Execution Version

ShengdaTech, Inc.
 
$100,000,000
 
6.00% Senior Convertible Notes due 2018
 
PURCHASE AGREEMENT

May 22, 2008

Oppenheimer & Co. Inc.
300 Madison Avenue
New York, New York 10017
(as Representative of the Initial Purchasers)

Ladies & Gentlemen:
 
ShengdaTech, Inc., a Nevada corporation (the “Company”), proposes to issue and
sell to Oppenheimer & Co. Inc. and the other initial purchasers named on
Schedule I to this Agreement (the “Initial Purchasers”), for whom Oppenheimer &
Co., Inc. is acting as Representative (the “Representative”), $100,000,000 in
aggregate principal amount of 6.00% Senior Convertible Notes due 2018 (the
“Firm Notes”), subject to the terms and conditions set forth herein.
 
1. The Transaction. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the Initial Purchasers, severally and not
jointly, the Firm Notes which are convertible into the common stock, $0.00001
par value per share, of the Company (the “Common Stock”). In addition, the
Company proposes to grant to the Initial Purchasers an option to purchase up to
an additional $15,000,000 principal amount of Notes from the Company (the
“Option Notes”) pursuant to the terms hereof. The Firm Notes and the Option
Notes are collectively referred to herein as the “Notes.” The Notes are to be
issued under an Indenture between the Company and The Bank of New York, as
trustee (the “Trustee”) (the “Indenture”).
 
The amount of the Notes to be purchased by each of the several Initial
Purchasers are set forth opposite their names on Schedule I hereto.
 
In connection with the sale of the Notes, the Company has prepared a preliminary
offering memorandum, dated May 14, 2008 (the “Preliminary Offering Memorandum”),
and has prepared a final offering memorandum, dated the date hereof (the
“Offering Memorandum”), each setting forth information regarding the Company,
the subsidiaries listed on Schedule II hereto (the “Subsidiaries”), the Notes,
the terms of the Offering and the transactions contemplated by the Transaction
Documents (as defined below), and any material developments relating to the
Company occurring after the date of the most recent financial statements
included therein. Any references herein to the Preliminary Offering Memorandum
or the Offering Memorandum shall be deemed to include, in each case, all
amendments and supplements thereto and any information and/or documents
incorporated by reference therein. The Company hereby confirms that it has
authorized the use of the Disclosure Package (as defined below) and the Offering
Memorandum in connection with the offering and resale of the Notes by the
Initial Purchasers.

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The Company understands that the Initial Purchasers propose to make an offering
of the Notes (the “Exempt Resales”) only on the terms and in the manner set
forth in the Disclosure Package and the Offering Memorandum, as amended or
supplemented, and the terms hereof as soon as the Initial Purchasers deem
advisable after this Agreement has been executed and delivered, solely to
persons in the United States whom the Initial Purchasers reasonably believe to
be (i) “qualified institutional buyers” (each, a “QIB”) as defined in Rule 144A
under the Securities Act of 1933, as amended (the “Securities Act”), as such
rule may be amended from time to time (“Rule 144A”) in transactions under Rule
144A, or (ii) institutional accredited investors (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) (“Institutional Accredited Investors”)
that, prior to their purchase of the Notes, deliver to the Initial Purchasers a
letter containing the representations and agreements set forth in Annex B to the
Offering Memorandum, in transactions pursuant to another exemption of sale of
securities from registration requirements of the Securities Act, including
pursuant to transactions under “Section 4(1-1/2)”. The QIBs and Institutional
Accredited Investors are referred to herein from time to time as the “Eligible
Purchasers.” The Initial Purchasers will offer the Notes to such Eligible
Purchasers initially at a price equal to 100% of the principal amount thereof.
Such price may be changed by the Initial Purchasers at any time without notice.
 
The Notes are convertible in accordance with their terms and the terms of the
Indenture into Common Stock (except for any cash in lieu of fractional shares)
at an initial conversion rate of 100.6036 shares of Common Stock per $1,000
principal amount of Notes.
 
Holders of the Notes (including the Initial Purchasers and their direct and
indirect transferees) will be entitled to the benefits of a Registration Rights
Agreement, to be dated the Closing Date (as defined below) and substantially in
the form attached hereto as Exhibit A hereto (the "Registration Rights
Agreement"), pursuant to which the Company will agree to file one or more
registration statements with the Securities and Exchange Commission (the
"Commission") under the conditions set forth therein, to the extent required by
the Registration Rights Agreement, for the purpose of registration under the
Securities Act of (i) the Registrable Securities referred to (and as defined) in
the Registration Rights Agreement, which are identical in all material respects
to the Notes (except that the Registrable Securities will not contain terms with
respect to transfer restrictions) and (ii) the Common Stock issuable upon
conversion of the Notes or for the purpose of registration of the resale of the
Notes and the Common Stock issuable upon conversion of the Notes.
 
This Agreement, the Notes, the Registration Rights Agreement and the Indenture
are hereinafter referred to collectively as the “Transaction Documents.”  

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Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Disclosure Package, and if not defined therein, in
the Indenture.
 
2. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, each of the Initial Purchasers that:
 
(a) (i) The Preliminary Offering Memorandum as of its date did not, (ii) the
Preliminary Offering Memorandum, as supplemented by the information listed in
Schedule III hereto (the “Pricing Supplement”) (the Preliminary Offering
Memorandum and the Pricing Supplement taken together, the “Disclosure Package”),
as of the Applicable Time (as defined below) does not, (iii) the Offering
Memorandum as of its date does not, and as of the Closing Date will not, and
(iv) any supplement or amendment to any of the documents referenced in clauses
(i) through (iii) above does not and will not, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, the representations and
warranties contained in this paragraph shall not apply to statements in or
omissions from the Preliminary Offering Memorandum or the Offering Memorandum
(or any supplement or amendment thereto, including the Pricing Supplement) made
in reliance upon and in conformity with Initial Purchaser Information (as such
term is defined in Section 11 hereof). For purposes of this Agreement, the
“Applicable Time” means 5:00 p.m. New York City time on the date of this
Agreement.
 
(b) The Disclosure Package and the Offering Memorandum have been or will be
prepared by the Company for use by the Initial Purchasers in connection with the
offering of the Notes.
 
(c)  The financial information and statements, including the notes thereto, and
the supporting schedules, if any, included in the Disclosure Package and the
Offering Memorandum present fairly the financial position as of the dates
indicated and the cash flows and results of operations for the periods specified
of the Company and its Subsidiaries in the Disclosure Package and the Offering
Memorandum; except as otherwise stated in the Disclosure Package and the
Offering Memorandum, said financial statements have been prepared in conformity
with U.S. GAAP applied on a consistent basis throughout the periods involved;
and the supporting schedules included in the Disclosure Package and the Offering
Memorandum present fairly the information required to be stated therein. The
other financial and statistical information included in the Disclosure Package
and the Offering Memorandum derived from the historical and as adjusted
financial information and statements, present fairly the information included
therein and have been prepared on a basis consistent with that of the financial
statements, historical and as adjusted financial information and statements,
that are included in the Disclosure Package and the Offering Memorandum and the
books and records of the respective entities presented therein and, to the
extent such information is a range, projection or estimate, is based on the good
faith belief and estimates of the management of the Company and the
Subsidiaries.
 
(d)  Hansen, Barnett & Maxwell, P.C. (the “Auditor”) who have certified or will
certify the financial statements and supporting schedules and information of the
Company and its Subsidiaries included or to be included as part of the
Disclosure Package and the Offering Memorandum, are and, during the periods
covered by their report, were an independent public accounting firm as required
by the Securities Act and the Exchange Act.

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(e) The Company and each of the Subsidiaries are duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation or organization, and each such entity has all requisite power
and authority to carry on its business as it is currently being conducted and as
described in the Disclosure Package and the Offering Memorandum, and to own,
lease and operate its respective properties. The Company and each of its
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted by it or location of the assets or properties owned, leased or
licensed by it requires such qualification, except for those failures to be so
qualified or in good standing which (individually or in the aggregate) would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on (A) the business, general affairs, management, condition
(financial or otherwise), results of operations, stockholders’ equity, or
properties of the Company and the Subsidiaries, individually or taken as a
whole, (B) the long-term debt or capital stock of the Company or any Subsidiary,
(C) the issuance or marketability of the Notes or (D) the validity of this
Agreement or any other Transaction Documents or the transactions described in
the Disclosure Package and the Offering Memorandum under the caption “Use of
Proceeds” (any such effect being a “Material Adverse Effect”).
 
(f) The Subsidiaries listed on Schedule II hereto are the only “subsidiaries” of
the Company (within the meaning of Rule 405 under the Securities Act). Except
for the Subsidiaries or as otherwise disclosed in the Disclosure Package and the
Offering Memorandum, the Company holds no ownership or other interest, nominal
or beneficial, direct or indirect, in any corporation, partnership, joint
venture or other business entity. All of the issued shares of capital stock of,
or other ownership interests in, each Subsidiary have been duly and validly
authorized and issued and are fully paid and non-assessable and are owned,
directly or indirectly, by the Company, free and clear of any lien, charge,
mortgage, pledge, security interest, claim, limitation on voting rights, equity,
trust or other encumbrance, preferential arrangement, defect or restriction of
any kind whatsoever (any “Lien”).
 
(g) The Company and each of the Subsidiaries has all requisite corporate power
and authority, and all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits of and from all governmental or regulatory
bodies or any other person or entity (collectively, the "Permits"), to own,
lease and license its assets and properties and conduct its business, all of
which are valid and in full force and effect, except where the lack of such
Permits, individually or in the aggregate, would not have a Material Adverse
Effect. The Company and each of the Subsidiaries has fulfilled and performed in
all material respects all of its obligations with respect to such Permits and no
event has occurred that allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the Company thereunder. No Permits are required to enter into,
deliver and perform this Agreement or any other Transaction Document and to
issue and sell the Notes. 

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(h) Except as described in the Disclosure Package and the Offering Memorandum,
the Company and each of the Subsidiaries owns or possesses all rights to use all
patents, patent rights, inventions, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-how and
other similar rights and proprietary knowledge (collectively, “Intangibles”)
reasonably necessary for the conduct of its business. Neither the Company nor
any of the Subsidiaries has received any notice of, or is aware of, any
infringement of or conflict with asserted rights of others with respect to any
Intangibles.
 
(i) The Company and each of the Subsidiaries has good and marketable title to
all real property, and good and marketable title, or valid land use rights
granted by relevant authorities in China to all other property owned by it
described in the Disclosure Package and the Offering Memorandum, in each case
free and clear of all Liens, except such as do not materially affect the value
of such property and do not materially interfere with the use made or proposed
to be made of such property by the Company and the Subsidiaries. All property
held under lease by the Company and the Subsidiaries is held by them under
valid, existing and enforceable leases, free and clear of all Liens, except such
as are not material and do not materially interfere with the use made or
proposed to be made of such property by the Company and the Subsidiaries.
Subsequent to the respective dates as of which information is given in the
Disclosure Package and the Offering Memorandum, (i) there has not been any event
which, individually or in the aggregate, would have a Material Adverse Effect;
(ii) neither the Company nor any of the Subsidiaries has sustained any loss or
interference with its assets, businesses or properties (whether owned or leased)
from fire, explosion, earthquake, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree which, individually or in the
aggregate, would have a Material Adverse Effect; and (iii) since the date of the
latest balance sheet included in the Disclosure Package and the Offering
Memorandum except as may be disclosed in the Offering Memorandum, neither the
Company nor the Subsidiaries has (A) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, except such
liabilities or obligations incurred in the ordinary course of business, (B)
entered into any transaction not in the ordinary course of business or (C)
declared or paid any dividend or made any distribution on any shares of its
stock or redeemed, purchased or otherwise acquired or agreed to redeem, purchase
or otherwise acquire any shares of its capital stock.
 
