SET-OFF AGREEMENT

SET-OFF AGREEMENT

This Agreement (the “Agreement”) is made and entered into   12    (month) 31     (day) 2009（Year）in Feicheng by and between the parties listed as below:

Party A:       Tai ‘an Ruitai Cellulose Co., Ltd

Legal Address:  Wenyang Xxxx

               Xxxxxxxx Xxxx

               Xxxxxxxx, Xxxxx 000000

Party B:       Shandong Ruitai Chemical Co., Ltd

Legal Address:  Wenyang Town

               Feicheng City

               Shandong, China 271603

In this Agreement, Party A and Party B are called collectively as the “Parties”.

WHEREAS:

1.

Party A and Party B entered into loan contract and attached interest repayment contract on                            __12__(month)  31  (day)­__2007_(year);

2.

Subject to the influence of the world financial crisis, the operation of Party B is adversely affected due to shortage of cash flow. Party B is currently unable to repay the money it borrowed from Party A in cash;

3.

The parties agree that Party B may set off debts owed by Party B to Party A by transferring its entitlement to a real property built by Party B.

NOW THEREFORE, through friendly negotiation, Party A and Party B hereby agree it as follows:

1   REPRESENTATIONS AND WARRANTIES

The Parties hereto hereby make the following representations and warranties to each other as of the date of this Agreement that:

(1)

has the right to enter into the Agreement and the ability to perform it;

(2)

the execution and delivery of this Agreement by each party have been duly    authorized by all necessary corporate action;

(3)

the execution of this Agreement by the officer or representative of each party has been duly authorized；

(4)  each party has no other reasons that will prevent this Agreement from becoming a binding and effective agreement between both parties after execution;

    (5)

the execution and performance of the obligations under this Agreement will not:

(a)    violate any provision of the business license, articles of association or other similar documents of its own;

(b)    violate any provision of the laws and regulations of PRC or other governmental

or regulatory authority or approval;

(c)    violate or result in a breach of any contract or agreement to which the party is a party or by which it is bound.

2   REAL PROPERTY

Party A agrees that Party B may set off all sum of debts owed by Party B to Party A by transferring its entitlement to a real property whose address being at Building Xx. 00, Xxxxxx Xxxxxx, Xxxxxxxx Xxxxxxxx, Xxxxxxx, Xxxxx.

3   APPRAISAL

Party A and Party B agree that [­­­­ CB Xxxxxxx Xxxxx] Appraisal Co., Ltd shall perform the appraisal for the property. The appraisal company has issued [__1__]Evaluation Report on year [2010] month [4] day [14] (Refer to Appendix II).According to the report, the assessment value of the said property is [_RMB 251,000,000] as of [12],[31],2009, and both parties have no disagreement or doubt on such result.

4   PAYMENT OF BALANCE

Since the property is greater than the debts owned by Party B to Party A in terms of value, and Party B owns Party A RMB 217,051,353.41 before the loan set-off agreement. So after the loan set-off Party A now own Party B RMB 33,948,646.59. Party B agrees that Party A may repay RMB 33,948,646.59 within two years following the execution of the Agreement（the schedule for payment of the balance and interest are set forth in Appendix I）， and the interest shall be calculated at a monthly rate of 6‰.

5   TITLE AND RISK

To simplify the procedure, the aforesaid property title has been directly transferred to Party A. The two parties agree that the right of land use related to such property shall be also transferred to Party A together with the property. Upon the date of execution of this Agreement, the risk of damage or loss will be transferred and borne by Party A.

6   LEASE CONTRACT

Since currently the said property has been leased to Beijing Shengmei Hotel Management Co., Ltd, all rights and interests relevant to the property will then fall into the entitlement of Party A following the execution of this agreement. The rent has been paid by Beijing Shengmei Hotel Management Co., Ltd from January 1, 2010.

7   EFFECTIVENESS

This Agreement shall be executed and come into effect as of the date first set forth above. The

original loan contract and attached interest repayment contract or agreement signed on _12_(month) 31 (day)­_2007_(year) will become invalid at the same time.

8   LIABILITY FOR BREACH OF CONTRACT

During the term of this Agreement, any violation of any provisions herein by either party constitutes breach of contract. If the non-breaching Party suffers any cost, expense, liability or loss, as a result of a breach of this Contract by the breaching Party, then the breaching Party shall be liable to the non-breaching Party for such cost, expense, liability and loss incurred by the non-breaching Party.

