129490
Fax: 0911-5444782

5.2 Subcontract Representative
Name: Yawei Wu
Address:
Contact Phone: 13892879871
Fax:

6.
Staffs of Subcontract
According to the agreement, the people mentioned below are major staffs:
Position or Title:                Name                Telephone
Project Manager                Yawei Wu
Technical Supervisor             Yawei Wu
Quality Supervisor               Huifent Pu
Construction Manager        Huifeng Pu
Supply Supervisor
HSE Supervisor:                Yulong Yang
Plan Supervisor:
Cost Supervisor:
The people mentioned above must guarantee to stay at the postion at 80% of time. If the project manager needs to leave the position, he must get allowed from the general contract party.

7.
Payment
7.1
All payment should be paid by Chinese Renminbi(bank transferring.).
7.2
Subcontract party must pay 600,000 to the general contract party 10 days before the start of the project as the precondition of all payment. The general contract party should return the amount to the subcontract party after the project.
7.3
The amount of 30% of the supply material cost of the agreement can be used as prepaid amount.

 
3

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

7.4
The scheduled payment and balance settlement will base on the specific clauses. And they must abide to the clause 8 of Subcontract Project Management Regulation of the Shan’xi Chemical Construction Yangzhuanghe Project Department..
7.5
8.
The agreement includes documents as the following:
8.1 The agreement
8.2 The specific clauses of the agreement
8.3 The general contract with number of LH40805GC03038 signed between the general contract party and construction company.
8.4 The technical agreement signed by the construction party, the general contract party, and the subcontract party.
8.5 Standard, criteria, and relative technical documents.
8.6 The official documents of two party’s negotiation or documents can be used as the part of the agreement.

9.
The definitions for the project of the agreement have the same meanings with the definitions of General Clause of the second part of the general contract of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting of Yangzhuanghe Refine Chemical Project System signed by ShanXi Petroleum Constuction Project Limited Company and the Refine Chemical Company of Shanxi Yanchang Petroleum Group.

10.
The subcontract party promised to the general contract party that the project must be constructed and finished according to the agreement. And the subcontract party will be responsible for the quality and maintenance with the warranty time.

11.
The general contract party promised to the subcontract party to pay all payments according to the payment type and time mentioned in the agreement.

12.
The agreement for the validity the contract:
Contract signed time: 2009-10-15
Contract signed location: the District of Yanglin of Shanxi Province
The contract will be valid once both parties signed and sealed.

13.
The contract has ten copies, construction party, general contract party, and subcontract party have one of three original contract. Party A has 5 copied contract and party B has two copiedc contract.

Construction Party: Yangzhuanghe Refine Chemical Project Headquarter of the Refine Chemical Company of Shanxi Yanchang Petroleum Group (seal)
Legal Representative:

 
4

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

Entrusted Representative: Wande Qu (signature) Chentao Xu(signature)

General Contract Party: ShanXi Chemical Construction Co, Ltd,. (Seal)
Address: 32 Xilong Road, Yanglin, Shanxi
Legal Representative:
Entrusted Representative: /s/ Keshe Li
Telephone: 029-87016767
Fax: 029-87012255
Bank:
Bank Account:
Zip Code:
Subcontract Party: Xi’an Kingtone Information Technology Co.,Ltd. (seal)
Address: 3/F, Borough A, Block A, No.181, south Tai Bai Road, Xi’an, Shanxi
Legal Representative:
Entrusted Representative: /s/ Peng Zhang
Telephone: 029-88231591
Fax: 029-88231590
Bank: Xi’an Gaoxin Development District Branch of Shanghai Pufa Bank
Bank Account: 72040158000007060
Zip Code: 710065

 
5

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

Part Two         Specific Clause
1.  Word definitions and contract documents
1.1
The order of contract documents and explanation: Contract, specific clause, the general contract with number of LH40805GC03038 signed between the general contract party and construction company, technical agreement, standard, regulations, and other relative documents, blueprint, etc.

1.2
Applied standard scope
applied standard scope name the construction standard and acceptance standard set up in designed documents.

1.3 Blueprint;
1.3.1 The general contract party provide blueprint time and quantity to the subcontract party. After the contract becomes valid, the general contract party will progressive provide construction blueprint to the subcontract party. The number of copies of the blueprint will based on the number of copies of blueprint that the construction party provide to the general contract party. In normal condition, two copies will be guaranteed to satisfy the requirements.
1.3.2
the subcontract party guarantee not to distribute, lend, lose, and disclose blueprints.

2. Rights and duties of two parties
2.1 Representatives and managements of two parties
2.1.1 the general contract party representative has responsibility to report to the management board about the project progress, if the project executed based on the contract, project executed cost, and the time comparing between scheduled finished time and real finished time of each project. The general contract party representative can make some measures to correct dissatisfied issues. The any activities of the general contract party representative, including activity, approval, violation, and ignoring etc will not have any effect on the duties of the subcontract party. The general contract party representative can reject any project that does not meet the requirement of the contract if it will not have any impact on the explicit rights of the contract. It includes the projects that have already been accepted but been found does not meet the requirements later. The general contract party representative has the rights to decide any transaction related projects.
2.1.2 Project Management Unit: if the law required, the construction party should appoint an approved project management unit. The general contract party representative should report relative information to the subcontract party. The general contract party representative and the subcontract party should assist the project management unit to work on the quality and safety management.
2.1.3 The subcontract party representative: The subcontract party assigned the subcontract party representative to execute any duties under the contract. The subcontract party will be responsible for any activity and omission made by the subcontract party representative just like they are done by the subcontract party. When the projects are constructing, the subcontract party representative should be on the position all the time. The general contract party representative has the rights to ask to change the subcontract party representative according to the project progressing. Under this situation, the subcontract party representative should leave the position immediately. The subcontract party should assign another proper representative with the approval of the general contract party representative. The general contract party representative should not ask to change the subcontract party representative very frequently.

 
6

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

2.2 The general contract party work
The general contract party should finish following work based on the time and requirements of the agreement:
2.2.1 construction site should meet construction and time requirements: one week before the project starting, construction site should meet the condition of three clearing and one even.

2.2.2 Make sure the condition of water and electricity of construction site meet the construction requirements and install instruments to calculate and collect the water and electricity fee based on the budget price.

2.2.3 The open line time and requirement of construction site and public road:
One week before the project starting, the roads outside construction site should meet the requirement that construction machine, construction supply, project supply, and project material can freely enter.

2.2.4 The name and finished time of required documents for the construction on the general contract party’s side:
According to the national regulation, the general contract party should handle required documents for the construction.

2.2.5 Standard of reference point and coordinate control point:
Transfer on the position three days before the project starting.

2.2.6 The time of blueprint audit and scheduled delivery:
Depends on the arrangement of construction company and the arrival time of construction blueprint.

2.3 The subcontract party work
The subcontract party should accomplish the work as below based on the requirement of the agreement:
2.3.1 The subcontract party should offer names and end time of plan and reports: When the project is starting, the subcontract party should schedule the construction plan. The subcontract party should make reports for the workload of current month and the work plan of next month to the Construction Technical Department of Yangzhuanghe Project on the day of 16 of each month..

2.3.2 The subcontract party is responsible for the security and none-night lighting:
The subcontract party is responsible for the security work on its construction site.

2.3.3 The subcontract party is responsible for the special requirement and maintain cost of the finished products:

 
7

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

The subcontract party is responsible for the protection work for the finished products that is not delivered.

2.3.4 Other works that should be done by the subcontract party based on the agreement:
The subcontract party should handle temporary residence registration at the local police station. The subcontract party is responsible for the training of safe work under the general contract party regulation.

2.4 Two sides’ duties
2.4.1 The subcontract party should think any work of the construction project as one part of the whole project under the contract. The subcontract party must not subcontract any part of it to any third party.

2.4.2 The subcontract party should offer solution, material, work, and service:
The subcontract party has responsibility to offer solution, material, work, and service to accomplish the project and is responsible for the related cost.

2.4.3 Labor:
The subcontract party should offer all required labor, including direct and indirect labor, administrative staff, assistant staff, and support staff. The total quantity of staff of the subcontract party on the position cannot be less than 80% of total staff on the position.

2.4.4 Construction machine and supply:
The subcontract party should offer all required machine and supply for the construction, including but not to limit to normal and special construction, transportation, lifting transportation, airing, testing, and inspection machine and supply.

2.4.5 Tools:
The subcontract party should offer all required tools and security supply.
2.4.6 Temporary facilities:
The subcontract party should offer all required temporary facilities.
2.4.7 Expendable products
The subcontract party should offer all required expendable products.

