Common use of 2005 Performance Adjustment Clause in Contracts

2005 Performance Adjustment. The Company hereby represents to the Investors that the Company's after Tax Net Profit on a consolidated, pro forma basis, prior to costs directly attributed to this Agreement and the transactions contemplated hereby, as reported under GAAP and as prepared by an independent registered public accounting firm acceptable to the Investors for the fiscal year ending 2005 ("2005 Net Profit") shall be at least $6,750,000 (the "2005 Target Profit"). The 2005 Net Profit shall be based upon the performance of the Business in the form which it exists as of Closing (assuming completion of the transactions contemplated by the Restructuring Agreements), and shall not include any amounts from any Subsidiary, business division, assets or contractual arrangement or other source of the Company acquired after the Closing. As the Investors are relying on such expected profit in making their investment hereunder, and in order to make whole the Investors in the event the 2005 Target Profit is not met and for the purposes of the indemnity provisions under Section 8 of this Agreement, the Company has placed 3,000,000 shares of Common Stock issuable upon the conversion of the Series A Convertible Preferred Stock of the Company (based on post reverse split shares, subject to applicable adjustment) which are owned by Management (the "Dual Purposes Escrow Shares") into an escrow account for the benefit of the Investors (as well as the Initial Investors) pursuant to an escrow agreement, dated as of December 13, 2005, by and among the Company, Dalian Fushi, certain holders of the Series A shares, the Initial Investors, and Gateway National Bank, N.A., as escrow agent, attached as Exhibit E(1) (the "Stock Escrow Agreement"), amended by an amendment no.1 to the Stock Escrow Agreement attached as Exhibit E(2) (the "Amendment to Stock Escrow Agreement"). In the event that the Company does not generate the 2005 Target Profit (as determined based on the Company's 2005 audited financial statements), a number of Dual Purposes Escrow Shares, which shall not be more than 3,000,000 (based on post reverse split shares, subject to applicable adjustment), shall be retired to the Company treasury as set forth below in order to maintain the value of the Investors' investment in the Company (the "2005 Performance Adjustment") pursuant to the terms of the Stock Escrow Agreement, as amended. The 2005 Performance Adjustment shall be determined by (A) subtracting the Actual Pre-Money Value from the Original Pre-Money Value to obtain the 2005 Performance Shortfall and (B) dividing the 2005 Performance Shortfall by the Original Investment Price. The Company shall immediately redeem, retire or otherwise cancel such number of the Dual Purposes Escrow Shares equal to the 2005 Performance Adjustment, but no more than 3,000,000 shares (based on post reverse split shares, subject to applicable adjustment), as calculated pursuant to this Section 2(c)(i).

2005 Performance Adjustment. The Company hereby represents to the Investors that the Company's after Tax Net Profit on a consolidated, pro forma basis, prior to costs directly attributed to this Agreement and the transactions contemplated hereby, as reported under GAAP and as prepared by an independent registered public accounting firm acceptable to the Investors for the fiscal year ending 2005 ("2005 Net Profit") shall be at least $6,750,000 (the "2005 Target Profit"). The 2005 Net Profit shall be based upon the performance of the Business in the form which it exists as of Closing (assuming completion of the transactions contemplated by the Restructuring Agreements), and shall not include any amounts from any Subsidiary, business division, assets or contractual arrangement or other source of the Company acquired after the Closing. As the Investors are relying on such expected profit in making their investment hereunder, and in order to make whole the Investors in the event the 2005 Target Profit is not met and for the purposes of the indemnity provisions under Section 8 of this Agreement, the Company has placed 3,000,000 shares of Common Stock issuable upon the conversion of the Series A Convertible Preferred Stock of the Company (based on post reverse split shares, subject to applicable adjustment) which are owned by Management (the "Dual Purposes Escrow Shares") into an escrow account for the benefit of the Investors (as well as the Initial Investors) pursuant to an escrow agreement, dated as of December 13, 2005, agreement by and among the Company, Dalian Fushi, certain holders of the Series A shares, the Initial Investors, Investors and Gateway National Bank, N.A., as escrow agent, attached as Exhibit E(1) E (the "Stock Escrow Agreement"), amended by an amendment no.1 to the Stock Escrow Agreement attached as Exhibit E(2) (the "Amendment to Stock Escrow Agreement"). In the event that the Company does not generate the 2005 Target Profit (as determined based on the Company's 2005 audited financial statements), a number of Dual Purposes Escrow Shares, which shall not be more than 3,000,000 (based on post reverse split shares, subject to applicable adjustment), shall be retired to the Company treasury as set forth below in order to maintain the value of the Investors' investment in the Company (the "2005 Performance Adjustment") pursuant to the terms of the Stock Escrow Agreement, as amended. The 2005 Performance Adjustment shall be determined by (A) subtracting the Actual Pre-Money Value from the Original Pre-Money Value to obtain the 2005 Performance Shortfall and (B) dividing the 2005 Performance Shortfall by the Original Investment Price. The Company shall immediately redeem, retire or otherwise cancel such number of the Dual Purposes Escrow Shares equal to the 2005 Performance Adjustment, but no more than 3,000,000 shares (based on post reverse split shares, subject to applicable adjustment), as calculated pursuant to this Section 2(c)(i).