(j)  Each description of a contract, document or other agreement in the
Disclosure Package and the Offering Memorandum accurately reflects in all
material respects the terms of the underlying contract, document or other
agreement. Each contract, document or other agreement described in the
Disclosure Package and the Offering Memorandum is in full force and effect and
is valid and enforceable by and against the Company or the Subsidiary, as the
case may be, in accordance with its terms. Neither the Company nor any of the
Subsidiaries, if a Subsidiary is a party, nor to the Company's knowledge, any
other party is in default in the observance or performance of any term or
obligation to be performed by it under any such agreement, and no event has
occurred which with notice or lapse of time or both would constitute such a
default, in any such case which default or event, individually or in the
aggregate, would have a Material Adverse Effect. No default exists, and no event
has occurred which with notice or lapse of time or both would constitute a
default, in the due performance and observance of any term, covenant or
condition, by the Company or any Subsidiary, if a Subsidiary is a party thereto,
of any other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which Company or its properties or business or a
Subsidiary or its properties or business may be bound or affected which default
or event, individually or in the aggregate, would have a Material Adverse
Effect.

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(k)  The statistical, industry-related and market related data included in the
Disclosure Package and the Offering Memorandum are based on or derived from
sources that the Company believes to be reliable and accurate, and such data
agrees with the sources from which they are derived.
 
(l) Neither the Company nor any Subsidiary (i) is in violation of its
certificate or articles of incorporation, articles of association, by-laws,
certificate of formation, limited liability company agreement, partnership
agreement or other organizational documents, (ii) is in default under, and no
event has occurred which, with notice or lapse of time, or both, would
constitute a default under, or result in the creation or imposition of any Lien
upon, any property or assets of the Company or any Subsidiary pursuant to, any
bond, debenture, note, indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject or (iii) is in
violation of any statute, law, rule, regulation, ordinance, directive, judgment,
decree or order of any judicial, regulatory or other legal or governmental
agency or body, foreign or domestic applicable to it, except (in the case of
clauses (ii) and (iii) above) for violations or defaults that could not
(individually or in the aggregate) reasonably be expected to have a Material
Adverse Effect and except (in the case of clause (ii) alone) for any Lien
disclosed in the Disclosure Package and the Offering Memorandum.
 
(m) The Company has the required corporate or other power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the other Transaction Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
corporate or other power and authority to issue, sell and deliver the Notes.
 
(n) The Notes have been duly and validly authorized by the Company for issuance
and sale to the Initial Purchasers pursuant to this Agreement and, when executed
by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and when delivered to and paid for by the Initial
Purchasers in accordance with the terms hereof and thereof, will be duly and
validly executed, issued and delivered and will constitute valid and legally
binding obligations of the Company, entitled to the benefits of the Indenture
and enforceable against the Company in accordance with their terms, except that
the enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors’ rights generally and
(ii) general principles of equity. The Notes will conform in all material
respects to the descriptions thereof in the Disclosure Package and the Offering
Memorandum. At the Closing Date, the Notes will be in the form contemplated by
the Indenture.

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(o) The Indenture has been duly and validly authorized by the Company and, when
duly executed and delivered by the Company (assuming the due authorization,
execution and delivery by the Trustee), will constitute a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that the enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors’ rights generally and
(ii) general principles of equity. The Indenture conforms in all material
respects to the description thereof in the Disclosure Package and the Offering
Memorandum. On the Closing Date, the Indenture will conform in all material
respects to the requirements of the Trust Indenture Act of 1939, as amended (the
“Trust Indenture Act”), and the rules and regulations of the Commission
applicable to an indenture that is qualified thereunder.
 
(p) The Registration Rights Agreement has been duly and validly authorized by
the Company and, when duly executed and delivered by the Company (assuming the
due authorization, execution and delivery by the Initial Purchasers), will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that the enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to or affecting creditors’ rights generally and (ii) general principles of
equity. The Registration Rights Agreement conforms in all material respects to
the description thereof in the Disclosure Package and the Offering Memorandum.
 
(q) This Agreement has been duly and validly authorized, executed and delivered
by the Company.
 
(r) On the Closing Date, the Registrable Securities will have been duly
authorized by the Company and, when duly executed, authenticated, issued and
delivered as contemplated by the Registration Rights Agreement, will be duly and
validly issued and outstanding and will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their terms and will be entitled to the benefits of the Indenture.
 
(s) None of (i) the execution, delivery and performance by the Company of this
Agreement and consummation of the transactions contemplated by the Transaction
Documents to which each of them, respectively, is a party, (ii) the issuance and
sale of the Notes or (iii) the consummation by the Company of the transactions
described in the Disclosure Package and the Offering Memorandum under the
caption “Use of Proceeds,” will give rise to a right to terminate or accelerate
the due date of any payment due under, or conflict with or result in the breach
of any term or provision of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a default) under, or require
any consent or waiver under, or result in the execution or imposition of any
lien, charge or encumbrance upon any properties or assets of the Company or any
Subsidiary pursuant to the terms of, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which either the Company or any Subsidiary or any of their properties or
businesses is bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation applicable to the Company or any Subsidiary or
violate any provision of the charter or by-laws of the Company or any
Subsidiary, except for such consents or waivers which have already been obtained
and are in full force and effect.

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(t) The Company has authorized and outstanding capital stock as set forth under
the caption "Capitalization" in the Disclosure Package and the Offering
Memorandum. All of the issued and outstanding shares of common stock of the
Company have been duly and validly issued and are fully paid and nonassessable.
There are no statutory preemptive or other similar rights to subscribe for or to
purchase or acquire any shares of common stock of the Company or any of the
Subsidiaries or any such rights pursuant to its charter or by-laws or any
agreement or instrument to or by which the Company or any of the Subsidiaries is
a party or bound. Except as disclosed in the Disclosure Package and the Offering
Memorandum, there is no outstanding option, warrant or other right calling for
the issuance of, and there is no commitment, plan or arrangement to issue, any
share of stock of the Company or any of the Subsidiaries or any security
convertible into, or exercisable or exchangeable for, such stock. All
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, and are fully paid and nonassessable and are
owned directly by the Company or by another wholly owned subsidiary of the
Company free and clear of any security interests, liens, encumbrances, equities
or claims, other than those described in the Disclosure Package and the Offering
Memorandum.
 
(u) When the Notes the Initial Purchasers propose to offer in transactions under
Rule 144A are issued and delivered pursuant to this Agreement, no securities of
the Company or any Subsidiary will be (i) of the same class (within the meaning
of Rule 144A) as such Notes the Initial Purchasers propose to offer in
transactions under Rule 144A and (ii) except for the Common Stock of the
Company, listed on a national securities exchange registered under Section 6 of
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations of the Securities & Exchange Commission (the “Commission”)
promulgated thereunder, the “Exchange Act”) or quoted in a United States
automated interdealer quotation system.
 
(v) Except as described in the Disclosure Package and the Offering Memorandum,
no person has any rights to require registration of any security of the Company
by reason of the execution by the Company of this Agreement or any other
Transaction Document to which it is a party or the consummation by the Company
of the transactions contemplated hereby and thereby, or as part or on account
of, or otherwise in connection with the offering of the Notes and any of the
other transactions contemplated by the Transaction Documents, and any such
rights so disclosed have been effectively waived by the holders thereof, and any
such waivers remain in full force and effect.
 
(w) None of the Company or any Subsidiary or any of their respective affiliates
(as defined in Rule 501(b) of Regulation D under the Securities Act) or
representatives directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of any “security” (as
defined in the Securities Act) which is or could be integrated with the sale of
the Notes in a manner that would require the registration under the Securities
Act of the Notes or (ii) engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
in connection with the offer and sale of the Notes or in connection with Exempt
Resales of the Notes, or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act. Assuming the accuracy of the
Initial Purchasers’ representations and warranties set forth in Section
3 hereof, neither (i) the offer and sale of the Notes to the Initial Purchasers
in the manner contemplated by this Agreement, the Disclosure Package and the
Offering Memorandum nor (ii) the Exempt Resales require registration under the
Securities Act and prior to the effectiveness of any Registration Statement. The
Indenture does not require qualification under the Trust Indenture Act. No
securities of the same class as the Notes have been issued and sold by the
Company or any Subsidiary within the six-month period immediately prior to the
date hereof.

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(x) Each of (i) the Preliminary Offering Memorandum as of its date, (ii) the
Disclosure Package as of the Applicable Time, (iii) the Offering Memorandum as
of its date and as of the Closing Date and (iv) each amendment or supplement to
any of the documents referenced in (i), (ii) or (iii), in each case, as of its
date, contains the information specified in, and meets the requirements of, Rule
144A(d)(4) under the Securities Act.
 
(y) Except pursuant to this Agreement, there are no contracts, agreements or
understandings between or among the Company and the Subsidiaries, and any other
person that would give rise to a valid claim against the Company or any
Subsidiary or the Initial Purchasers for a brokerage commission, finder’s fee or
like payment in connection with the issuance, purchase and sale of the Notes.
 
(z) There are no legal or governmental proceedings pending to which the Company
or any of Subsidiary is a party or of which any property of the Company or any
Subsidiary is the subject which, if determined adversely to the Company or any
of the Subsidiaries could individually or in the aggregate have a Material
Adverse Effect; and, to the knowledge of the Company, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others.
 
(aa) Neither the Company nor any Subsidiary is involved in any labor dispute
nor, to the knowledge of the Company, is any such dispute threatened, which
dispute, individually or in the aggregate, would have a Material Adverse Effect.
The Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers or contractors which, individually
or in the aggregate, would have a Material Adverse Effect. The Company is not
aware of any threatened or pending litigation between the Company or any
Subsidiary and any of its executive officers which, if adversely determined,
could have, individually or in the aggregate, a Material Adverse Effect and has
no reason to believe that such officers will not remain in the employment of the
Company.
 
(bb) Except as disclosed in the Disclosure Package and the Offering Memorandum,
no relationship, direct or indirect, exists between or among the Company, any
Subsidiary or any affiliate of the Company, on the one hand, and any director,
officer, stockholder, customer or supplier of the Company, any Subsidiary or any
affiliate of the Company, on the other hand, which is required by the Exchange
Act to be described in the Company’s annual and/or quarterly reports on Forms
10-K and 10-Q, as applicable, which is not so described and described as
required in such reports, or which would be required by the Securities Act to be
described in the Disclosure Package and the Offering Memorandum if the
Disclosure Package and the Offering Memorandum were prospectuses included in
registration statements on Form S-1 filed with the Commission.  There are no
outstanding loans, advances (except normal advances for business expenses in the
ordinary course of business) or guarantees of indebtedness by the Company to or
for the benefit of any of the officers or directors of the Company or any of
their respective family members. The Company has not, in violation of the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in
connection therewith (the “Sarbanes-Oxley Act”), directly or indirectly,
including through a Subsidiary, extended or maintained credit, arranged for the
extension of credit, or renewed an extension of credit, in the form of a
personal loan to or for any director or executive officer of the Company.

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(cc) Neither the Company nor any of its affiliates (as defined in Rule 144 under
the Securities Act) has taken, nor will it take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result in,
or which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Common Stock of the
Company or any other security of the Company to facilitate the sale or resale of
any of the Notes or the Common Stock issuable upon conversion thereof.
 
(dd) Other than U.S. income tax returns, for which the Company has had no
reportable income for any period and therefore no tax liability, the Company and
each of the Subsidiaries has filed all tax returns in all jurisdictions which
are required to be filed through the date hereof, which returns are true and
correct in all material respects or has received timely extensions thereof, and
has paid all taxes shown on such returns and all assessments received by it to
the extent that the same are material and have become due. There are no tax
audits or investigations pending, which if adversely determined would have,
individually or in the aggregate, a Material Adverse Effect; nor are there any
material proposed additional tax assessments against the Company or any of the
Subsidiaries.
 
(ee) The books, records and accounts of the Company and the Subsidiaries
accurately and fairly reflect, the transactions in, and dispositions of, the
assets of, and the results of operations of, the Company and its subsidiaries.
The Company and each of the Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
 
(ff) The Company and its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are described in the Disclosure Package and the Offering Memorandum; all
policies of insurance and fidelity or surety bonds insuring the Company or any
of the Subsidiaries or the Company’s or the Subsidiaries’ respective businesses,
assets, employees, officers and directors are in full force and effect; the
Company and each of the Subsidiaries are in compliance with the terms of such
policies and instruments in all material respects; and neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that is not materially greater than the current cost. There
are no material claims by the Company or any Subsidiary under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause. Neither the Company nor any of the
Subsidiaries has been denied any insurance coverage which it has sought or for
which it has applied.