2.4.8 Materials
2.4.8.1 The subcontract party is responsible for the major required materials and qualified expendable materials.
2.4.8.2 The subcontract party is responsible for delivery work when the materials on the position and the subcontract party is responsible for the maintain and protection work.
2.4.8.3 When the subcontract party transports the materials or supplies into the site, .the general contract party representative should be on the position. Two parties should inspect the quantity and quality of the materials or supplies.
2.4.8.4 The subcontract party is responsible for the losing or short of materials or supplies.

 
8

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

2.4.8.5 If the materials or supplies mentioned above are extra, the subcontract party should handle them according to the general contract party request. The subcontract party should not ask for compensation.
2.4.8.6 The subcontract party has the responsibility to manage and control its materials or supplies, including category, mark, sign, paint, or other costs.

2.4.9 Site
2.4.9.1 The subcontract party is responsible for the cost of on-site office, warehouse, on-site prefabricate, or other temporary facilities. And the subcontract party is responsible for the related transportation cost.
2.4.9.2 The subcontract party is responsible for the security of the sites mentioned above.

2.4.10 Water
2.4.10.1 Construction Water
2.4.10.1.1 The general contract party is responsible for offering water source points on each construction sites. The subcontract party should set up pipes and instruments on these water source points to measure actual usage. The subcontract party is responsible for the cost of related materials, labors, and water. The unit price of water refers to the budget unit price that the construction party offers to the general contract party.
2.4.10.1.2 The subcontract party is responsible for drinking water for its staffs.
2.4.10.1.3 The subcontract party is responsible for on-site drain and pollution water.
2.4.10.2 Residence Water:
The subcontract party is responsible for the residence water.

2.4.11 Electricity
2.4.11.1 The construction party assigns on-site electricity using position and fires it. The subcontract party is responsible for the required materials.
2.4.11.2 The subcontract party should offer the second electricity switch boards and cables. The subcontract party is responsible for the safety, operation, and maintenance of the properties mentioned above.

2.4.12 Trash Handling
The subcontract party is responsible for handling on-site trash, including soil, trash, wastes. The subcontract party can choice the piling sites outside of construction sites with the permission of the owners and government. The subcontract party is responsible for related handling costs.

2.4.13 Delivery Scope and Management of the Subcontract Party
2.4.13.1 Material Delivery Scope
2.4.13.1.1 The subcontract party is responsible for major materials and side materials required by the project.
2.4.13.1.2 If the subcontract party needs to purchase materials and supplies, the supply company must be in the list of the technical agreement signed by three parties. After permission, the subcontract party can purchase.

 
9

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

2.4.13.2 Material Quality
2.4.13.2.1 All materials offered by the subcontract party must meet the requirements of designing, construction regulations, and technical attachments. And the subcontract party should have all required licenses and quality certificates for the project completed. If materials are short, the subcontract party should make up on the required time line. Otherwise, the general contract party and the construction party have the rights to reject to use.
2.4.13.2.1 The general contract party has the rights to inspect the materials or supplies purchased by the subcontract party. If find any materials or supplies that is not meet the quality standard, they can leave the position. The subcontract party is responsible all duties.

3. Payment and Settle up
The project is general contract. The price is one time price. The final closing price is according to the regulations of ShanXi Chemical Constuction Co.,Ltd after that the subcontract party paid 2.5% of total price to the general contract party as administrative fee, tax, water fee, and electricity fee.
The 30% of the material cost is prepaid fund. It should be paid to the subcontract party by the general contract party within 10 days after the contract is signed after the construction party paid it to the general contract party. After the owner paid to the general contract party, within 10 days after major construction facilities are put in the site, the general contract party should pay 60% material fee to the subcontract party. After the project is delivered and the owner paid to the general contract party, The general contract party should pay 80% contract price to the subcontract party. The related departments of Refine Chemical Chemical Company audit the final documents, and then the budget center and audit department of the general contract party should double check the final documents. After that, the general contract party should pay 95% of total contract price to the subcontract party after deduct relative cost. The general contract party can keep 5% as warranty fund. If there will not any quality issue comes up after two years, the subcontract party can make official application, after the general contract party representative offers the official approval documents, the general contract party should pay the fund to the subcontract party.

4.Other Requirements of Construction Site
4.1 Documents of Subcontract Party
4.1.1 Before the end of the project, or before the time that the contract probably confirm, or before the time that the general contract party preventative probably agree, the subcontract should offer the documents according to the contract or required by the general contract party preventative.

4.1.2 The subcontract party should offer final work blueprints and three copies of other construction records. The subcontract party should prepare these blueprints and records. Unless the subcontract party offers required final work blueprints and records according to the contract and before signing up the project ready-to-transfer certificate, otherwise, the general contract party can ask 3000 to 5000 as project progress violation cost to the subcontract party.
 
 
10

 
 
YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.1.3 The general contract party should offer required construction blueprints and documents to the subcontract party. The subcontract should offer, with the permission of the general contract party, any construction, lifting, progress, finishing, blueprint, report, computer data, or other documents. The agreement is decided by the general contract party preventative or the general contract party manager.

4.1.4 The subcontract party should check the details, documents,  regulations, blueprints or instructions after receive them from the general contract party or from other parties that named as the general contract party. If find these details, documents,  regulations, blueprints or instructions offered from the general contract party or third party named as the general contract party are conflict with the good technical standards or practices, the subcontract party should officially report any error, omitting, or drawback to the general contract party under the project progress schedule.

4.2 Position Pointing
4.2.1 The subcontract party is responsible for the real and proper construction position pointing, position of part of the project, the correctness of level, scale, or array. The subcontract party should offer relative instruments, tools and labors.

4.2.2 If there is any error in the position, level, scale, or array at any part, at the any stage or at any time, the general party representative can ask, the subcontract party should make correction until the general party representative satisfied. The subcontract party is responsible for the correction cost. Unless the error is because of the wrong documents offered by the general contract party. Under this situation, the general contract party is responsible for the correction cost.

4.2.3 Any checking work for the position pointing, level, and lineation by the general contract party does not exclude the subcontract party’s responsibility on the correctness. The subcontract party should carefully protect and save all level base points, lineation, pile foundation, and other properties required by position pointing.

4.2.4 The subcontract party should compile and save all level base points and position pointing records. If it needs to move from any level base points, position, and other things under the requirement of the project construction, the subcontract should offer permanent substitute and relate substitutes to the level base points or other things. Before remove the damaged or destroyed position pointing facilities or substitutes, the subcontract party should have the permission of the general contract party. The subcontract party should be responsible for the cost to destroy the control points.

4.3 The Documents of the General Contract Party
The general contract party should offer documents, blueprints, and other files to the subcontract party under the requirements of the contract. The general contract party has the rights or can give authority to issue changed or updated documents, blueprints or other files as it think they are proper and complete. The subcontract party should abide to these documents, blueprints, regulations, and other files.

4.4 Enter Route, Public Facilities, intervening, and Transportation Damage

 
11

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.4.1 The general contract party should allow the subcontract party enter the construction site under the time line and scope mentioned on the contract. The entering is not exclusive or and it can be broke.

4.4.2 The subcontract party should make sure not to damage or intervene any public facilities on the construction sites. Without the permission or notice of the general contract party representative, the subcontract party cannot disconnect any public facilities on the construction sites. If find any public facilities is damaging or damaged or know already existing damages, the subcontract party should report to the general contract party representative. If any damages of public facilities is caused from the activities, violations, or ignoring of the subcontract party or any people under the subcontract party, the subcontract party should be responsible all cost for the repair.

4.5 Sanitation, Safety, and Environment
4.5.1 Construction Site Safety
The subcontract party should pay attention to the safety of the everyone on the construction sites all the time. The subcontract party should keep all works on the construction sites in a good order to prevent anybody from getting injured. The subcontract party should abide to the construction site safety regulations of the construction party, revise opinions from the construction party to the general contract party from time to time, and any instructions from the general contract party based on the revise opinion mentioned before. With the permission of the general contract party, the subcontract party should assign a construction site security and representative to handle construction site safety events. The representative and security should be at the construction sites at least 80% of the time when the project is constructing.

4.5.2 Responsible for knowing and abiding to all legal requests about construction sanitation, safety, and environment protection
The subcontract party should be responsible for all activities that could cause environment pollution. There is no any clause can exempt the subcontract party’s responsibility from the contract to cause any environment pollution.

4.6 Project Progress
4.6.1 Within 10 days after the contract in valid, the subcontract party should offer a project progress form to the general contract party preventative according to the general contract party’s request, which can reflect each stage, order, and time line of the whole project. It should be attached an electronic version form. The general contract party can audit and evaluate the forms.