9   EVENT OF FORCE MAJEURE

(1)

“EVENT OF FORCE MAJEURE” means any one or more events or circumstances beyond the control of a Party, which cannot be prevented by reasonable precautions taken by such Party, having a material adverse effect on a Party’s ability to perform its obligation under this Contract. An Event of Force Majeure shall include, but not be limited to: riot, war, hostility, public disturbance or other civil unrest; strikes, lockouts or other labor disputes and work stoppages; failure or significant interruption of transportation or other utilities; sabotage or terrorism; quarantine or epidemic; fire, flood, earthquake, storm, tidal wave or other acts of nature; or any other event beyond the reasonable control of a Party, all provided that: (i) such a Party is acting in good faith and without fault in causing such events, (ii) such Event of Force Majeure is the sole reason for the nonperformance of such Party’s obligations hereunder and (iii) that the non-performing Party has notified the other Party of such Event of Force Majeure within thirty (30) days from its beginning.

(2)

If any Party is prevented from performing any of its obligations under this Contract due to an Event of Force Majeure, the time for performance of such obligations under this Contract shall be extended by a period equal to the period of delay caused by such Event of Force Majeure. A Party claiming inability to perform due to an Event of Force Majeure shall take appropriate measures to minimize or remove the effects of the Event of Force Majeure and, within the shortest possible time, attempt to resume performance of the obligation(s) affected by the Event of Force Majeure. If an Event of Force Majeure occurs, a Party shall not be responsible for any damage, increased costs or loss, which the other Party may sustain by reason of such a failure or delay of performance, and such failure or delay shall not be deemed a breach of this Contract. All other obligations under this Contract and the time for performance thereof shall not be affected thereby.

10   DISPUTE RESOLUTION

On matters not covered by this agreement, the two parties shall seek a settlement through friendly negotiation. If no agreement can be reached, either party may submit it to related arbitration commission for arbitration or to the court where the property located in its jurisdiction for settlement.

11   NOTIFICATION

All notices given pursuant to this contract or other communications between the parties in connection with this contract shall be sent in writing. The date on which such a notice shall be deemed actually served shall be determined as follows: (a) if a notice is sent via facsimile, the time of the transmission shall be deemed the time of actual service; (b) if a notice is sent via registered mail, on the tenth day (as indicated by the postmark) after the letter is sent via registered air mail, postage prepaid, or on the fourth day after the notice is given to an internationally recognized express mail carrier, it shall be deemed actually served; (c) if a notice is sent via personal delivery, it shall be deemed actually served on the date of such personal delivery.

12   SEVERABILITY

If any provision contained in this Agreement is held invalid or unenforceable under applicable laws, the remaining provisions hereof shall not be in any way impaired.

13   Amendment and Supplement

Any amendment and supplement to this Agreement shall be effective only if it is made in writing and signed by the parties hereto.  The amendment and supplement duly executed by the parties shall be part of this Agreement and shall have the same legal effect as this Agreement.

14   GOVERNING LAW

The formation, validity, interpretation, execution, amendment and termination of this Contract shall be governed by the published laws and regulations of PRC.

15   MISCELLANEOUS PROVISIONS

This Agreement is executed in English and Chinese, both “English” and “Chinese” versions have the same legal force. This Agreement is made in quadruplicate; each party holds two.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed by their respective duly authorized officers as of the date first herinabove written.

Party A: Tai’an Ruitai Cellulose Co., Ltd

Authorized Representative：/s/ Dianmin Ma

Party B: Shandong Ruitai Chemical Co., Ltd

Authorized Representative：/s/ Xxxxx Xx

Appendix I Schedule for Payment

Schedule for Payment
		Debit	Credit
1/1/2010	due to related party		$4,965,285
6/30/2010	Partial Repayment	$ 1,489,586
	Interest Expense	$   178,750
	Total payment as of 6/30/2010	$1,668,336
	due to related party balance		$3,475,700
12/31/2010	Partial Repayment	$ 1,489,586
	Interest Expense	$   125,125
	Total payment from 7/1/2010 to 12/31/2010	$1,614,711
	due to related party balance		$1,986,114
6/30/2011	Partial Repayment	$   993,057
	Interest Expense	$    71,500
	Total payment from 1/1/2011 to 6/30/2010	$ 1,064,557
	due to related party balance		$  993,057
12/31/2011	Partial Repayment	$   993,057
	Interest Expense	$     2,979
	Total payment from 7/1/2010 to 12/31/2011	$  996,036
	Balance		$ 0

Appendix II Appraisal Report