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(gg) Each approval, consent, order, authorization, designation, declaration or
filing of, by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Company of this
Agreement and the other Transaction Documents and the consummation of the
transactions herein contemplated required to be obtained or performed by the
Company has been obtained or made and is in full force and effect.
 
(hh) The Company and each Subsidiary is not now and, after sale of the Notes as
contemplated hereunder and application of the net proceeds of such sale as
described in the Disclosure Package and the Offering Memorandum under the
caption “Use of Proceeds,” will not be, required to register as an “investment
company” under the Investment Company Act of 1940, as amended (the “Investment
Company Act”) and is not and will not be an entity “controlled” by an
“investment company” within the meaning of the Investment Company Act.
 
(ii) The Company or any other person associated with or acting on behalf of the
Company including, without limitation, any director, or executive officer of the
Company or the Subsidiaries, has not, directly or indirectly, while acting on
behalf of the Company or the Subsidiaries (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; or (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
 
(jj) The operations of the Company and the Subsidiaries are and have been
conducted at all times in compliance with applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, the money laundering statutes of all jurisdictions, the rules
and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental agency
(collectively, the “Money Laundering Laws”) and no action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of the Subsidiaries with respect to the Money
Laundering Laws is pending, or to the best knowledge of the Company, threatened.
 
(kk) Neither the Company nor any of its Subsidiaries nor, to the knowledge of
the Company, any director, officer, agent, employee or affiliate of the Company
or any of the Subsidiaries 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, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other person or entity, for
the purpose of financing the activities of any person currently subject to any
U.S. sanctions administered by OFAC.
 
(ll) None of the Company or any of the Subsidiaries 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 service of process, from
attachment prior to or in aid of execution of judgment or from other legal
process or proceeding for the giving of any relief or for the enforcement of any
judgment.

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(mm) The Company has taken all reasonable steps to comply with, and to ensure
compliance by all of the Company’s shareholders, directors and officers who are
PRC residents or PRC citizens with any applicable rules and regulations of the
State Administration of Foreign Exchange (the “SAFE Rules and Regulations”),
including without limitation, requiring each shareholder, director and officer
that is, or is directly or indirectly owned or controlled by, a PRC resident or
PRC citizen to complete any registration and other procedures required under
applicable SAFE Rules and Regulations.
 
(nn) The Company has fulfilled its obligations, if any, under the minimum
funding standards of Section 302 of the U.S. Employee Retirement Income Security
Act of 1974 (“ERISA”) and the regulations and published interpretations
thereunder with respect to each “plan” as defined in Section 3(3) of ERISA and
such regulations and published interpretations in which its employees are
eligible to participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such regulations
and published interpretations. No “Reportable Event” (as defined in 12 ERISA)
has occurred with respect to any “Pension Plan” (as defined in ERISA) for which
the Company could have any liability.
 
(oo)  The Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 under the Exchange Act),
which: (i) are designed to ensure that material information relating to the
Company and the Subsidiaries is made known to the Company’s principal executive
officer and its principal financial officer by others within those entities;
(ii) provide for the periodic evaluation of the effectiveness of such disclosure
controls and procedures at the end of the periods in which the periodic reports
are required to be prepared; and (iii) are effective in all material respects to
perform the functions for which they were established.
 
(pp) Except as described in the Disclosure Package and the Offering Memorandum,
based on the evaluation of its disclosure controls and procedures, the Company
is not aware of (i) any significant deficiency in the design or operation of
internal controls which could adversely affect the Company’s ability to record,
process, summarize and report financial data or any material weaknesses in
internal controls; or (ii) any fraud, whether or not material, that involves
management or other employees who have a role in the Company’s internal
controls.
 
(qq) Except as described in the Disclosure Package and the Offering Memorandum,
there are no material off-balance sheet arrangements (as defined in Item 303 of
Regulation S-K) that, individually or in the aggregate, have or are reasonably
likely to have a material current or future adverse effect on the Company’s
financial condition, revenues or expenses, changes in financial condition,
results of operations, liquidity, capital expenditures or capital resources.

(rr) The Company’s Board of Directors has validly appointed an audit committee
whose composition satisfies the requirements of Rule 4350(d)(2) of the Rules of
the Financial Industry Regulatory Authority (the “FINRA Rules”) and the Board of
Directors and/or the audit committee has adopted a charter that satisfies the
requirements of Rule 4350(d)(1) of the FINRA Rules. The audit committee has
reviewed the adequacy of its charter within the past twelve months.

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(ss) There is and has been no failure on the part of the Company or any of its
directors or officers, in their capacities as such, to comply with any provision
of the Sarbanes-Oxley Act, including, without limitation, Section 402 related to
loans and Sections 302 and 906 related to certifications.
 
(tt) Each of the Company and the Subsidiaries is in compliance with all rules,
laws and regulation relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment (“Environmental
Law”) which are applicable to its business except as would not reasonable be
expected to have a Material Adverse Effect. Except as described in the
Disclosure Package and the Offering Memorandum, neither the Company nor the
Subsidiaries has received any written notice from any governmental authority or
third party of an asserted claim under Environmental Laws which are applicable
to its business. Except as described in the Disclosure Package and the Offering
Memorandum, each of the Company and the Subsidiaries has received all permits,
licenses or other approvals required of it under applicable Environmental Laws
to conduct its business and is in compliance in all material respects with all
terms and conditions of any such permit, license or approval. To the Company’s
knowledge, except as disclosed in the Disclosure Package and Offering
Memorandum, no facts currently exist that will require the Company or any of the
Subsidiaries to make future material capital or other expenditures to comply
with Environmental Laws which are applicable to its business.
 
(uu) The statements in the Preliminary Offering Memorandum and the Offering
Memorandum under the headings “Taxation” and “Business – Regulations” insofar as
such statements summarize legal matters, agreements, documents or proceedings
discussed therein, are accurate and fair summaries of such legal matters,
agreements, documents or proceedings.
 
(vv) Each director and executive officer of the Company and each stockholder of
the Company listed on Schedule V hereto has delivered to the Initial Purchasers
his enforceable written lock-up agreement in the form attached to this Agreement
as Exhibit B hereto ("Lock-Up Agreement").
 
(ww) Upon the Issuance and delivery of the Notes in accordance with this
Agreement and the Indenture, the Notes will be convertible at the option of the
holder thereof into shares of the Common Stock in accordance with the terms of
the Notes and the Indenture; the Common Stock issuable upon conversion of the
Notes have been duly authorized and reserved and, when issued upon conversion of
the Notes, will be validly issued, fully paid and non-assessable; and the
issuance of the Common Stock will not be subject to any preemptive or similar
rights.
 
(xx) The Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
the quotation of the Common Stock on the Nasdaq Global Select Market, nor has
the Company received any notification that the Commission or the Nasdaq Global
Select Market is contemplating terminating such registration or quotation.

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(yy) Except as described in the Disclosure Package and the Offering Memorandum,
none of the Company or any of the Subsidiaries is in default under any of the
contracts described in the Disclosure Package and the Offering Memorandum, has
received a written notice or claim of any such default or has knowledge of any
breach of such contracts by the other party or parties thereto, except such
defaults or breaches as would not, individually or in the aggregate, have a
Material Adverse Effect.
 
(zz) Neither the Company nor any of the Company’s Subsidiaries has distributed
or, prior to the later to occur of (i) the Closing Date and (ii) completion of
the distribution of the Notes, will distribute any material in connection with
the offering and sale of the Notes other than the Preliminary Offering
Memorandum or the Offering Memorandum.
 
Any certificate signed by or on behalf of the Company and delivered to the
Initial Purchasers shall be deemed to be a representation and warranty by the
Company to the Initial Purchasers as to the matters covered thereby.
 
The Company acknowledges that the Initial Purchasers and, for purposes of the
opinions to be delivered to the Initial Purchasers pursuant to Section 9 hereof,
counsel for the Company and counsel for the Initial Purchasers, will rely upon
the accuracy and truth of the foregoing representations and hereby consent to
such reliance.
 
3. Representations and Warranties of the Initial Purchasers. Each Initial
Purchaser, severally and not jointly, represents, warrants and covenants to the
Company and agrees that:
 
(a) Such Initial Purchaser is a QIB and an accredited investor within the
meanings of Rule 501(a) of the Securities Act, with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Notes.
 
(b) Such Initial Purchaser (i) has not solicited offers for, or offered or sold,
and will not solicit offers for, or offer or sell, the Notes by means of any
form of general solicitation or general advertising within the meaning of Rule
502(c) of Regulation D under the Securities Act (“Regulation D”) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (ii) it has solicited and will solicit offers for the Notes
only from, and has offered or sold and will offer, sell or deliver the Notes, as
part of their initial offering, only within the United States to persons whom it
reasonably believes to be (i) QIBs, or if any such person is buying for one or
more institutional accounts for which such person is acting as fiduciary or
agent, only when such person has represented to it that each such account is a
QIB to whom notice has been given that such sale or delivery is being made in
reliance on Rule 144A and in each case, in transactions under Rule 144A or (ii)
Institutional Accredited Investors that, prior to their purchase of the Notes,
deliver to the Initial Purchasers a letter containing the representations and
agreements set forth in Annex B to the Offering Memorandum, in transactions
pursuant to another exemption from the registration requirements of the
Securities Act, including pursuant to transactions under “Section 4(1-1/2)”.

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(c) Each Initial Purchaser, severally and not jointly, covenants and agrees with
the Company that such Initial Purchaser will not use or refer to any “Free
Writing Offering Document” (as defined in Rule 405 under the Securities Act)
without the prior written consent of the Company where the use of or reference
to such “Free Writing Offering Document” would require the Company to file with
the Commission any “issuer information” (as defined in Rule 433 under the
Securities Act).
 
4. Purchase, Sale and Delivery. On the basis of the representations, warranties,
covenants and agreements contained in this Agreement, and subject to its terms
and conditions:
 
(a) The Company agrees to issue and sell to the several Initial Purchasers, and
each of the Initial Purchasers agree, severally and not jointly, to purchase
from the Company, at a purchase price of 95.50% of the principal amount thereof,
plus accrued interest, if any, from May 22, 2008 to the Closing Date, as defined
below (the "Initial Price"), the aggregate amount of Firm Notes. The Company
hereby grants to each of the Initial Purchasers an option to purchase all or any
part of the Option Notes at the Initial Price. The aggregate amount of Option
Notes to be purchased by each of the Initial Purchasers shall be the same
percentage of the Option Notes to be purchased by each of the Initial Purchasers
as such Initial Purchaser is purchasing of the Firm Notes. Such option may be
exercised in whole or in part at any time on or before 12:00 noon, New York City
time, on the business day before the Firm Notes Closing Date (as defined below),
and from time to time thereafter within 30 days after the date of this
Agreement, in each case upon written, facsimile or telegraphic notice, or verbal
or telephonic notice confirmed by written, facsimile or telegraphic notice, by
each of the Initial Purchasers to the Company no later than 12:00 noon, New York
City time, on the business day before the Firm Notes Closing Date or at least
two business days before the Option Notes Closing Date (as defined below), as
the case may be, setting forth the aggregate amount of Option Notes to be
purchased and the time and date (if other than the Firm Notes Closing Date) of
such purchase.
 
(b) Payment of the purchase price for, and delivery of, the Firm Notes shall be
made at the offices of Oppenheimer & Co. Inc., 300 Madison Avenue, New York, New
York 10017, at 10:00 a.m., New York City time, on the third business day
following the date of this Agreement or at such time on such other date, not
later than ten (10) business days after the date of this Agreement, as shall be
agreed upon by the Company and the Representative (such time and date of
delivery and payment are called the "Firm Notes Closing Date”). In addition, in
the event that any or all of the Option Notes are purchased by the Initial
Purchasers, payment of the purchase price, and delivery of the certificates, for
such Option Notes shall be made at the above-mentioned offices, or at such other
place as shall be agreed upon by the Initial Purchasers and the Company, on each
date of delivery as specified in the notice from the Initial Purchasers to the
Company (such time and date of delivery and payment are called the “Option Notes
Closing Date”). The Firm Notes Closing Date and any Option Notes Closing Dates
are called, individually, a “Closing Date” and, together, the “Closing Dates”.