4.6.2 Within 10 days after receiving the documents from the subcontract party, the general contract party should approve it or suggest or notify the subcontract party to make change and then approve it. At the latter situation, the subcontract should change the project progress form immediately. This procedure should be repeated until the general contract party approve it.

4.6.3 The approved project progress form or the approved project progress form after being changed should be thought as one part of the contract with two party’s agreement. It should replace any kind of existing project progress forms.

 
12

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.6.4 If find any delay could be happened, the subcontract party should notify the general contract party immediately and meanwhile make change to the project progress form. Under any situation, it should be at least once a month. If the general contract party representative find the real progress does not match the project progress form, it has rights to ask the subcontract party offer updated project progress form that should reflect necessary changing to make sure that it can accomplish the whole project on time. The general contract party can ask the subcontract party to increase the labor or machines.

4.6.5 End Time of the Project According to the Agreement of the Contract
2009-01-31

4.7 Coordination Committee System
4.7.1 Take part in some routine meetings with the general contract party representative to confirm duties about progress, quality, and division of work, etc.

4.7.2 Regularly take part in manufacturing coordination meeting hold by the general contract party. The participants should be project managers and technical supervisors to make sure all policies can be applied or executed.

4.8 End of Work and Violation Compensation
4.8.1 The time of the end of the project
The subcontract party should be finish whole project or related projects according to the time requirement of the contract.

4.8.2 If the subcontract party has no reason to extend the end of time, and the general contract party think the progress is too slow that it cannot guarantee the whole project or part of the project can be accomplished according to the contract. The general contract party can notify the subcontract party. The subcontract party should immediately take necessary activities with the approval of the general contract party to fasten the progress to make sure the project can be done under the end of the time. The subcontract party does not have the rights to ask extra payment or extend the end of time against these changing.

4.8.3 The rights of the subcontract party to ask to extend the end of time
If the situations as the following come up, the subcontract party can ask to extend the end of the time:
4.8.3.1 There are too many changes on the design. And the general contract party representative agrees to extend.
4.8.3.2 Force majeure
4.8.3.3 The general contract party representative issues the instructions to pause the project. And the instructions does not cause from the violation, stopping, delay, nonfeasance, ignoring, or interfering of the subcontract party.

 
13

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.8.3.4 The subcontract should be responsible for the risks of any kind of official, unofficial strike, shut down, or turmoil. The subcontract party does not have the rights to ask to extend the end of time.

4.9 Insurance
Without any limitation of the subcontract party’s duties, the subcontract party should handle all required by law, serious, or necessary insurances and it should keep all these insurances.

4.10 Testing and Inspection
4.10.1 The subcontract party should take any necessary testing or inspections to prove the project meets all requirements of the contract. After receiving the report of the testing or inspections, the subcontract party should immediately offer all confirmed copies of these reports. The general contract party representative or its agent has the rights but does not have the responsibility to attend on-site when the subcontract party is testing or inspecting. The subcontract party must notify the general contract party representative on time if it will take testing or inspections.

4.10.2 For any parts of the project, the general contract party representative ask to inspect or the inspections that need the general contract party representative attend on-site, if before the general contract party representative attend, they are covered, hidden, or the general contract party representative cannot enter, the general contract party or the general contract party representative can ask open these parts to take testing or inspections and then ask to return to the original situations to meet the requirements of the project. The subcontract party should be responsible for the related costs.

4.10.3 If any testing or inspections hold by the general contract party representative shows any parts of the project does not match the requirements of the contract, the general contract party representative has the rights to reject these parts of the project. The subcontract party should immediately change or repair these parts of project according to the decisions or instructions of the general contract party representative. If the subcontract party delay or will not execute the instructions, the general contract party representative has the rights to hire another people to finish the work. The general contract party representative will ask the subcontract party to pay all related costs or other costs that the general contract party representative think it is caused from this situation. Or the general contract party representative can deduct all these costs mentioned above from the payment that the general contract party should pay to the subcontract party. The general contract party representative should notify the subcontract party.

4.10.4 The subcontract party should check reasons of any kind of errors or drawbacks. It should be responsible for all costs of repairing and changing, including the costs of related labor and service, unless these errors or drawbacks are caused by the activities of the general contract party. The general contract party has the rights to ask the subcontract party to pay the costs that is related to the situation that the general contract party found any problems that the project does not match the requirements, including the costs to open already covered or closed projects.

 
14

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.10.5 Even if the general contract party representative does not attend the testing or inspection, or the general contract party representative attend but does not find any problems, or the general contract party representative does not reject the projects that do not meet the requirement of the project, all these situations do not exclude the duties of the subcontract party. The subcontract should seriously abide to all requirements of the testing and inspections.

4.11 The End of the Work and Delivery
4.11.1 When the subcontract think the project is done according to the contract, it should notify the general contract party representative. The acceptance testing should be taken as soon as possible. If the project pass the testing, the subcontract party should notify the general contract party representative in time. The general contract party should notify the construction party to sign up the end of work certificate, or within 5 days after receiving the notification from the subcontract party, the general contract party representative can sign up the end of work certificate based on the project or parts of the project. Before signing up the end of work certificate, the general contract party should notify the subcontract party to fix drawbacks. The subcontract party should immediately fix them and then notify the general contract party. If necessary, the procedure mentioned above should be repeated until the construction representative and the general contract party representative satisfied and think the requirements of the contract is met and then sign up the end of work certificate.

4.11.2 Even the construction party representative or the general contract party representative sign up the end of work certificate, it should not be thought as the confirmation that the project meets the requirements of the contract. It cannot exempt the responsibly of any party under the contract.

4.11.3 After signing up the end of work certificate, the general contract party and the construction party can use the project. Meanwhile, the subcontract party can continue the works listed at the not-finished work list. And the subcontract party should correct all errors or drawbacks.

4.12 Defective Responsibility
4.12.1 Anytime before delivery, if the general contract party representative or the construction representative reasonably think there is any drawbacks in any part of the project, they can notify the subcontract party to fix them. The subcontract party should fix them and pay the costs. But if the drawbacks are not caused by the subcontract party side, the subcontract party has the rights to get the costs back.

4.12.2 Within the drawback warranty time period, if there are any potential drawbacks because of the subcontract party’s reason, the subcontract party should fix them and pay the related costs.

4.13 Violation Responsibility of the subcontract party
4.13.1 According to the time line of the project, if the branch projects are delay for one day, it will deduct 2% of final price. If the project cannot be finished according to the agreement of the contract, one day delay will deduct 0.02% of total final price. But it cannot exceed 20% of the total final price.

 
15

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

4.13.2 If the quality of the project does not meet the promised quality level, the subcontract party should work again until the quality meet the standard. The subcontract party should be responsible for this violation duty by 2% of final price.

4.13.3 If there is any damage caused by the subcontract party, the subcontract party should fix it or compensate to the general contract party according to the real lost.

4.14 Solution to Disputes
Two parties agree that if there are any dispute while executing the contract, each party can sue the other side at the Yanglin District Court House.

5. Other Events
5.1 The subcontract party promise and announce to use its best skill, caution, decision, construction practice, and procedure. And the subcontract party makes a further promise that the quality will be the best and it comes with the best approach according to the contract.

5.2 The subcontract should seriously execute regulations about quality, safety, and environment, etc. from Project Management Method offered by the general contract party. If violate, the penalty will be applied according to the regulations.

5.3 The subcontract cannot subcontract any part of the project to another party.

5.4 If the subcontract party cannot finish the work, or the quality cannot meet the standard, or work very rudely, the general contract party can adjust the scope of work of the subcontract party, and it can stop the contract any time. All costs should be responsible by the subcontract party.

5.5 The subcontract party must do well on the safety of construction. It should create and improve safety protection system. It should seriously abide to national law, code, and other regulations. The subcontract party should be responsible for all costs because of the violation.

5.6 The subcontract party must open a special account at the Construction Bank on the site of the project. The project fund is special fund and it is for special using. It must not to use the fund as another purpose. Otherwise, the general contract party can reject to pay the fund. The subcontract party should be responsible for paying all salary, commission, and bonus to its employees, agents, or representatives. If there is any arrears caused by the subcontract party, after confirmation of the general contract party, the general contract party can file a penalty to the subcontract party as twice arrears. And the general contract party has the rights to pay the arrears directly to the employees. Such amount should be deducted from the project fund.

5.7 The subcontract party should work in a good manner to make sure all closed facilities and supplies are in good conditions. Otherwise, the subcontract party should be responsible for the lost.

 
16

 

YanChang Petroleum(Logo) Shan’xi Chemical Construction Co.Ltd .
The General Contract Of HuiJiaHe Petroleum Product Adjusting Supply Renovation instrument And Control System Full Installation And System Adjusting   Number: yhaz-026

5.8 Within three months after the project is done, if the subcontract party does not offer the project final documents or does not cooperate the project final calculation, the general contract party has the rights to make final calculation. After audit by the audit department of the general contract party, it can be used as final calculation documents.

5.9 The quality of the project is confirmed by the general contract party and the management party. It should be reported to Yan’an Construction Project Quality Supervisory Station and Shanxi Petroleum Chemical Construction Project Quality Supervisory Station for backing up.

5.10 According to the regulations of the construction party, the subcontract party should pay 20000 to the general contract party as the clearing fee on the construction site. Before sign up and seal the contract, it should be paid to the Accounting Department of Yangzhuanghe Project Department of the general contract party.
5.11 Other events not mentioned at the contract, two parties can negotiate at different documents.

It is end of the contract.

 
17

 

Exhibit 10.14
Material Purchase Contract
 
Contract Number: CPY ZHU -137 (Station Control)
Supply Party: Xi’an Kingtone Information Technology Co.,Ltd.
Demand Party: Xi’an Product Petroleum Pipe Transportation Project Management Department of Shan’xi Chemical Construction YanLian
Location of signing up the contract: Yangling of Shan’xi
Time of signing up the contract: 2009-4-30

1.
Product Name, Standard and Module, Manufacturer, Quantity, Mount, and Supply Information
Product Name
Standard and Module
Manufacturer
Unit
Quantity
Unit Price (Yuan/ton)
Total Price (Yuan)
Mark
Supply cycle information: The detail can be seen at the Item 10 of the Clause 3
Control system: The detail can be seen the attachment sheets on the back
 
 
 
Grand Total: Twelve Million Two Hundred Thousand Yuan ( o 12 o 200 o 000)
(If there is too many products, it can be attached product detail sheet. The form above just show category and total price information)

2.     Quality Requirements, Technical Standard, and the Conditions and Time Line that the Supply Party will be Responsible for:
All product quality must meet national standard and specific engineering technical standard requirements. The supply party must provide original quality proving documents and related quality technical documents of the manufacturers with the products. The supply party is responsible for the quality of the products.

3.
Product Arrival Location:
Engineering Project Department (LinTong of Shan’xi)

4.
Acceptance Type of Transportation Fee:
The price is the price that the products arrives the destination. The supply party is responsible for the transportation fee, risk, and other costs.
 

 
5.
Measurement Method of Product Turning Over:
The method is by ruler, or counting on-site to measure the products.

6.
Acceptance Standard and Method
It is according to the national standard and the specific engineering technical standard requirements. Exterior conditions base on ocular estimate. Thickness and length base on measurement tools. If there is any objection on the quality and it needs physical or chemical inspection, the cost is paid by the party that is responsible for the issue.
7.
Type and Time Limit to Settle up the Bill
Within 7 days after signing up the contract, the demand party should pay 30% payment to the supply party. Within two weeks after all materials are arrived and passed inspection, the demand party should pay 40% payment to the supply party (30% is prepaid amount). Within 7 days after installation and adjusting, the demand party should pay up to 60% payment to the supply party. Within 7 days after trial operation for 3 months, the demand party should pay up to 90% payment to the supply party. The demand party can keep 10% as quality warranty fund. Within 1 year after real operation, if there is no any quality problem, the demand party should pay off. At these time limits, the demand party does not need to pay the interest. The supply party should provide the value-added tax receipt.

8.
Violation Responsibility
After the demand party provide the demand list to the supply party, if the supply party violate the agreement, the supply party should be responsible for all responsibilities. One day delay for the material delivery will fine 5000. If the delay is caused by the quality issue, one day delay will fine 10000.

9.
Dispute Solution
Dispute should be handled by both party’s negotiations. If negotiations do not work, both party can go to local court house of the place of signing up the contract.

10 Other Events
10.1 When the materials are arrived at the site, the demand party, the construction party, and on-site management representative should inspect the materials. If the materials are qualified, they can be accepted by the demand party. If the project progress is delayed because of the material delay or quality issue, the supply party should be responsible for the cost.
 

 
10.2 The contract and relative technical agreements are valid at the same time. If there is not any relative technical agreement, the contract is invalid.

10.3 Material Arrival Time
Software, SCADA, hardware should be arrived within 30 days after signing up the contract. Machine Box should be arrived at June 20. RTU should be arrived within 30 days after signing up the contract and it should be installed within 10 days. The middle delivery time of control system project of SCADA should be June 25. The leaking inspection system is applied by the construction network blueprint of the technical agreement.

11. The contract is one type and six copies. The supply party has 2 copies. The demand party has 4 copies.

12. the Valid Time Line of the Contract
The contract is valid once it is signed. It is invalid once two party’s responsibility are over.

The Supply Party:
Name: Xi’an Kingtone Information Technology Co.,Ltd. (Seal)
Address: 181 South Taibai Road, Xi’an
Legal Representative:
Entrust Representative: /s/ Sheng Bing
Telephone: 18991802511
Bank: Xi’an Gaoxin Development District Branch of Shanghai Pufa Bank
Bank Account: 72040158000007060
Zip Code: 710065

The Demand Party:
Name: Xi’an Product Petroleum Pipe Transportation Project Management Department of Shan’xi Chemical Construction YanLian (Seal)
 

 
Address: Yanglin, Shan’xi
Legal Representative:
Entrust Representative: /s/ Ruian Ding
Telephone: 13468753405
Bank:
Bank Account:
Zip Code: 712100
 

 
The Detail of Xi’an Product Petroleum Control System of Shan’xi Chemical Construction YanLian Contract
No.
Name
Module
Quantity
Unit
Manufacturer
Unit Price
Total
Remark
1
SCADA System
(1)
Database & Server
Dell PE2900 4 Cores X5440(2.83G)/4G DDR2 ECC 667/146GSAS(15K)*3/RAID5/DVDRW/Redundancy Power/ Dual 1000M Network Adapter/ Mouse & Keyboard/ 20’ Flat Monitor LCD
2
piece
Dell
246890.67
49381.34
 
(2)
Emulation Server
Dell PE2900 4 Cores X5420(2.5G)/4G DDR2 ECC 667/146GSAS(15K)*2/RAID5/DVDRW/Redundancy Power/ Dual 1000M Network Adapter/ Mouse & Keyboard/ 20’ Flat Monitor LCD
1
piece
 
20304
20304
 
(3)
SCADA System
Workstation
Dell T7400 4 Cores X5440(2.83G)/2G DDR2 ECC 667/146GSAS(15K)*1/ DVDRW/NVS290 256M Independence Video Adapter/ Dual 1000M Network Adapter/ Optical Mouse & Mute Keyboard/ 20’ Flat Monitor LCD
6
piece
 
21056
126336
 
(4)
Switch
Cisco WS-C2960 -24TT-L
1
piece
Cisco
16501.39
16501.39
 
(5)
Portable Programmer
IBM THINK Pad T500 Intel Kushui Dual Core P8400 2.26GHz, 2GB DDRIII, 250G Hard Disk, Writable DVD
2
piece
IBM
17694.12
35388.24
 
(6)
Printer
HP 5200/A3 Network Printer/48M Memory/USB Interface
2
piece
HP
13661.33
27322.66
 
(7)
Big Screen Projector
MD-880X/40000ANSI/1024*168/150’ Electric Screen
1
set
Mitsubishi
29453.33
29453.33
 
(8)
Communication
Machine Box
2200*800*800
1
piece
Rittal
17209.46
17209.46
 
(9)
System Machine
Box(Including
Installation Accessory)
2200*800*800
1
piece
Rittal
24093.24
24093.24
 
 


(10)
Working Table
(Including Chair)
Depends on the position (Including first working station, end work station, electronic balance, and fire fighting work station)
17
set
Kingtone
7520
127840
 
(11)
Terminator
SAK2.5
500
piece
WeiDeMiLe
2.22
1110
 
(12)
Network Time Server
HJ210 First Class Network Time Server (GPS Signal Input,4 independent interface output, Support NTP protocol, Concole control interface, 220V AC) Configuration List: 100 m cable, GPS aerial, 1m power cable, 3m network cable, 1m control cable, Chinese instructions, quality certificate, warranty certificate, software CD, CA23-RP thunder protection machine
1
set
TaiFuTe
35093.33
35093.33
 
Subtotal
           
510032.99
 
1.1 Water Strike Protection and ESD Chain Redundancy Controller
(1)
1756-L63
LOGIX5563 CPU 8M Memory
2
piece
AB
57189.6
114379.2
 