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(c) Payment for the Notes shall be made to the Company by wire transfer of
immediately available funds or by certified or official bank check or checks
payable in New York Clearing House (same day) funds drawn to the order of the
Company, against delivery of the Notes to the Representative for the respective
accounts of the Initial Purchasers.
 
(d) On each Closing Date, the Company will deliver to the Initial Purchasers, in
such denomination or denominations and registered in such name or names as the
Representative requests upon notice to the Company at least 48 hours prior to
the Closing Date, one or more Notes in definitive form, registered in such names
and in such denominations as the Initial Purchasers shall request, having an
aggregate amount corresponding to the aggregate principal amount of the Notes
sold pursuant to Exempt Resales to QIBs and Institutional Accredited Investors
(the “Definitive Notes”) against payment of the purchase price therefor by wire
transfer of same-day funds to the account of the Company, previously designated
by it in writing. The Definitive Notes shall be made available to the Initial
Purchasers for inspection not later than 5:00 p.m., New York City time, on the
business day immediately preceding each Closing Date.
 
5. Offering by Initial Purchasers. The Initial Purchasers propose to make an
offering of the Notes at the price and upon the terms set forth in the Offering
Memorandum as soon as practicable after this Agreement is entered into and as,
in the judgment of the Initial Purchasers, is advisable.
 
6. Agreements of the Company. The Company covenants and agrees with the Initial
Purchasers that:
 
(a) The Company shall advise the Initial Purchasers promptly and, if requested
by the Representative, confirm such advice in writing, (i) of the issuance by
any state securities commission or other regulatory authority of any stop order
or order suspending the qualification or exemption from qualification of any
Notes for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority and (ii) of the happening of any event that makes any
statement of a material fact made in the Disclosure Package or the Offering
Memorandum untrue or that requires the making of any additions to or changes in
the Disclosure Package or the Offering Memorandum in order to make the
Disclosure Package or the Offering Memorandum not misleading in the light of the
circumstances existing at the time it is delivered to an Eligible Purchaser. The
Company shall use its best efforts to prevent the issuance of any stop order or
order suspending the qualification or exemption from qualification of any Notes
under any state securities or blue sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of any Notes under
any state securities or blue sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.
 
(b) The Company shall, without charge, provide to the Initial Purchasers and to
counsel to the Initial Purchasers, and to those persons identified by the
Initial Purchasers to the Company as many copies of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments or supplements
thereto, as the Initial Purchasers may reasonably request. The Company consents
to the use of the Preliminary Offering Memorandum and the Offering Memorandum,
and any amendments and supplements thereto required pursuant hereto, by the
Initial Purchasers in connection with Exempt Resales.

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(c) The Company will not amend or supplement the Preliminary Offering Memorandum
or the Offering Memorandum or any other document used in connection with the
offer and sale of the Notes or any amendment or supplement thereto during such
period as, in the opinion of counsel for the Initial Purchasers, the Preliminary
Offering Memorandum or the Offering Memorandum is required by law to be
delivered in connection with Exempt Resales and in connection with market-making
activities of the Initial Purchasers for so long as any Notes are outstanding
unless the Initial Purchasers shall previously have been advised thereof and
furnished a copy for a reasonable period of time prior to the proposed amendment
or supplement and as to which the Initial Purchasers shall not have given their
consent, which consent shall not be unreasonably withheld. The Company shall
promptly, upon the request of the Initial Purchasers or counsel to the Initial
Purchasers, make any amendment or supplement to the Preliminary Offering
Memorandum or the Offering Memorandum or any other document used in connection
with the offer and sale of the Notes that may be necessary or advisable in
connection with such Exempt Resales or such market making activities.
 
(d) If, during the period referred to in 6(c) above, any event shall occur as a
result of which, it is necessary or advisable, in the opinion of counsel for the
Initial Purchasers, to amend or supplement the Preliminary Offering Memorandum
or the Offering Memorandum or any other document used in connection with the
offer and sale of the Notes in order to make such Preliminary Offering
Memorandum or Offering Memorandum or such other document not misleading in the
light of the circumstances existing at the time it is delivered to an Eligible
Purchaser, or if for any other reason it shall be necessary or advisable to
amend or supplement the Preliminary Offering Memorandum or the Offering
Memorandum or such other document to comply with applicable laws, rules or
regulations, the Company shall (subject to Section 6(c) hereof) forthwith amend
or supplement such Preliminary Offering Memorandum or Offering Memorandum or
such other document at its own expense so that, as so amended or supplemented,
such Preliminary Offering Memorandum or Offering Memorandum or such other
document will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading or so that such Preliminary Offering Memorandum or Offering
Memorandum or such other document will comply with all applicable laws, rules or
regulations; if, during the period referred to in 6(c) above, the Company
proposes to file with the Commission an Exchange Act report that is incorporated
by reference into the Offering Memorandum, a reasonable time prior to the
proposed filing, the Company shall furnishes a copy of such Exchange Act report
to the Initial Purchasers for review and comment, and shall not file such
document with the Commission until the Initial Purchasers have been afforded the
opportunity to review and comment and the Initial Purchasers have not reasonably
objected to the filing of such Exchange Act report.
 
(e) The Company shall cooperate with the Initial Purchasers and counsel for the
Initial Purchasers in connection with the qualification or registration of the
Notes for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative may designate and shall continue such
qualifications in effect for as long as may be necessary to complete the Exempt
Resales; provided, however, that in connection therewith the Company shall not
be required to qualify as a foreign corporation where it is not now so qualified
or to execute a general consent to service of process in any jurisdiction or to
take any other action that would subject it to general service of process or to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise subject, in each case, other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales.

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(f) If this Agreement shall terminate or shall be terminated after execution
because of any failure or refusal on the part of the Company to comply with the
terms or fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Initial Purchasers for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Initial Purchasers)
incurred by the Initial Purchasers in connection herewith.
 
(g) The Company shall apply the net proceeds from the sale of the Notes in the
manner set forth under “Use of Proceeds” in the Disclosure Package and the
Offering Memorandum.
 
(h) The Company shall not voluntarily claim, and shall actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Notes.
 
(i) The Company shall do and perform all things required or necessary to be done
and performed under this Agreement prior to or after each Closing Date and to
satisfy all conditions precedent to the delivery of the Notes.
 
(j) None of the Company or any of its “affiliates” (as defined in Rule 144 under
the Securities Act) will sell, offer for sale, solicit offers to buy or
otherwise negotiate in respect of any “security” (as defined in the Securities
Act) that could be integrated with the sale of the Notes in a manner that would
require the registration under the Securities Act of the sale to the Initial
Purchasers or the Eligible Purchasers of the Notes or to take any other action
that would result in the Exempt Resales not being exempt from registration under
the Securities Act.
 
(k) For so long as any of the Notes remain outstanding and are “restricted
securities” within the meaning of Rule 144(a)(3) under the Securities Act and
are not able to be sold in their entirety under Rule 144 under the Securities
Act (or any successor provision), for the benefit of holders from time to time
of Notes, the Company will furnish at its expense, upon request, to any holder
or beneficial owner of Notes and prospective purchasers of the Notes,
information specified in Rule 144A(d)(4) under the Securities Act, unless the
Company are then subject to and in compliance with Section 13 or 15(d) of the
Exchange Act.
 
(l) The Company shall comply with all of the agreements set forth in the
Registration Rights Agreement and the representation letters to DTC relating to
the approval of the Notes by DTC for “book-entry” transfer.
 
(m) The Company shall (i) permit the Notes to be included for quotation on The
PORTAL Market and (ii) permit the Notes to be eligible for clearance and
settlement through DTC.

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(n) During the period of three years from the Closing Date, the Company shall
deliver without charge to the Initial Purchasers (i) as soon as available,
copies of each report and other communication (financial or otherwise) of the
Company mailed to the Trustee of the holders of the Notes, stockholders or any
national securities exchange on which any class of securities of the Company may
be listed (including without limitation, press releases) other than materials
filed with the Commission and (ii) from time to time such other information
concerning the Company and the Subsidiaries as the Initial Purchasers may
reasonably request.
 
(o) The Company shall not take, directly or indirectly, any action which
constitutes or is designed to cause or result in, or which could reasonably be
expected to constitute, 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
Notes or the Common Stock issuable upon conversion thereof, or take any action
prohibited by Regulation M under the Exchange Act, in connection with the
distribution of the Notes contemplated hereby. The Company will not distribute
any (i) preliminary offering memorandum, including, without limitation, the
Preliminary Offering Memorandum, (ii) offering memorandum, including, without
limitation, the Offering Memorandum or (iii) other offering material in
connection with the offering and sale of the Notes.
 
(p) For so long as the Notes constitute “restricted” securities within the
meaning of Rule 144(a)(3) under the Securities Act, the Company shall not, and
shall not permit any Subsidiary to, solicit any offer to buy or offer to sell
the Notes by means of any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act.
 
(q) During the period from the Closing Date until one year after the Closing
Date, without the prior written consent of the Initial Purchasers, the Company
shall not, and shall not permit any of its “affiliates” (as defined in Rule 144
under the Securities Act) to, resell any of the Notes or Common Stock issuable
upon conversion of the Notes that constitute “restricted securities” under Rule
144 that have been reacquired by any of them.
 
(r) Prior to the Closing Date, the Company shall not issue any press release or
other communications, directly or indirectly, or hold any press conference with
respect to the issuance of the Notes, the Company or any of its Subsidiaries,
the properties, business, results of operations, condition (financial or
otherwise), affairs or prospects of the Company or any of its Subsidiaries,
without the prior consent of the Initial Purchasers. In such instance, the
Company shall furnish a copy of any such release or communication to the Initial
Purchasers for review and comment a reasonable time prior to its contemplated
release.
 
(s) Without the prior consent of the Initial Purchasers, not to make any offer
relating to the Notes that would constitute a “free writing prospectus” (if the
offering of the Notes was made pursuant to a registered offering under the
Securities Act) as defined in Rule 405 under the Securities Act (a “Free Writing
Offering Document”); any such Free Writing Offering Document the use of which
has been consented to by the Initial Purchasers is listed on Schedule IV hereto;
if at any time following issuance of a Free Writing Offering Document any event
occurred or occurs as a result of which such Free Writing Offering Document
would conflict with the information in the Preliminary Offering Memorandum or
the Offering Memorandum or would include an untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances then prevailing, not misleading, the
Company will give prompt notice thereof to the Initial Purchasers and, if
requested by the Initial Purchasers, will prepare and furnish without charge to
the Initial Purchasers a Free Writing Offering Document or other document which
will correct such conflict, statement or omission.

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(t) The Company, during the time prior to completion of the distribution of
Notes by the Initial Purchasers, will file all reports and other documents
required to be filed with the Commission pursuant to Section 13, 14 or 15 of the
Exchange Act within the time periods required by the Exchange Act and the
regulations promulgated thereunder.
 
(u) Without the prior written consent of the Representative, for a period of 90
days after the date of this Agreement, the Company shall not issue, sell or
register with the Commission (other than on Form S-8 or on any successor form),
or otherwise dispose of, directly or indirectly, any (i) debt securities issued
or guaranteed by the Company and having a maturity of more than one year from
the date of issue, or (ii) equity securities of the Company (or any securities
convertible into, exercisable for or exchangeable for equity securities of the
Company.
 
(v) The Company shall cause, pursuant to the terms of the Registration Rights
Agreement, to be registered, to the extent required by the Registration Rights
Agreement, pursuant to an effective registration statement under the Securities
Act, the shares of Common Stock issuable upon conversion of the Notes and to use
its best efforts to maintain the effectiveness of such registration statement
during the entire period prescribed in the Registration Rights Agreement.
 
(w) To reserve and keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Common Stock upon conversion of the Notes.
 
(x) The Company shall comply with the SAFE Rules and Regulations, and shall use
best efforts to cause its directors, officers, option holders and shareholders
that are, or that are directly or indirectly owned or controlled by, PRC
residents or PRC citizens, to comply with the SAFE Rules and Regulations
applicable to them in connection with the Company, including without limitation,
requiring each shareholder, option holder, director and officer that is, or is
directly or indirectly owned or controlled by, a PRC resident or PRC citizen to
complete any registration and other procedures required under applicable SAFE
Rules and Regulations.
 