(2)
1756-PA75
85-265 VAC Power (5v@13AMP)
2
piece
AB
5670.08
11340.16
 
(3)
1756-A7
7 Slot CONTROLLOGIX Frame
2
piece
AB
2517.32
5034.64
 
(4)
1756-CNBR
CONTROLNET Network Module- Redundancy Media
2
piece
AB
10215.92
20431.84
 
(5)
1756-ENBT
CONTROLLOGIX ETHERNET/IP 10/100 Network Module
2
piece
AB
9873.76
19747.52
 
(6)
1757-SRM
Redundancy Synchronize Module
2
piece
AB
25662
51324
 
(7)
1757- SRC1
1757 Redundancy Module Cable 1m, 3.28FT
1
piece
AB
791.86
791.86
 
(8)
1784-CF64
INDUSTRIAL COMPACTFLASH CARD 64MB
2
piece
AB
615.89
1231.78
 
(9)
1756-N2
Empty Slot Cover
4
piece
AB
139.31
557.24
 
Subtotal
           
224838.24
 
1.2
I/O
(1)
1756-PA75
85-256 VAC Power (5v @ 13AMP)
1
piece
AB
5670.08
5670.08
 
 

 
(2)
1756-A7
7 Slots CONTROLLOGIX Frame
1
piece
AB
2517.32
2517.32
 
(3)
1756-CNBR
CONTROLNET Network Module-Redundancy Media
1
piece
AB
10215.92
10215.92
 
(4)
1756-IB16D
10.30 VDC Digital Input Module 16 Points(36 PIN)
1
piece
AB
3045.23
3045.23
 
(5)
1756-N2
Empty Slot Cover
5
piece
AB
139.31
696.55
 
(6)
1756-TBCH
36 PIN Screw Joint
1
piece
AB
417.92
417.92
 
Subtotal
 
 
   
 
 
22563.02
 
1.3
Accessory
(1)
1786-TPS
CONTROLNET T-TAP/STRAIGHT
6
piece
AB
547.46
3284.76
 
(2)
1786-XT
CONTROLNET 75 OHM Terminal Resistor
4
piece
AB
41.4
165.6
 
(3)
1756-CP3
Programmer Cable
1
piece
AB
445.79
445.79
 
Subtotal
 
 
     
 
3896.15
 
1.4
Instrument Power
(1)
1606-XL240DR
System Power Redundancy Instrument Power 220V AC/24VDC 10A
2
piece
AB
2271.04
4542.08
 
Subtotal
 
         
4542.08
 
1.5
CONTROLNET Communication Accessory
(1)
1786-RG6
CONTROLNET RG6 Coaxial Cable(304.8 M)
2
roll
AB
3059.89
6119.78
 
(2)
1786-CTK
CONTROLNET RG6 Tools Kit
1
piece
AB
2385.34
2385.34
 
Subtotal
 
         
8505.12
 
1.6
Working Station Software
(1)
Operation System
WinXP SP2 Professional
1
set
Microsoft
940
940
 
(2)
Operation System
Windows server2003 Professional
1
set
Microsoft
26320
26320
 
(3)
Office
Office 2007
1
set
Microsoft
3634.67
3634.67
 
(4)
Communication
9355-WABGWENE
RSLINX CLASSIC GATEWAY
1
set
AB
15785.73
15785.73
 
 

 
(5)
PLG Programmer
9324-RLD700NXZHE
RSLOGIX 5000 Pro Edition
1
set
AB
48460.13
48460.13
 
(6)
History Database
VJH211016(History data server-Vijeo Historian 15000 points)
2
set
Schneider
124080
248160
English
version
(7)
History Database
Client Permission
VJH212400(Historian & Portal-Clients visiting permission CAL)
2
set
Schneider
5385.57
10771.14
English
Version
(8)
VIJ Development Kit
+ USB Key
VJH209922(VIJ Development Kit + USB Key)
2
set
Schneider
1044.03
2088.06
English
Version
(9)
Real Time Database
VJC101199(VIJEO CITECT Server-Infinite Points)
2
set
Schneider
88986.67
177973.34
English
Version
(10)
VIJEO CITECT
Client- Infinite Points
VJC102099(VIJEO CITECT Client- Infinite Points)
4
set
Schneider
35782.67
143130.68
English
Version
(11)
Read Only Client
VJC103099(VIJEO CITECT- Read Only Client - Infinite Points )
1
set
Schneider
11996.91
11996.91
English
Version
(12)
VIJEO CITECT
Development Kit +
USB Key
VJC109922 (VIJEO CITECT Development Kit + USB Key)
7
set
Schneider
1044.03
7308.21
English
Version
Subtotal
           
696568.87
 
The Total of SCADA System
2
Pipe Emulation System Facilities
(1)
SPS Online Emulation
Applied Software
V9.7
1
set
Advantica
     
(2)
Pipe Clearing
Tracker/Bulk Tracking
Module
V9.7
1
set
Advantica
     
(3)
Predictor
V9.7
1
set
Advantica
     

 
 

 

(4)
Instrument Analysis Module
V9.7
1
set
Advantica
     
(5)
Operation Solution Optimization and Pipe Thread Efficiency Analysis
V9.7
1
set
Advantica
     
(6)
Water Strike Analysis
V9.7
1
set
Advantica
     
(7)
SCADA
Communication
Interface OPC Server
Software OPCtoSPS
Server
V9.7
1
set
Advantica
     
(8)
SCADA
Communication
Interface OPC Client
Software OPCtoSPS
Client
V9.7
1
set
Advantica
     
(9)
SPS Network
Emulation Browser
T-Port
V9.7
1
set
Advantica
     
(10)
SPS Pipe Bulk
Transportation
Management
Software
V9.7
1
set
Advantica
     
(11)
SPS Trainer Module
V9.7
1
set
Advantica
     
 

 
(12)
Trainer Operator
SCADA Graphical
Interface
V9.7
1
set
Advantica
              
Subtotal
           
3359029
 
Total
               
3
Pipe Leaking Inspection System Facilities
(1)
Collection Terminal
PC
IALL2-TERM2 V2.0
5
piece
BeiJiaLai
     
(2)
Collection Terminal
PC
IALL2-TERM4 V2.0
1
piece
BeiJiaLai
     
(3)
Censor
BeiJiaLai Specific Censor
14
piece
       
(4)
Safe Fence
KFD2-SR2-EX2.W
7
piece
P+F
     
(5)
Thunder Protector
DR M 2P 255 FM
14
piece
P+F
     
(6)
GPS Receiver
GP15L
6
set
Farmin
     
(7)
DOLPHIN Data
Collection Software
IALL2-SAMPLE FROGRAM V2.0
6
set
BeiJiaLai
     
(8)
Leaking Server
Dell PE2900 4 Cores X5420(2.5G)/4G DDR2 ECC 667/146GSAS(15K)*2/RAID5/DVDRW/Redundancy Power/ Dual 1000M Network Adapter/ Mouse & Keyboard/ 20’ Flat Monitor LCD
1
set
Dell
     
(9)
DOLPHIN Leak
Monitoring Locating
Software
DOLPHIN-SERVER PROGRAM V2.1
1
set
BeiJiaLai
     
(10)
Work Station Dell
T7400
Dell 4 Cores X5440(2.83G)/4G DDR2 ECC 667/146GSAS(15K)*3/RAID5/DVDRW/Redundancy Power/ Dual 1000M Network Adapter/ Mouse & Keyboard/
1
set
Dell
     
 

 
(11)
DOLPHIN Remote
OPC Software
DOLPHIN-RTOPCPROGRAM V2.0
1
set
BeiJiaLai
     
(12)
People Computer
Interface Software
BeiJiaLai People Computer Interface Software
1
set
BeiJiaLai
     
Subtotal
           
3113750
           
Total
               
4
YanLian First Station Control System Facilities
4.1
Hardware of YanLian First Station Control System Facilities
(1)
Work Station Dell
T7400
Dell T7400 4 Cores X5440(2.83G)/2G DDR2 ECC 667/146GSAS(15K)*1/ DVDRW/NVS290 256M Independence Video Adapter/ Dual 1000M Network Adapter/ Optical Mouse & Mute Keyboard/ 20’ Flat Monitor LCD
1
piece
Dell
21056
21056
 