(y) To use its best efforts to list, subject to notice of issuance, the shares
of Common Stock issuable upon conversion of the Notes on the Nasdaq Global
Select Market.

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7. Expenses. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement becomes effective or is terminated (pursuant to
Section 13 hereof or otherwise), the Company hereby agrees to pay all costs and
expenses incident to the performance of their obligations hereunder, including
the following: (i) the negotiation, preparation, printing, typing, filing,
reproduction, execution and delivery of this Agreement and of the other
Transaction Documents, any amendment or supplement to or modification of any of
the foregoing and any and all other documents furnished pursuant hereto or
thereto or in connection herewith or therewith and with the Exempt Resales; (ii)
the preparation, printing or reproduction of each Preliminary Offering
Memorandum, the Offering Memorandum (including, without limitation, financial
statements), and any other document prepared in connection with the offer and
sale of the Notes, and all amendments and supplements to any of them; (iii) the
issuance, transfer and delivery of the Notes endorsed thereon to the Initial
Purchasers; (iv) the registration or qualification of the Notes for offer and
sale under the securities or blue sky laws of the several states (including,
without limitation, filing fees, the cost of printing and mailing a preliminary
and final blue sky memorandum, and the reasonable fees and disbursements of
counsel to the Initial Purchasers relating to such registration or
qualification); (v) the delivery (including postage, air freight charges and
charges for counting and packaging) of such copies of each Preliminary Offering
Memorandum, the Offering Memorandum and any other document used in connection
with the offer and sale of the Notes and all amendments or supplements to any of
them as may be requested for use in connection with the offering and sale of the
Notes and the Exempt Resales; (vi) the preparation, printing, authentication,
issuance and delivery of certificates for the Notes, including any stamp or
other issuance or transfer taxes in connection with the original issuance and
sale of the Notes and Trustee’s fees; (vii) the fees, disbursements and expenses
of the Company’s counsel (including local and special counsel, if any) and
accountants; (viii) the preparation, reproduction and delivery of the
preliminary and supplemental blue sky memoranda and all other agreements of
documents reproduced and delivered in connection with the offering of the Notes
(including the reasonable fees and disbursements of counsel to the Initial
Purchasers in connection with such preparation); (ix) all fees and expenses
(including fees and expenses of counsel) of the Company in connection with the
approval of the Notes by DTC for “book-entry” transfer; (x) the fees and
expenses of the Trustee and its counsel; (xi) all expenses incurred in
connection with the performance by the Company of its other obligations under
this Agreement and the other Transaction Documents; (xii) the transportation and
other “roadshow” expenses incurred by or on behalf of the Company
representatives in connection with presentations to and related communications
with prospective purchasers of the Notes; and (xiii) all expenses and listing
fees incurred in connection with the application for quotation of the Notes on
The PORTAL Market.
 
8. Indemnification.
 
(a) The Company agrees to indemnify and hold harmless the Initial Purchasers,
each person, if any, who controls the Initial Purchasers within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and any
affiliates of the Initial Purchasers against any and all losses, claims, damages
and liabilities, joint or several (including any reasonable investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other Federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in the Disclosure Package, any Free Writing Offering Document or the
Offering Memorandum, or in any supplement thereto or amendment thereof, or in
any Blue Sky application or other information or other documents executed by the
Company filed in any state or other jurisdiction to qualify any or all of the
Notes under the securities laws thereof (any such application, document or
information being hereinafter referred to as a “Blue Sky Application”) or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall not inure to the benefit of the
Initial Purchasers (or any person controlling the Initial Purchasers or
affiliate of the Initial Purchasers) on account of any losses, claims, damages
or liabilities arising from the sale of the Notes to any person by the Initial
Purchasers if such untrue statement or omission or alleged untrue statement or
omission was made in the Disclosure Package, any Free Writing Offering Document
or the Offering Memorandum, or in any supplement thereto or amendment thereof,
or in any Blue Sky Application in reliance upon and in conformity with the
Initial Purchaser Information (as defined in Section 11 hereto). This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.

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(b) Each Initial Purchaser, severally and not jointly, agrees to indemnify and
hold harmless the Company, 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, and the officers and directors of the Company, against any losses, claims,
damages or liabilities to which such party may become subject, under the
Securities Act, the Exchange Act or otherwise, 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 Disclosure Package, any Free Writing Offering Document or the
Offering Memorandum, or in any supplement thereto or amendment thereof, 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 in which they were made, 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
Disclosure Package, any Free Writing Offering Document or the Offering
Memorandum, or in any supplement thereto or amendment thereof, in reliance upon
and in conformity with the Initial Purchaser Information; provided, however,
that the obligation of any Initial Purchasers, jointly and not severally, to
indemnify the Company (including any controlling person, director or officer
thereof) shall be limited to the net proceeds received by such Initial Purchaser
from the Company.
 
(c) Any party that proposes to assert the right to be indemnified under this
Section will, promptly after receipt of notice of commencement of any action,
suit or proceeding against such party in respect of which a claim is to be made
against an indemnifying party or parties under this Section, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 8(a) or 8(b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding 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 its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have been advised by counsel that there may be one or more legal defenses
available to it which are different from or in addition to those available to
the indemnifying party (in which case the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying parties. An indemnifying party shall
not be liable for any settlement of any action, suit, and proceeding or claim
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any proceeding or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless (i) such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding and (ii) does not contain any factual or legal admission by or
with respect to any indemnified party or any adverse statement with respect to
the character, professionalism, expertise or reputation of any Indemnified Party
or any action or inaction of any Indemnified Party.

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9. Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 8(a) or 8(b)
is due in accordance with its terms but for any reason is unavailable to or
insufficient to hold harmless an indemnified party in respect to any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate losses, liabilities,
claims, damages and expenses (including any investigation, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) incurred by
such indemnified party, as incurred, in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Initial Purchasers, on the other hand, from the offering of the Notes pursuant
to this Agreement or, if such allocation is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company, on the one hand,
and the Initial Purchasers, on the other hand, in connection with the statements
or omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations. The Company
and the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission. Notwithstanding the provisions of this Section 9, no Initial
Purchasers shall be required to contribute any amount in excess of the amount by
which the total price at which the Notes resold by it to Eligible Purchasers
were offered to the public exceeds the amount of damages which such Initial
Purchaser has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission. 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. For purposes of this Section 9,
each person, if any, who controls an Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Initial Purchaser, and each director of
the Company, each officer of the Company, and each person, if any, who controls
the Company within the meaning of the Section 15 of the Securities Act or
Section 20 of the Exchange Act, shall have the same rights to contribution as
the Company. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties under this Section 9, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve the party or parties from
whom contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 9. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent.

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The remedies provided for in Section 8 and this Section 9 are not exclusive and
shall not limit any rights or remedies which otherwise may be available to any
indemnified party in law or in equity.

10. Conditions of Initial Purchasers’ Obligations. The obligations of the
Initial Purchasers to purchase and pay for the Notes, as provided herein, are
subject to the absence from any certificates, opinions, written statements or
letters furnished to the Initial Purchasers pursuant to this Section 10 of any
misstatement or omissions and to the satisfaction of the following additional
conditions unless waived in writing by the Representative:
 
(a) All of the representations and warranties of the Company contained in this
Agreement shall be true and correct on the date hereof and on each Closing Date
with the same force and effect as if made on and as of the date hereof and the
Closing Date, respectively. The Company shall have performed or complied with
all of the agreements and satisfied all conditions on their respective parts to
be performed, complied with or satisfied hereunder at or prior to each Closing
Date.
 
(b) The Offering Memorandum shall have been printed and copies distributed to
the Initial Purchasers not later than 10:00 a.m., New York City time, on the day
following the date of this Agreement or at such later date and time as to which
the Representative may agree.
 
(c) No stop order suspending the qualification or exemption from qualification
of the Notes in any jurisdiction referred to in Section 6(e) hereof shall have
been issued and no proceeding for that purpose shall have been commenced or
shall be pending or threatened.

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(d) None of the issuance and sale of the Notes pursuant to this Agreement or any
of the transactions contemplated by any of the other Transaction Documents shall
be enjoined (temporarily or permanently) and no restraining order or other
injunctive order shall have been issued; and there shall not have been any legal
action, statute, order, rule, regulation, decree or other administrative
proceeding enacted, instituted, adopted, issued or threatened against the
Company or against any Initial Purchasers relating to the issuance of the Notes
or the Initial Purchasers’ activities in connection therewith or any other
transactions contemplated by this Agreement or the Offering Memorandum, or the
other Transaction Documents. No action, suit or proceeding shall have been
commenced and be pending against or affecting or, to the best of the Company’s
knowledge, threatened against, the Company or any Subsidiary before any court or
arbitrator or any governmental body, agency or official that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect; and no stop order shall have been issued
preventing the use of the Preliminary Offering Memorandum, any Free Writing
Offering Document, the Offering Memorandum, or any amendment or supplement
thereto.
 
(e) Since the respective dates as of which information is given in the
Disclosure Package, (i) there shall not have occurred any change, or any
development involving a prospective change, in or affecting the general affairs,
management, business, condition (financial or other), properties, prospects,
results of operations, capital stock, or long-term debt, or a material increase
in the short-term debt, of the Company or any of the Subsidiaries, not
contemplated by the Disclosure Package and the Offering Memorandum that is, in
the sole judgment of the Representative, so material and adverse as to make it
impracticable or inadvisable to proceed with the offering of the Notes on the
terms and in the manner contemplated by the Transaction Documents, (ii) no
dividend or distribution of any kind shall have been declared, paid or made by
the Company or any of the Subsidiaries on any class of its capital stock, other
than as disclosed in the Disclosure Package and the Offering Memorandum, (iii)
none of the Company or any of the Subsidiaries shall have incurred any liability
or obligation, direct or contingent, that is material, individually or in the
aggregate, to the Company and the Subsidiaries, taken as a whole, and that is
required to be disclosed on a balance sheet or notes thereto in accordance with
U.S. GAAP and is not disclosed on the latest balance sheet or notes thereto
included in the Disclosure Package and the Offering Memorandum and (iv) there
shall not have occurred any event or development relating to or involving the
Company or any of the Subsidiaries, or any of their respective officers or
directors that makes any statement made in the Disclosure Package or the
Offering Memorandum untrue or that, in the opinion of the Company and its
counsel or the Initial Purchasers and their counsel, require the making of any
addition to or change in the Disclosure Package or the Offering Memorandum in
order to state a material fact required by any applicable law, rule or
regulation to be stated therein or necessary in order to make the statements
made therein not misleading.
 
(f) At each Closing Date and after giving effect to the consummation of the
transactions contemplated by the Transaction Documents, there exists no Default
or Event of Default (as defined in the Indenture).

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(g) The Initial Purchasers shall have received certificates, dated each Closing
Date, signed by the chief executive officer and the chief financial officer of
the Company, in form and substance satisfactory to the Representative,
confirming, as of the Closing Date, the matters set forth in paragraphs (a),
(b), (c), (d) and (e) of this Section 10 and that, as of such Closing Date, the
obligations of the Company to be performed hereunder on or prior thereto have
been duly performed.
 
(h) The Initial Purchasers shall have received on the Closing Date:
 
(i) an opinion and letter, dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers, of Cadwalader, Wickersham & Taft LLP and
Jolley Urga Wirth Woodbury & Standish, United States counsel for the Company, to
the effect set forth in Exhibit C-1 hereto.
 
(ii) an opinion, dated the Closing Date, in form and substance satisfactory to
the Initial Purchasers, of Maples and Calder, British Virgin Islands counsel for
the Company, to the effect set forth in Exhibit C-2 hereto.
 
(iii) an opinion, dated the Closing Date, in form and substance satisfactory to
the Initial Purchasers, of King & Shine Partners, PRC counsel for the Company,
addressed to the Company with express consent to the release to the Initial
Purchasers, to the effect set forth in Exhibit C-3 hereto.
 
(iv) an opinion, dated the Closing Date, in form and substance satisfactory to
the Initial Purchasers, of Haiwen & Partners, PRC counsel for the Initial
Purchasers, to the effect set forth in Exhibit C-4 hereto.
 
(v) an opinion and letter, dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers, of Shearman & Sterling LLP,
counsel for the Initial Purchasers.
 
(vi) an opinion, dated the Closing Date, in form and substance satisfactory to
the Initial Purchasers, of Emmet, Marvin & Martin, LLP, counsel for the Trustee,
to the effect set forth in Exhibit C-5 hereto.
 
(i) Hansen, Barnett & Maxwell, P.C. (the “Auditor”), the independent registered
public accounting firm for the Company, shall deliver to the Initial Purchasers:
(i) simultaneously with the execution of this Agreement a signed letter from the
Auditor addressed to the Initial Purchasers and dated the date of this
Agreement, in form and substance reasonably satisfactory to the Representative
and Shearman & Sterling LLP, counsel for the Initial Purchasers, containing
statements and information of the type ordinarily included in accountants’
“comfort letters” to initial purchasers with respect to the financial statements
and certain financial information contained in the Preliminary Offering
Memorandum, and (ii) on each Closing Date, a signed letter from the Auditor
addressed to the Initial Purchasers and dated the date of such Closing Date(s),
in form and substance reasonably satisfactory to the Representative and Shearman
& Sterling LLP, counsel for the Initial Purchasers, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Offering Memorandum.

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(j) The Initial Purchasers and Shearman & Sterling LLP, counsel to the Initial
Purchasers, shall have been furnished with such information, certificates and
documents, in addition to those set forth above, as they may reasonably require
for the purpose of enabling them to review or pass upon the matters referred to
in this Section 10 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations, warranties
or conditions herein contained.
 
(k) The Company and the Trustee shall have entered into the Indenture and the
Initial Purchasers shall have received counterparts, conformed as executed,
thereof and the Notes shall have been duly executed and delivered by the
Company, and the Notes shall have been duly authenticated by the Trustee.
 
(l) On or after the date hereof (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall there have been any
announcement of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
downgrading, or with negative implications, or direction not determined of, any
rating of the Company or any securities of the Company (including, without
limitation, the placing of any of the foregoing ratings on credit watch with
negative or developing implications or under review with an uncertain direction)
by any “nationally recognized statistical rating organization” as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act, (ii) there
shall not have occurred any change, nor shall any notice have been given of any
potential or intended change, in the outlook for any rating of the Company or
any securities of the Company by any such rating organization and (iii) no such
rating organization shall have given notice that it has assigned (or is
considering assigning) a lower rating to the Notes than that on which the Notes
were marketed.
 
(m) The Notes shall have been approved for trading on The PORTAL Market.
 
(n) Each of the Transaction Documents and each other agreement or instrument
executed in connection with the transactions contemplated thereby shall be
reasonably satisfactory in form and substance to the Initial Purchasers and
shall have been executed and delivered by all the respective parties thereto and
shall be in full force and effect, and there shall have been no material
amendments, alterations, modifications or waivers of any provision thereof since
the date of this Agreement.
 
(o) All proceedings taken in connection with the issuance of the Notes and the
transactions contemplated by this Agreement, the other Transaction Documents and
all documents and papers relating thereto shall be reasonably satisfactory to
the Initial Purchasers and counsel to the Initial Purchasers. The Initial
Purchasers and counsel to the Initial Purchasers shall have received copies of
such papers and documents as they may reasonably request in connection
therewith, all in form and substance reasonably satisfactory to them.

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(p) All opinions, certificates, letters, schedules, documents or instruments
required by this Section 10 to be delivered by the Company will be in compliance
with the provisions hereof only if they are reasonably satisfactory in form and
substance to the Representative and counsel to the Initial Purchasers. The
Company shall furnish the Initial Purchasers such conformed copies of such
opinions, certificates, letters, schedules, documents and instruments in such
quantities as the Initial Purchasers shall reasonably request.
 
(q) On or prior to the Closing Date, the Initial Purchasers shall have received
a lock up agreement substantially in the form attached hereto as Exhibit B
signed by the Company’s Executive Officers, Directors and those shareholders
listed on Schedule V hereto.
 
(r) On or prior to the Closing Date, the Initial Purchasers shall have received
a letter containing the representations and agreements set forth in Annex B to
the Offering Memorandum from all Institutional Accredited Investors purchasing
Notes pursuant to this Agreement.
 
11. Initial Purchaser Information. The Company acknowledge that the statements
with respect to the offering of the Notes set forth in the third, fourteenth and
fifteenth paragraphs under the heading “Plan of Distribution” in the Preliminary
Offering Memorandum and the Offering Memorandum constitute the only written
information relating to the Initial Purchasers furnished to the Company by or on
behalf of the Initial Purchasers expressly for use in the Preliminary Offering
Memorandum, the Disclosure Package and the Offering Memorandum, for purposes of
Sections 2(a), 8(a) and 8(b) hereof (the “Initial Purchaser Information”).
 
12. Survival of Representations and Agreements. The respective representations,
warranties, covenants, agreements, indemnities and other statements of the
Company their respective officers and the Initial Purchasers set forth in this
Agreement or made by or on behalf of them, respectively pursuant to this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Company, any of its officers of
directors, the Initial Purchasers or any controlling person referred to in
Sections 8 and 9 hereof and (ii) delivery of and payment for the Notes to and by
the Initial Purchasers, and shall be binding upon and shall inure to the benefit
of, any successors, assigns, heirs, personal representatives of the Company, the
Initial Purchasers and the indemnified parties referred to in Section 8 hereof.
The respective representations, agreements, covenants, indemnities and other
statements set forth in Sections 7, 8, 9, 12 and 13 shall survive the
termination of this Agreement, regardless of any termination or cancellation of
this Agreement.
 
13. Effective Date of Agreement; Termination.
 
(a) This Agreement shall become effective upon execution and delivery of a
counterpart hereof by each of the parties hereto.
 
(b) This Agreement may be terminated in the sole discretion of the Initial
Purchasers by notice to the Company from the Representative, without liability
(other than with respect to Sections 8 and 9 hereof) on the Initial Purchasers’
part to the Company in the event that the Company has failed, refused or been
unable to perform or satisfy all conditions on their respective parts to be
performed or satisfied hereunder on or prior to the Closing Date, or if:

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(i) there has occurred any material adverse change in the securities markets or
any event, act or occurrence that has materially disrupted, or in the opinion of
the Initial Purchasers, will in the future materially disrupt, the securities
markets or there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international conditions on
the financial markets in the United States or elsewhere is such as to make it,
in the judgment of the Initial Purchasers, inadvisable or impracticable to
market the Notes or enforce contracts for the sale of the Notes;
 
(ii) there has occurred any outbreak or material escalation of hostilities or
other calamity or crisis the effect of which on the financial markets of the
United States or elsewhere is such as to make it, in the judgment of the Initial
Purchasers, inadvisable or impracticable to market the Notes or enforce
contracts for the sale of the Notes;
 
(iii) trading in any securities of the Company has been suspended or materially
limited or trading generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq Global Select Market shall have been suspended or
materially limited, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required by
any of said exchanges or by order of the Commission, the Financial Industry
Regulatory Authority or other regulatory body or governmental authority having
jurisdiction;
 
(iv) a banking moratorium has been declared by any state or Federal a banking
moratorium has been declared by any state or Federal authority;
 
(v) in the judgment of the Initial Purchasers, there has been since the time of
the execution of the Purchase Agreement or since the respective dates as of
which information is given in the Disclosure Package, any material adverse
change in the assets, properties, condition (financial or otherwise), or in the
results or operations, business affairs or business prospects or cash flows of
the Company and its Subsidiaries, taken as a whole, whether or not arising in
the ordinary course of business; or
 
(vi) any debt securities of the Company shall have been downgraded or placed on
any “watch list” for possible downgrading by any “nationally recognized
statistical rating organization” as defined for purposes of Rule 436(g) under
the Securities Act.
 
(c) If this Agreement shall be terminated pursuant to any of the provisions
hereof, or if the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Initial Purchasers set forth
herein is not satisfied or because of any refusal, inability or failure on the
part of the Company to perform any agreement herein or comply with any provision
hereof, the Company will, subject to demand by the Initial Purchasers, reimburse
the Initial Purchasers for all out-of-pocket expenses (including the fees and
expenses of the Initial Purchasers’ counsel), incurred by the Initial Purchasers
in connection herewith, subject to the limit as set forth in the engagement
agreement between the Company and Oppenheimer. If this Agreement is terminated
pursuant to Section 14 by reason of the default of one or more of the Initial
Purchasers, the Company shall not be obligated to reimburse any Initial
Purchasers on account of such expenses.

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14. Substitution of Initial Purchasers. If any Initial Purchaser shall default
in its obligation to purchase on the Closing Date the Notes agreed to be
purchased hereunder, the Representative shall have the right, within 36 hours
thereafter, to make arrangements for one or more of the non-defaulting Initial
Purchasers, or any other Initial Purchasers, to purchase such Notes on the terms
contained herein. If, however, the Representative shall not have completed such
arrangements within such 36-hour period, then the Company shall be entitled to a
further period of 36 hours within which to procure another party or other
parties satisfactory to the Initial Purchasers to purchase such Notes on such
terms.  If, after giving effect to any arrangements for the purchase of the
Notes of a defaulting Initial Purchaser or Initial Purchasers by the
Representative and the Company as provided above, the aggregate amount of Notes
which remains unpurchased on the Closing Date does not exceed one-tenth of the
aggregate amount of all the Notes that all the Initial Purchasers are obligated
to purchase on such date, then the Company shall have the right to require each
non-defaulting Initial Purchaser to purchase the aggregate amount of Notes which
such Initial Purchaser agreed to purchase hereunder at such date and, in
addition, to require each non-defaulting Initial Purchaser to purchase its pro
rata share (based on the aggregate amount of Notes which such Purchaser agreed
to purchase hereunder) of the Notes of such defaulting Initial Purchaser or
Initial Purchasers for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Initial Purchaser from liability for its
default. In any such case, either the Representative or the Company shall have
the right to postpone the Closing Date for a period of not more than seven days
in order to effect any necessary changes and arrangements (including any
necessary amendments or supplements to the Offering Memorandum or any other
documents).
 
If, after giving effect to any arrangements for the purchase of the Notes of a
defaulting Initial Purchaser or Initial Purchasers by the Representative and the
Company as provided above, the aggregate amount of such Notes which remains
unpurchased exceeds 10% of the aggregate amount of all the Notes to be purchased
at such date, then this Agreement shall terminate, without liability on the part
of any non-defaulting Initial Purchasers to the Company and without liability on
the part of the Company except as provided in Sections 7, 8, 9 and 13(b). The
provisions of this Section 14 shall not in any way affect the liability of any
defaulting Initial Purchaser to the Company or the nondefaulting Initial
Purchasers arising out of such default. The term "Initial Purchaser" as used in
this Agreement shall include any person substituted under this Section 14 with
like effect as if such person had originally been a party to this Agreement with
respect to such Securities.

15. Notices. All communications hereunder shall be in writing and, if sent to
the Initial Purchasers, shall be hand-delivered, mailed by first-class mail,
couriered by next-day air courier or faxed and confirmed in writing to
Oppenheimer & Co. Inc., 300 Madison Avenue, New York, New York 10017, Attention:
Andrew MacInnes, Managing Director, Head of Equity Capital Markets, and with a
copy to Shearman & Sterling LLP, 12th Floor, East Tower, Twin Towers, B-12
Jianguomenwai Dajie, Beijing 100022, PRC, Attention: Alan Seem, Esq. If sent to
the Company, shall be mailed, delivered, couriered or faxed and confirmed in
writing to ShengdaTech, Inc., Youth Pioneer Park, Tai’an Economic and
Technological Development Zone, Tai’an City, Shangdong Province 271000, PRC,
Attention: Xiangzhi Chen, and with a copy to Cadwalader, Wickersham & Taft LLP,
2301 China Central Place Tower 2, No. 79 Jianguo Road, Beijing 100025, PRC,
Attention: Jiannan Zhang, Esq.