(2)
Switcher
WS-C2960-24TT-L
1
piece
Cisco
16501.39
16501.39
 
(3)
System Box
2200*800*800
2
piece
Rittal
24093.24
48186.48
 
(4)
Communication Box
2200*800*800
1
piece
Rittal
17209.46
17209.46
 
(5)
Terminal
SAK2.5
963
piece
WeiDeMiLe
2.22
2137.86
 
(6)
Relay
MY2NJ
64
piece
OMRON
32.59
2085.76
 
(7)
Safe Isolated Fence
KFD2-SR2-EX2.W
6
set
P&F
1614.29
9685.74
 
Subtotal
           
116862.69
 
4.2
Redundancy Controller
             
(1)
1756-L63
LOGIX 5563 CPU 8M Memory
2
piece
AB
57189.6
114379.2
 
(2)
1756-PA72
85-265 VAC Power(5V @ 10AMP)
2
piece
AB
4555.62
9111.24
 
(3)
1756-A7
7 Slots CONTROLLOGIX Frame
2
piece
AB
2517.32
5034.64
 
(4)
1756-CNBR
CONTROLNET Network- Redundancy Media
2
piece
AB
10215.92
20431.84
 
(5)
1756-ENBT
CONTROLLOGIX ETHERNET/IP 10/100 M
2
piece
AB
9873.76
19747.52
 
 
 
 

 

(6)
1757-SRM
Redundancy Synchronize Module
2
piece
AB
25662
51324
 
(7)
1757-SC1
1757 Redundancy Module Cable- 1m 3.28 ft
1
piece
AB
791.86
791.86
 
(8)
1784-CF64
Industrial Compact Flash Card 64MB
2
piece
AB
615.89
1231.78
 
(9)
1756-N2
Empty Slot Cover
4
piece
AB
139.31
557.24
            
Subtotal
           
222052.08
 
4.3
I/O
(1)
1756-PA72
85-265 VAC Power(5V@10 AMP)
3
piece
AB
4555.62
13666.86
 
(2)
1756-A13
13 Slots CONTROLLOGIX Frame
3
piece
AB
3690.44
11071.32
 
(3)
1756-CNBR
CONTROLNET Network Module- Redundancy Media
3
piece
AB
10215.92
30647.76
 
(4)
1756-IB16
10-31 VDC Input Module 16 Points (20PIN)
7
piece
AB
1789.01
12523.07
 
(5)
1756-OB16E
10-31 VDC Electronic Fuse Output Module 16 Points (20PIN0
4
piece
AB
2766.61
11066.44
 
(6)
1756-IF8
Emulation Input Module-Voltaic/Voltmeter 8 Points (36 PIN)
8
piece
AB
5376.8
43014.4
 
(7)
1756-OF8
Emulation Input Module-Voltaic/Voltmeter 8 Points (20 PIN)
1
piece
AB
10020.4
10020.4
 
(8)
1756-IR61
Isolated RTD Input Module 6 Points (20 PIN)
8
piece
AB
10704.72
85637.76
 
(9)
1756-N2
Empty Slot Cover
3
piece
AB
139.31
417.93
 
(10)
MVI56
Modbus Communication Module
5
piece
AB
23555.15
117775.75
 
(11)
1756-TBCH
36 PIN Screw Joints
8
piece
AB
417.92
3343.36
 
(12)
1756-TBNH
20 PIN Screw Joints
20
piece
AB
334.34
6686.8
 
Subtotal
           
345871.85
 
4.4
Accessory
(1)
1786-TPS
CONTROLNET T –TAP/STRAIGHT
10
piece
AB
547.46
547.46
 
(2)
1786-XT
CONTROLNET 75 OHM Terminal Fuse
4
piece
AB
41.4
165.6
 
(3)
1756-CP3
Programming Cable
1
piece
AB
445.79
445.79
 
Subtotal
           
6085.99
 

 
 

 

4.5
Instrument Power
             
(1)
1606-XL240DR
System Power Redundancy Instrument Power 220V AC/24VDC 10A
2
piece
AB
2271.04
4542.08
 
Subtotal
           
4542.08
          
4.6
Work Station Software
(1)
Communication
Gateway Software
9355-WABGWENE
RSLINX CLASSIC GATEWAY
1
set
AB
15785.73
15785.73
 
(2)
VIJEO CITECT
Server
VJC101113(VIJEO CITECT Server 1500 Points)
1
set
Schneider
41880.03
41880.03
 
(3)
VIJEO CITECT
Development Kit +
USB Kit
VJC109922(VIJEO CITECT Development Kit + USB Kit)
1
set
Schneider
1044.03
1044.03
 
Subtotal
           
58709.79
 
5
End Station Control System
5.1
Hardware
(1)
Work Station DELL
T7400
Dell PE2900 4 Cores X5440(2.83G)/4G DDR2 ECC 667/146GSAS(15K)*3/RAID5/DVDRW/Redundancy Power/ Dual 1000M Network Adapter/ Mouse & Keyboard/ 20’ Flat Monitor LCD
2
piece
Dell
21056
42112
 
(2)
Switcher
WS-C2960-24TT-E
1
piece
Cisco
16501.39
16501.39
 
(3)
System Box
2200*800*800
12
piece
Rittal
24093.24
289118.88
 
(4)
Communication Box
2200*800*800
1
piece
Rittal
17209.46
17209.46
 
(5)
Terminal
SAK2.5
6017
piece
wEIdEmIle
2.22
13357.74
 
(6)
Relay
MY2NJ
672
piece
OMRON
32.59
21900.48
 
 

 
Subtotal
           
400199.95
 
5.2
Redundancy Controller
(1)
1756-L63
LOGIX5563 CPU 8M Memory
2
piece
AB
57189.6
114379.2
               
(2)
1756-PA75
85-265 VAC Power(5V@13 AMP)
2
piece
AB
5670.08
11340.16
 
(3)
1756-A7
7 Slots CONTROLLOGIX Frame
2
piece
AB
2517.32
5034.64
 
(4)
1756-CNBR
CONTROLNET Network- Redundancy Media
2
piece
AB
10215.92
20431.84
 
(5)
1756-ENBT
CONTROLLOGIX ETHERNET/IP 10/100 M
2
piece
AB
9873.76
19747.52
 
(6)
1757-SRM
Redundancy Synchronize Module
2
piece
AB
25662
51324
 
(7)
1757-SC1
1757 Redundancy Module Cable- 1m 3.28 ft
1
piece
AB
791.86
791.86
 
(8)
1784-CF64
Industrial Compact Flash Card 64MB
2
piece
AB
615.89
1231.78
 
(9)
1756-N2
Empty Slot Cover
4
piece
AB
139.31
557.24
 
Subtotal
           
224838.24
 
5.3
I/O  
(1)
1756-PA72
85-265 VAC Power(5V@10 AMP)
15  
piece  
AB
4555.62
68334.3
 
(2)
1756-A13  
13 Slots CONTROLLOGIX Frame  
15  
piece
AB  
3690.44
55356.6
 
(3)
1756-CNBR  
CONTROLNET Network Module- Redundancy Media
15
piece  
AB  
10215.92
153238.8
 
(4)
1756-IB16  
10-31 VDC Input Module 16 Points (20PIN)  
76
piece  
AB  
1789.01
135964.76
 
(5)
1756-OB16E  
10-31 VDC Electronic Fuse Output Module 16 Points (20PIN0  
42  
piece  
AB  
2766.61  
116197.62
 
(6)  
1756-IF8  
Emulation Input Module-Voltaic/Voltmeter 8 Points (36 PIN)  
41  
piece
AB  
5376.8
220448.8
 
(7)
1756-OF8  
Emulation Input Module-Voltaic/Voltmeter 8 Points (20 PIN)  
1  
piece  
AB  
10020.4
10020.4
 
(8)
1756-IR61  
Isolated RTD Input Module 6 Points (20 PIN)  
3  
piece  
AB  
10704.72
32114.16
 
(9)
1756-N2  
Empty Slot Cover  
9  
piece  
AB  
139.31
1253.79
 
(10)
MVI56
Modbus Communication Module  
8  
piece
AB
23555.15
188441.2
 
(11)
1756-TBCH
36 PIN Screw Joints
41  
piece
AB
417.92
17134.72
 
 

 
(12)
1756-TBNH
20 PIN Screw Joints
122
piece
AB
334.34
40789.48
 
Subtotal
           
1039294.63
 
5.4
Accessory
(1)
1786-TPS
CONTROLNET T –TAP/STRAIGHT
34
piece
AB
547.46
18613.64
 
(2)
1786-XT
CONTROLNET 75 OHM Terminal Fuse
4
piece
AB
41.4
165.6
 
(3)
1756-CP3
Programming Cable
1
piece
AB
445.79
445.79
 
Subtotal
           
19225.03
 
5.5
Instrument Power
(1)
1606-XL240DR
System Power Redundancy Instrument Power 220V AC/24VDC 10A
2
piece
AB
2271.04
4542.08
 
Subtotal
           
4542.08
 
5.6
Work Station Software
(1)
Operation System
WinXP SP2 Professional
1
set
Microsoft
940
940
 
(2)
Communication
Gateway Software
9355-WABGWENE
RSLINX CLASSIC GATEWAY
1
set
AB
15785.73
15785.73
 
(3)
VIJEO CITECT
Server
VJC101113(VIJEO CITECT Server 5000 Points)
2
set
Schneider
54972.45
109944.9
 
(4)
VIJEO CITECT
Development Kit +
USB Kit
VJC109922(VIJEO CITECT Development Kit + USB Kit)
2
set
Schneider
1044.03
2088.06
 
Subtotal
           
128758.69
 
Total
             
1957726
6
TongChuan Pipe Clearing Station RTU System Facilities
6.1
Hardware


 
(1)
396563-06-6
ARM9 CPU/16M, 1-ENET & 2-RS 232 &1 RS 485
1
piece
BB
27659.5
27659.5
 
(2)
396560-01-6
8 Slot Machine Frame
1
piece
BB
8194.45
8194.45
 
(3)
396657-01-0
24V AC Power Module
1
piece
BB
11994.4
11994.4
 
(4)
396604-01-3
Emulation Input- Voltaic 8 Points
1
piece
BB
19051.45
19051.45
 
(5)
396545-01-7
Empty Slot Cover
5
piece
BB
206.8
1034
 
(6)
Machine Box
500*300*250mm
1
piece
BB
5875
585
 
Subtotal
           
73808.8
 
6.2
Software
(1)
CONTROLWAVE DESIGHER
CONTROLWAVE Programming Software
1
set
BB
47822.5
47822.5
 
Subtotal
           
50875
 
Total
             
129395
7
Block Valve Room RTU System Facilities
7.1
 
(1)
396563-06-6
ARM9 CPU/16M, 1-ENET & 2-RS 232 &1 RS 485
7
piece
BB
27659.5
193616.5
 
(2)
396560-01-6
8 Slot Machine Frame
7
piece
BB
8194.45
57361.15
 
(3)
396657-01-0
24V AC Power Module
7
piece
BB
11994.4
83960.8
 
(4)
396604-01-3
Emulation Input- Voltaic 8 Points
7
piece
BB
19051.45
133360.15
 
(5)
396571-02-6
Digital Input 16 Points
7
piece
BB
9228.45
64599.15
 
(6)
396572-02-2
Digital Input 16 Points
7
piece
BB
8065.2
56456.4
 
(7)
396545-01-7
Empty Slot Cover
21
piece
BB
206.8
4342.8
 
(8)
Valve Room Machine Box
500*300*250mm
7
piece
BB
5875
41125
 
Subtotal
           
28074.72
 
7.2
Surge Protector
 

 
(1)
Surge Protector
DR M 2P 255 FM
16
piece
P+F
1754.67
28074.72
 
Subtotal
           
28074.72
 
8
SCADA System Spare Parts for 2Years
(1)
1756-IB16
10-31 VDC Input Module 16 Points (20 PIN)
2
piece
AB
1789.01
3578.02
 
(2)
1756-OB16E
10-31 VDC Electronic Fuse Module 16 Points (20 PIN)
2
piece
AB
2766.61
5533.22
 
(3)
1756-if8
Emulation Input Module-Voltaic/Voltmeter 8 Points(36PIN)
2
piece
AB
5376.8
10753.6
 
(4)
1756-OF8
Emulation Input Module-Voltaic/Voltmeter 8 Points(20PIN)
2
piece
AB
10020.4
20040.8
 
(5)
1786-CTK
CONTROLNET RG6 Kit
2
piece
AB
2385.34
4770.68
 
(6)
396604-01-3
Emulation Input- 8 Points
2
piece
BB
19051.45
38102.9
 
(7)
396571-02-6
Digital Input – 16 Points
2
piece
BB
9228.45
18456.9
 
(8)
396572-02-2
Digital Input – 16 Points
2
piece
BB
8065.2
16130.04
 
(9)
1606-XL240DR
System Power Redundancy Instrument Power 220V AC/24VDC 10A
1
piece
AB
2271.04
2271.04
 
Subtotal
           
119637.56
 
9.1
Construction Fee
System Integration, Programming Organizing, Installation and Adjusting, FAT, and SAT etc.
     
376000
376000
 
9.2
Data Transportation Fee to Yan’an Control Site
     
188000
188000
 
9.3
Training Fee and Technical Service Fee
     
136286
136286
 
9.4
Other fees that the contract party think it will occur
     
28200
28200
           
Total: TWELVE MILLION TWO HUNDRED THUNSAND YUAN ( 12 200 000)
 

 
Exhibit 10.15

Land Use Right and Housing Ownership Transfer Agreement

Transferor: Shaanxi Aoda Property Co., Ltd. (hereinafter referred to as Party A)
Transferee: Xi’an Kingtone Information Technology Co., Ltd. (hereinafter referred to as Party B)

WHEREAS, Party A, Shaanxi Aoda Property Co., Ltd . possesses the land use right of Building No. 17, including the building itself and its annex, located at Beilin Industrial Park, Huoju Road, Gaoxin District, Xi’an, which are free of any mortgage, pledge, and disputes, and can be freely transferred; Party A is willing to transfer. Party B, Xi’an Kingtone Information Technology Co., Ltd, a Hi-Tech stock company mainly engaged in the research and development of wireless video software and hardware, is willing to purchase the land-use rights of the building, the building itself and its annex in accordance with Party B’s development.

Upon the mutual and equal negotiation by both parties, and in accordance with Contract Law of People’s Republic of China, and regulations, it is hereby agreed between Party A and Party B hereto as follows:

1.
Party A is willing to transfer the land use right of building No. 17, the building itself and its annex located in Beilin Industrial Park, Huoju Road, Gaoxin District to Party B. Party B consents to pay the amount stipulated in the Agreement through the transfer of the land use right of the building, the building itself and its annex.

2.
Transfer condition
a.
The transferred Property Ownership Certificate: No.1175106016-10-1-2. The building is located at No. 17 Huoju Road, Beilin District, Xi’an.
Type of the building: Industrial;
Structure:  Frame;
Building area: 19,490.14 M 2 ;
Land use right Area: 6,654.46 M 2 ; (See Annex 1 for the Property Ownership Certificate)
b.
Certificate No. for the land use right: No. 37799 (2001) Gaoxi District, Xi’an;
The land is located at Huoju Road, Xi’an with land No. XCII-(13)-9. The use right of the land is the stated-owned and the land is acquired through land selling. The term for the use right of the stated-owned land shall be ended on May 1, 2045. The land is served for industrial purpose with 6,654.46 M 2   (approximately 9.989mu). Xi’an Jiaoda Kaiyuan Science and Technology Co., Ltd. currently possesses the land use right. Party A has acquired the land use right in accordance with the relevant stipulations and is going through the transfer procedures. (Refer to the Annex 2 for the land use right)
c.
The complete facilities of Building No. 17 are included but not limited to plumbing and electricity devices. (Refer to Annex 3 for the List of Drawings)
d.
Facility conditions (beyond the annex facility of the building). (Refer to Annex 4 for list of facility)
 

 
3. 
Purchase Price
The purchase price of land use right of the building, the building itself and its annex is 83,417,200RMB, which is calculated by the unit price of 4,280 RMB and the total area of 19,490 M 2 . In terms of other relevant project in construction and reforming projects, a written agreement will be signed by and between the Parties thereof.

4.
Payment and Documentation Delivery
(1)
Party B shall prepay 4,200,000 RMB within 30 business days upon the effect of the Agreement hereof.
(2)
Party B shall pay 75% of the total amount that is 62,562,900 RMB, within 90 days after Party A receives the land use right certificate.
(3)
Both Parties shall apply for the land and building transfer procedures through Xi’an Real Estate Management Bureau and Xi’an Land Management Bureau within 3 business days after receiving the above-mentioned amount by Party A. After Party A and Party B pay the taxes individually, Party B shall pay 15% of the total sales amount that is 12,512,580RMB within 10 business days upon receiving the Property Ownership Certificate. Meanwhile, Party A shall transfer the original blueprints of the building, plumbing distribution drawings, electricity distribution drawings and others related to the building to Party B.
(4)
Party B shall pay 4,141,720 RMB to Party A within 3 business days after receiving the Land Use Certificate. Party A hereof shall transfer the subject matter to Party B within 3 business days after receiving this amount by Party A.
(5)
Party A shall notify Party B in writing regarding the bank account of Party A or bank account of the third party.