30

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16. Successors. This Agreement shall inure to the benefit of, and shall be
binding upon, the Initial Purchasers, the Company and their respective
successors, legal representatives and assigns, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of, or
by virtue of, this Agreement or any provision herein contained; this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person except that (i) the indemnities of the Company contained in Section 8
hereof shall also be for the benefit of the controlling persons and agents
referred to in Sections 8 and 9 hereof and (ii) the indemnities of the Initial
Purchasers contained in Section 8 hereof shall also be for the benefit of the
directors of the Company, and its officers, employees and agents and any
controlling person or persons referred to in Sections 8 and 9 hereof. No
purchaser of Notes from the Initial Purchasers will be deemed a successor, legal
representative or assign because of such purchase.
 
17. No Waiver; Modifications in Writing. No failure or delay on the part of the
Company or the Initial Purchasers in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Initial Purchasers at law
or in equity or otherwise. No waiver of or consent to any departure by the
Company or the Initial Purchasers from any provision of this Agreement shall be
effective unless signed in writing by the party entitled to the benefit thereof;
provided that notice of any such waiver shall be given to each party hereto as
set forth above. Except as otherwise provided herein, no amendment, modification
or termination of any provision of this Agreement shall be effective unless
signed in writing by or on behalf of the Company and the Initial Purchasers. Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company or the Initial Purchasers from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
 
18. Entire Agreement. This Agreement constitutes the entire agreement among the
parties hereto and supersedes all prior agreements, understandings and
arrangements, oral or written, among the parties hereto with respect to the
subject matter hereof.

31

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19. Applicable Law; Waiver of Jury Trial. THE VALIDITY AND INTERPRETATION OF
THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. TIME IS
OF THE ESSENCE IN THIS AGREEMENT. The Company irrevocably (a) submits to the
jurisdiction of any court of the State of New York or the United State District
Court for the Southern District of the State of New York for the purpose of any
suit, action, or other proceeding arising out of this Agreement, or any of the
Transaction Documents and the Offering Memorandum (each, a “Proceeding”), (b)
agrees that all claims in respect of any Proceeding may be heard and determined
in any such court, (c) waives, to the fullest extent permitted by law, any
immunity from jurisdiction of any such court or from any legal process therein,
(d) agrees not to commence any Proceeding other than in such courts, and (e)
waives, to the fullest extent permitted by law, any claim that such Proceeding
is brought in an inconvenient forum. The Company hereby irrevocably designates
CT Corporation System Inc, 111 Eighth Avenue, New York, NY 10011 as agent upon
whom process against the Company may be served. THE COMPANY (ON BEHALF OF ITSELF
AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ON BEHALF OF ITS RESPECTIVE EQUITY
HOLDERS AND CREDITORS) HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED UPON, ARISING OUT OF OR IN CONNECTION WITH THE
TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION
DOCUMENTS, THE DISCLOSURE PACKAGE AND THE OFFERING MEMORANDUM.
 
20. Judgment Currency. If for the purposes of obtaining judgment in any court it
is necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent permitted by
law, that the rate of exchange used shall be the rate at which in accordance
with normal banking procedures the relevant party or parties could purchase
United States dollars with such other currency in The City of New York on the
business day preceding that on which final judgment is given. The obligation of
each party hereto with respect to any sum due from it to any other party hereto
or any person controlling any such other party shall, notwithstanding any
judgment in a currency other than United States dollars, not be discharged until
the first business day following receipt by such other party or controlling
person of any sum in such other currency, and only to the extent that such other
party or controlling person may in accordance with normal banking procedures
purchase United States dollars with such other currency. If the United States
dollars so purchased are less than the sum originally due to such other party or
controlling person hereunder, the first-mentioned party agrees as a separate
obligation and notwithstanding any such judgment, to indemnify such other party
or controlling person against such loss. If the United States dollars so
purchased are greater than the sum originally due to such other party or
controlling person hereunder, such other party or controlling person agrees to
pay to the first-mentioned party an amount equal to the excess of the United
States dollars so purchased over the sum originally due to such other party or
controlling person hereunder.
 
21. Foreign Taxes. All payments made by the Company under this Agreement will be
made without withholding or deduction for or on account of any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed or
levied by or on behalf of the PRC or the British Virgin Islands or any political
subdivision or any taxing authority thereof or therein unless the Company is or
becomes required by law to withhold or deduct such taxes, duties, assessments or
other governmental charges. In such event, the Company shall pay such additional
amounts as will result, after such withholding or deduction, in the receipt by
the Initial Purchasers and each person controlling the Initial Purchasers, as
the case may be, of the amounts that would otherwise have been receivable in
respect thereof, except to the extent such taxes, duties, assessments or other
governmental charges are imposed or levied by reason of such Initial Purchasers’
or controlling person’s being connected with the PRC or the British Virgin
Islands other than by reason of its being an Initial Purchasers or a person
controlling an Initial Purchasers under this Agreement.

32

--------------------------------------------------------------------------------

22. Contractual Relationship. The Company acknowledges and agrees that each of
the Initial Purchasers has acted and is acting solely in the capacity of a
principal in an arm’s length transaction between the Company, on the one hand,
and the Initial Purchasers, on the other hand, with respect to the offering of
Notes contemplated hereby (including in connection with determining the terms of
the offering) and not as a financial advisor, agent or fiduciary to the Company
or any other person. Additionally, the Company acknowledges and agrees that the
Initial Purchasers have not and will not advise the Company or any other person
as to any legal, tax, investment, accounting or regulatory matters in any
jurisdiction. The Company has consulted with its own advisors concerning such
matters and shall be responsible for making its own independent investigation
and appraisal of the transactions contemplated hereby, and the Initial
Purchasers shall have no responsibility or liability to the Company or any other
person with respect thereto, whether arising prior to or after the date hereof.
Any review by the Initial Purchasers of the Company, the transactions
contemplated hereby or other matters relating to such transactions have been and
will be performed solely for the benefit of the Initial Purchasers and shall not
be on behalf of the Company. The Company agrees that it will not claim that the
Initial Purchasers, or any of them, has rendered advisory services of any nature
or respect, or owes a fiduciary duty to the Company or any other person in
connection with any such transaction or the process leading thereto.
 
23. Partial Unenforceability. The invalidity or unenforceability of any Section,
paragraph or provision of this Agreement shall not affect the validity or
enforceability of any other Section, paragraph or provision hereof.
 
24. Headings. The headings herein are inserted for convenience of reference only
and are not intended to be part of, or to affect the meaning or interpretation
of, this Agreement.
 
25. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument. Delivery of a signed
counterpart of this Agreement by facsimile transmission shall constitute valid
and sufficient delivery thereof.
 
[Signature page follows]

33

--------------------------------------------------------------------------------

 
If the foregoing correctly sets forth the understanding among the Initial
Purchasers and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
 
Very truly yours,
 
ShengdaTech, Inc.
   
By:
/s/ Xiangzhi Chen
 
Name: Xiangzhi Chen
 
Title: President, Chief Executive Officer and Director

Accepted and agreed to as of
the date first above written:

Oppenheimer & Co. Inc.

ACTING SEVERALLY ON BEHALF OF THEMSELVES
AND AS REPRESENTATIVES OF THE SEVERAL INITIAL
PURCHASERS NAMED IN SCHEDULE I HERETO.

By:
OPPENHEIMER & CO. INC.
     
/s/ Andrew MacInnes
 
Name: Andrew MacInnes
 
Title: Managing Director
 
  Head of Equity Capital Markets

 
34

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Schedule I
 
Initial Purchasers
 
Name
 
Aggregate
Amount of
Firm Notes to
be Purchased 
         
Oppenheimer & Co. Inc.
 
$
80,000,000
 
ROTH Capital Partners, LLC
 
$
10,000,000
 
Brean Murray, Carret & Co., LLC
 
$
10,000,000
                     
Total
 
$
100,000,000
 

 
 

--------------------------------------------------------------------------------

 

Schedule II
 
Subsidiaries
 
Faith Boom Limited
 
Shandong Haize Nanomaterials Co., Ltd.
 
Shaanxi Haize Nanomaterials Co., Ltd.
 
Shandong Bangsheng Chemicals Co., Ltd.

 
2

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Schedule III
 
[logo.jpg]

5/22/08
ShengdaTech, Inc.
 
$100,000,0006.0% Convertible Senior Notes due 2018
 
Issuer:
 
ShengdaTech, Inc.
Common stock symbol:
 
SDTH
Title of securities:
 
6.00% Convertible Senior Notes due 2018
Aggregate principal amount offered:
 
$100.0 million
Deal type
 
144A with Registration Rights and Section 4-1(1/2)
Principal amount per bond:
 
$1,000
Issue price:
 
100% of principal amount
Over-Allotment option:
 
$15.0 million
Annual interest rate:
 
6.00%
Conversion premium:
 
18.0%
Reference price:
 
$8.42
Conversion price:
 
$9.94
Conversion rate:
 
100.6036
Interest payment dates:
 
6/1 & 12/1 of each year beginning 12/1/08
Maturity:
 
6/1/18
Call feature:
 
3 year NC, 2 year provisional call protection @ 150%
Put dates:
 
Year 3, Year 5
Voluntary Conversion Make Whole
 
See “Conversion Rights” below
Use of proceeds:
 
$56M to expand its NPCC production capacity, acquisitions, GCP
Additional Indebtedness Covenant:
 
See “Limitation on Incurrence of Indebtedness” below
Trade date:
 
5/22/08
Settlement date:
 
5/28/08
144A CUSIP:
 
823213AA1
Section 4-1(1/2) CUSIP:
 
823213AC7
Bookrunner:
 
Oppenheimer & Co.

 
 
3

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Adjustment to conversion rate upon a specified Fundamental Change

   
Stock Price
 
Effective Date
 
$
8.42
 
$
9.26
 
$
9.94
 
$
11.00
 
$
12.50
 
$
14.00
 
$
15.50
 
$
17.00
 
$
18.50
 
$
20.00
 
5/28/2008
   
21.38
   
19.44
   
18.11
   
16.36
   
14.40
   
12.86
   
11.61
   
10.59
   
9.73
   
9.00
 
6/1/2009
   
14.25
   
12.96
   
12.07
   
10.91
   
9.60
   
8.57
   
7.74
   
7.06
   
6.49
   
6.00
 
6/1/2010
   
7.13
   
6.48
   
6.04
   
5.45
   
4.80
   
4.29
   
3.87
   
3.53
   
3.24
   
3.00
 
6/1/2011
   
0.00
   
0.00
   
0.00
   
0.00
   
0.00
   
0.00
   
0.00
   
0.00
   
0.00
   
0.00
 

CONFIDENTIAL
 
This document is confidential and must not be redistributed or forwarded by you
under any circumstance.
 
The term sheet contains a summary of select terms of the offering only and
should not be relied upon in making any investment decision.  This term sheet is
qualified in its entirety by the Offering Memorandum, and you should read these
documents for a complete description of the company and offering, including risk
factors related thereto.

TERMS

The notes and the shares of common stock issuable upon conversion of the notes
(together, the “Securities”) have not been and will not be registered under the
Securities Act or any state securities laws and may not be offered in the United
States, except that Securities may be offered and sold to Qualified
Institutional Buyers exclusively in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A or another
exemption from registration

The Securities have not been approved or disapproved by the Securities and
Exchange Commission or by any state securities commission or regulatory
authority, nor have the foregoing authorities passed on the accuracy or adequacy
of the attached documents.  Any representation to the contrary is a criminal
offense.

This announcement shall not constitute an offer to sell or the solicitation of
an offer to buy any securities of ShengdaTech, Inc., nor shall there be any sale
of securities in any state or jurisdiction in which such an offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of any such state or jurisdiction.

Copies of the Offering Memorandum can be obtained from your Oppenheimer sales
representative.

This message is intended solely for the benefit of the initial recipient. No
retransmission, copying or distribution is permitted.

 
4

--------------------------------------------------------------------------------

 

SUPPLEMENTAL DISCLOSURE TO THE PRICING SUPPLEMENT

Below is additional information regarding the beneficial ownership of
ShengdaTech, Inc. (the “Company”), clarification regarding the payment of
additional interest upon the conversion of notes by holders any time prior to
June 1, 2011, information regarding limitations on the Company’s ability to
incur indebtedness and the fact that the offering is being conducted in two
tranches. Such information should be considered by the investors when making an
investment in the convertible senior notes to be issued by the Company. Please
note that the additional information below will also be reflected in the final
offering memorandum.