5. 
Inspection and Transfer of possession
Both parties agree that Party A shall notify Party B to inspect the building according to the rental list and the vacated list within 3 business days after Party B receives the Property Ownership Certificate and Land Use Right Certificate. Party B shall inspect the building and facilities within 3 business days upon receiving the notification from Part A. (Refer to Annex 5 for the inspection and acceptance requirement)
The letter of building transfer will be signed after the inspection and Party A shall give all keys of the building to Party B, which is evidence of transfer and possession of building.

6.
Taxes
In the course of transfer for the land use right, the building, and its annex, all taxes stipulated by government administrative departments and government-authorized agencies shall be responsible by the two Parties individually hereof. In case of no relevant regulations, the tax shall be assumed by Party A.


 
In addition to the tax, both Parties hereof shall check the expense of water and electricity prior to the building transfer. In terms of all outstanding balance (including but not limited to property maintenance fee and charges of water, electricity, gas, telecommunications and etc.) shall be borne by Party A. After the building transfer, all expenses related to using the building and land shall be borne by Party B.

7. 
Warranties of Part A
a.
Party A shall ensure the transferred building (No 1175106016-10-1) with no lien, no pledge, no disputes, and other potential matters that could cause disputes or any recourse right by the third party.
b.
Party A shall ensure the land use right (No 37799) with no lien, no pledge, no disputes, other potential matters that could cause disputes or any recourse right by the third party.
c.
Party A shall ensure the transferred building is beyond the government relocation area during the signing of the Agreement hereof.
d.
Party A shall guarantee there is no default on the construction fee, no cases involving the selling and leasing of the building, and no recourse right by the third party during the delivery of the building.
e.
Party A shall ensure the documentation submitted to the Real Estate Management Bureau and Land Management Bureau for transfer application are truthful, legal, effective and accurate, and shall timely conduct the transfer procedures.
f.
Party A shall ensure all fees and taxes concerning with this land have been paid.

8.
Legal Conditions for the Transfer
a.
The rights and obligations stated in the Land Use Right Transfer Agreement and registered files shall be shifted to Party B as soon as the land use right hereof has been transferred by Party A.
b.
Party A shall assume all risks and responsibilities caused by the ownership problems of the land and building prior to transferring the land use right, building, and its annex. In the even of assuming the relevant responsibility on behalf of Party A, Party B has the recourse right.

9.
Upon the signing of the Agreement, Party A shall move out of the mentioned building within 10 business days upon receipt of Property Ownership Certificate and Land Use Right Certificate by Party B, and Party A shall cooperate with Party B to change the name of Landlord on all outstanding rental agreements to Party B. The rental income should belong to Party B after change of the rental Agreement, and the rental income should belong to Party A prior to change of rental Agreement. (Refer to Annex 6  for a detailed list of tenants of Building No. 17).

10.
Confidential Clause
a.
Any party cannot disclose the contents of the Agreement hereof and secrets obtained by the Agreement to the third party without the permission of the other party.
b.
Without the written permission of the other party, the information provided by the other party, including but not limited to the annex of the Agreement, shall not serve other purposes.
 


 
11.
Notice
a.
All notices issued to the other party, all correspondence between the two parties hereof, notices and requirements concerning with the Agreement hereof, if applicable, must be in writing.
b.
The address for the two parties hereof is as follows:
Shaanxi Aoda Real Estate Co., Ltd. Address: Room 013, 5F, Building 2, Jiaoda Kaiyuan Incubator South section Jingqi Road, Xi’an
Xi’an Kingtone Information Co., Ltd.  Address: 3F, Borough A, Block A, No.181 South Taibai Road, Xi’an
c.
In the event of change of address and any changes in the above companies by a party, a written notice shall be sent to the other party within ten days since the change. Otherwise, the other party will send the notice to the above-mentioned address and the notice can be considered as having been delivered. The party failing to send the notice shall assume the relevant responsibilities.

12.
Alteration and cancellation of the Agreement
a.
The Agreement can be altered, amended or adjusted upon consents reached through negotiation by both parties.
b.
In the execution of the Agreement, any party, who intends to terminate the agreement in advance due to its personal matter, shall submit a written notice to the other party. The Agreement can be automatically terminated in the event of no disputes raised by the other party 30 days after the notice.
c.
The clause for disputes settlement of the Agreement hereof remains effective after the termination of the Agreement.
d.
Other matters not mentioned in the Agreement shall be separately stipulated in spirit of mutual benefits and friendly negotiation and stated in the form of annex or supplementary agreement. Any party shall not alter the agreement without the permission of the other party. Or else the Party who alters the agreement shall assume the results and responsibilities caused hereof. The Annex hereof is an integral part of the Agreement and shall bear the company seal or contract seal of the two parties.
e.
In the event of failure to conduct the transfer procedures for the land use right and the building ownership right caused by the governmental policy or other factors, Party A shall fully refund Party B the amount received and interest at the same period. In terms of the cancellation of the Agreement, the two parties shall stipulate and determinate otherwise.
 

 
13.
Breach responsibility
a.
Party A shall be constituted as violating the Agreement in the event of unilaterally canceling the agreement or failing to deliver the subject matter as per the agreement by Party A and must refund the payment to Party B and pay 5 % of liquidated damages per day.
b.
Party A shall be constituted as violating the agreement and assume the responsibility as stipulated in Article 1 hereof in the event of concealing the truth by Party A, third party arising or relating to this Agreement (including but not limited to preferred purchasing rights or lien) or other factors cause failing to execute the agreement by Party A.
c.
Party B shall pay 5 % of liquidated damages per day in case of failure to pay the fee stipulated in the Agreement hereof upon the validation. In case of the fee overdue one month, the agreement shall be automatically terminated. Party A shall refund the balance to Party B after deducting the liquidated damages.
d.
In the event of violating the Agreement by any party, the other party has the right to notify the termination of the Agreement in writing and/or require the defaulting party continue to execute the Agreement. The defaulting party, beyond assuming the liquidated damages, shall take all direct or indirect damages caused herein to the other party.
e.
Provided that Party A transfers the land use right or building ownership to the third party herein upon signing the Agreement hereof and conducts the transfer procedures, which causes Party B’s failure in acquiring the land use right or building ownership, Party A must pay double the paid contractor price to Party B in the Agreement.

14.
Force Majeure
a.
In the event of force majeure (including but not limited to earthquake, typhoon, fire, flood, war, strikes, riots, government act, or any other natural or man-made disasters) happened during the execution of the Agreement, any party shall notify the other party in writing within 15 days since the occurrence. Otherwise, any party will be taken the responsibility caused by the force majeure. The Agreement cannot be fully or partially executed due to the force majeure, the Agreement will be fully or partially terminated.

15.
Risk Transfer
The risk for the above-mentioned building and land will be transfer to Party B since the date of transfer herein.

16. 
Compliance with Applicable Laws and Disputes Settlement
a.
People’s Republic of China Laws is applicable to the signing, enforcement, interpretation, execution and any disputes arisen hereby.
b.
Any disputes arisen during the execution of the Agreement herein shall be settled through friendly negotiation. Otherwise, a lawsuit will be filed to the People’s District Court where the land is located.

17.
The Agreement shall be entered into four copies, two copies each kept by Party A and Part B.



The Agreement shall be effect upon signature or seal by two parties.


Transferor (Party A): Shaanxi Aoda Property Co., Ltd.
Legal Rep: seal affixed


Transferee (Party B): Xi’an Kingtone Information Technology Co., Ltd.
Legal Rep: seal affixed

April 22, 2008


 
 
 
 
Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the inclusion in this Form F-1 filed with the SEC on April 13, 2010 (the "Registration Statement") of our report dated December 16, 2009, except for Note 1 paragraph 7 and Note 22 paragraph 1 to the financial statements, as to which the date is December 17, 2009, relating to the consolidated and combined balance sheets of Kingtone Wirelessinfo Solution Holding Ltd and Subsidiaries ("the Company") as of November 30, 2009 and November 30, 2008, and the related consolidated and combined statements of income and comprehensive income, stockholders’ equity, and cash flows for the years then ended, appearing in the Prospectus, which is a part of such amendment.

/s/ Bernstein & Pinchuk LLP

New York, NY
April 13, 2010
 
 
 
 
 

 
 
Exhibit 23.3

CONSENT OF GLOBAL LAW OFFICE


We hereby consent to the references to our firm and the summarization of our opinions contained  in the Registration Statement on Form F-1 of Kingtone Wirelessinfo Solution Holding Ltd filed with the Securities and Exchange Commission on April 13, 2010.

/s/ Global Law Office                                                                 
Global Law Office
Beijing, People’s Republic of China
April 13, 2010