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of May 16, 2008, regarding the
beneficial ownership of the Company’s common stock by each person known by the
Company to own 5% or more of its outstanding shares of common stock, each the
Company’s directors and executive officers who beneficially own common stock of
the Company, and the Company’s directors and executive officers as a group. The
percentage of beneficial ownership is calculated based on a total of 54,202,036
shares of common stock outstanding as of May 16, 2008.
 
Name and Address
 
Number of Shares
 
Percentage Owned
 
Xiangzhi Chen
   
22,902,912
   
42.3
%
Carl Mudd
   
5,000
   
—
 
Xiqing Xu
   
1,159,584
   
2.1
%
Directors and executive officers as a group (8 persons)
   
24,062,496
   
44.4
%

The address for all of the above officers and executive directors is Youth
Pioneer Park, Tai'an Economic and Technological Development Zone, Tai'an City,
Shandong Province 271000, People's Republic of China.

CONVERSION RIGHTS

If holders convert their notes at any time prior to June 1, 2011, the Company
will pay additional interest in cash or, at the option of the Company, in shares
to holders of the notes being converted. The amount of this additional interest
(the “additional interest”) shall be equal to the interest due and payable from
the date of issuance until and including June 1, 2011, less any interest
actually paid or provided for prior to the date of such conversion.

In the event the Company elects to pay any portion of the additional interest in
shares, it will notify the holders of notes being converted the amount of
additional interest to be satisfied in shares, or it will notify that it will
satisfy the entire additional interest in cash, within one VWAP trading day (as
defined below) of the relevant conversion date; provided that if the Company
does not give any notice within the time period described as to how it intends
to settle the additional interest, the Company will satisfy its obligations with
respect to the additional interest only in cash. The Company will treat all
holders with the same conversion date in the same manner, but will not, however,
have any obligation to treat holders with different conversion dates in the same
manner.
 
If the Company elects to settle the additional interest only in cash, such
settlement will occur simultaneously with its settlement of the related
conversion, which will occur as soon as practicable, but in any event within
three business days of the relevant conversion date.
 
If the Company elects to settle all or any portion of the additional interest in
shares, such settlement will occur on the third business day following the final
VWAP trading day of the related share settlement averaging period (as defined
below).

 
5

--------------------------------------------------------------------------------

 

The amount of cash and/or number of shares, as the case may be, due with respect
to the additional interest will be determined as follows:
 
(1) If the Company elects to satisfy the entire additional interest in cash, it
will deliver to the holders of notes being converted the amount of cash equal to
the additional interest described above.
 
(2) If the Company elects to satisfy the entire additional interest in shares,
it will deliver to the holders of notes being converted the number of shares
equal to (A) the amount of additional interest due with respect to such notes,
divided by (B) 95% of the average daily VWAP during the share settlement
averaging period.
 
(3) If the Company elects to satisfy the additional interest in a combination of
cash and shares, it will deliver to the holders of notes being converted:
 
• cash (the “cash amount”) in an amount equal to the portion of additional
interest due with respect to such notes the Company elects to satisfy in cash;
and
 
• the number of shares equal to (A) the amount of additional interest due with
respect to such notes minus the cash amount, divided by (B) 95% of the average
daily VWAP during the share settlement averaging period.
 
The “share settlement averaging period” means the 10 consecutive VWAP trading
day period beginning on the second VWAP trading day following the relevant
conversion date.
 
“VWAP” for the Company’s shares of common stock means, for each of the 10
consecutive VWAP trading days during any share settlement averaging period, the
per share volume-weighted average price as displayed under the heading
“Bloomberg VWAP” on Bloomberg page [SDTH <equity> VWAP] (or any equivalent
successor page if such page is not available) in respect of the period from the
scheduled open of trading on the principal trading market for the Company’s
common stock to the scheduled close of trading on such market on such VWAP
trading day, or if such volume-weighted average price is unavailable, the market
value of one share of the Company’s common stock on such VWAP trading day as the
Company’s board of directors determines in good faith using a volume-weighted
method.
 

A “VWAP trading day” means a day during which (i) trading in the Company’s
common stock generally occurs on the principal U.S. national securities exchange
on which such common stock is listed and (ii) there is no VWAP market disruption
event. If the Company’s common stock is not so listed, then “VWAP trading day”
means a business day.

A “VWAP market disruption event” means (i) a failure by the principal U.S.
national securities exchange or market on which the Company’s common stock is
listed to open for trading during its regular trading session or (ii) the
occurrence or existence prior to 1:00 p.m. on any scheduled trading day for the
Company’s common stock for an aggregate one half-hour period of any suspension
or limitation imposed on trading (by reason of movements in price exceeding
limits permitted by the stock exchange or otherwise) in the Company’s common
stock or in any options contracts or futures contracts relating to the Company’s
common stock.

LIMITATION ON INCURRENCE OF INDEBTEDNESS

The Company will not incur any secured indebtedness and it will not permit any
of its subsidiaries to directly or indirectly incur any indebtedness. The
Company will be permitted to incur additional indebtedness (the “Permitted
Indebtedness”) which ranks equal in right of payment to the notes in an amount
not to exceed US$15,000,000; provided that such Permitted Indebtedness does not
require any repayment prior to the next purchase date as set forth under
“—Purchase of Notes at Your Option on Specified Dates” at the time of such
incurrence. The Company will be permitted to issue equity securities, including
common stock and preferred stock (in the case of preferred stock, which shall
not be redeemable or otherwise repayable prior to the stated maturity date of
the Notes so long as 25% or more of the initial aggregate principal amount of
notes issued, including any notes issued pursuant to the over-allotment option,
is outstanding), and any securities which rank junior in right of payment to the
notes.

 
6

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The limitation as set forth above shall cease to be in effect at such point as
either of the following conditions is met: (i) the aggregate principal amount of
notes outstanding is less than 25% of the initial aggregate principal amount of
notes issued including any notes issued pursuant to the over-allotment option or
(ii) the common stock into which the notes are convertible trades at a level
greater than 165% of the conversion price in effect at such time for a period of
20 of 30 consecutive trading days, subject to the notes and common stock into
which the notes are convertible being the subject of an effective registration
statement or exempt from registration requirements under Rule 144.

"indebtedness" means obligations for money borrowed.

OFFERING BEING CONDUCTED IN TWO SEPARATE TRANCHES

The offering will be conducted in the form two separate tranches, a Rule 144A
tranche and a Section 4(1-1/2) tranche. Purchasers in the Rule 144A tranche will
be subject to the following restriction on aggregate additional interest
payments upon early conversion to preserve Rule 144A
eligibility:

If a holder converts notes prior to the earliest of (1) the sale of such notes
pursuant to Rule 144 under the U.S. Securities Act of 1933, as amended, (2) the
date falling one year after the last issuance of the notes pursuant to this
offering and (3) the sale of such notes pursuant to an effective registration
statement, then the aggregate additional interest such holder will receive upon
conversion of each US$1,000 original principal amount of notes will not exceed
US$68.21, which is the amount determined pursuant to the following formula:

1000 - 1.1(CR * OP)

where CR is 100.6036, the initial conversion rate for the notes and OP is
US$8.42, the last reported sale price of our common stock on the date we priced
this offering of notes; provided, however, that if such holder has elected in
writing to purchase the notes in this offering in a Section 4(1-1/2) transaction
under the U.S. Securities Act of 1933, as amended, instead of pursuant to Rule
144A, then such restriction on the maximum aggregate amount of additional
interest payable during this period shall not apply. If the notes held by such a
holder are subsequently resold pursuant to Rule 144A prior to the expiration of
this period, then such restriction on additional interest shall once again apply
to such notes.

Purchasers in the Section 4(1-1/2) tranche will receive notes that are not
subject to this restriction on aggregate additional interest payments. However,
such purchasers will be required to enter into typical investor letters as a
condition to closing and will receive their purchased securities in the form of
physical legended note certificates."

 
7

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Schedule IV
 
Free Writing Offering Documents
 
None

 
8

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Schedule V
 
Persons Party to Lock Up Agreement
 
Xiangzhi Chen
 
Carl Mudd
 
Xiqin Xu

 
9

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Exhibit A
 
Form of Registration Rights Agreement

 
10

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Exhibit B
 
FORM LOCK UP AGREEMENT
 
May 22, 2008
 
Oppenheimer & Co. Inc.
300 Madison Avenue
New York, New York 10017
 
Ladies and Gentlemen:

This Lock-Up Agreement is being delivered to you in connection with the proposed
Purchase Agreement (the “Purchase Agreement”) to be entered into by ShengdaTech,
Inc., a Nevada corporation (the “Company”), and you with respect to the offering
(the “Offering”) without registration under the Securities Act of 1933, as
amended (the “Act”), and initial resale in reliance on Rule 144A under the Act,
of $100,000,000 of 6.00% Senior Convertible Notes due 2018 (the “Notes”) of the
Company. Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Purchase Agreement.
 
In order to induce you to enter into the Purchase Agreement, the undersigned
agrees that, for a period (the “Lock-Up Period”) beginning on the date hereof
and ending on, and including, the date that is 90 days after the date of the
final offering memorandum relating to the Offering, the undersigned will not,
without your prior written consent, (i) sell, offer to sell, contract or agree
to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose
of or agree to dispose of, directly or indirectly, or file (or participate in
the filing of) a registration statement with the Securities and Exchange
Commission (the “Commission”) in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder (the
“Exchange Act”) with respect to, any Common Stock, $0.00001 par value per share,
of the Company (the “Common Stock”), the Notes or any other securities of the
Company that are substantially similar to the Common Stock or the Notes, or any
securities convertible into or exchangeable or exercisable for, or any warrants
or other rights to purchase, the foregoing, (ii) 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 Common Stock, the Notes or any other securities
of the Company that are substantially similar to the the Common Stock or the
Notes, or any securities convertible into or exchangeable or exercisable for, or
any warrants or other rights to purchase, the foregoing, whether any such
transaction is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise or (iii) publicly announce an intention to
effect any transaction specified in clause (i) or (ii). The foregoing sentence
shall not apply to (a) bona fide gifts or distributions without consideration,
provided the recipient thereof agrees in writing with the Initial Purchasers to
be bound by the terms of this Lock-Up Agreement, or (b) dispositions to any
trust for the direct or indirect benefit of the undersigned and/or the immediate
family of the undersigned, provided that such trust agrees in writing with the
Initial Purchasers to be bound by the terms of this Lock-Up Agreement, or
(c) transfers that occur by operation of law, such as the rules of intestate
succession or statutes governing the effects of a merger, provided the
transferee thereof agrees in writing with the Initial Purchasers to be bound by
the terms of this Lock-Up Agreement. For purposes of this paragraph, “immediate
family” shall mean the undersigned and the spouse, any lineal descendent,
father, mother, brother or sister of the undersigned.

 
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In addition, the undersigned hereby waives any rights the undersigned may have
to require registration of Common Stock in connection with the filing of any
registration statement to be filed with the Commission pursuant to the
Registration Rights Agreement. The undersigned further agrees that, for the
Lock-Up Period, the undersigned will not, without your prior written consent,
make any demand for, or exercise any right with respect to, the registration of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, or warrants or other rights to purchase Common Stock or any
such securities.
 
* * *

 
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If (i) the Company notifies you in writing that it does not intend to proceed
with the Offering or (ii) for any reason the Purchase Agreement shall be
terminated prior to the “Firm Notes Closing Date” (as defined in the Purchase
Agreement), this Lock-Up Agreement shall be terminated and the undersigned shall
be released from its obligations hereunder.
 
Yours very truly,
 
    
Name:

 
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Exhibit C-1
 
Form of Opinion of Company Counsel

 
i

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Exhibit C-2
 
Form of Opinion of Company British Virgin Islands Counsel

 
ii

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Exhibit C-3
 
Form of Opinion of Company PRC Counsel

 
iii

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Exhibit C-4
 
Form of Opinion of Initial Purchasers’ PRC Counsel

 
iv

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Exhibit C-5
 
Form of Opinion of Trustee’s Counsel

 
v

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