Document:

THIS
      SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS
      CONVERTIBLE (COLLECTIVELY, THE “SECURITIES”),
      HAVE
      NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
      OR
      THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED
      PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED
      UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).
      THE
      SECURITIES ARE “RESTRICTED”
AND
      MAY
      NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
      PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
      REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH
      OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO
      CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS
      INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE
      ACT.

     

    SECURED
      DEBENTURE

     

    TEXAS
      PROTOTYPES, INC.

     

    5%
      Secured Convertible Debenture

     

    Due
      August 25, 2007

    

    
      	
              No.
                CCP-001

            	
              $1,400,000

            

    

    Date:
      August 25, 2004

    

    This
      Secured Debenture is issued by Texas Prototypes, Inc., a Texas corporation
      (the
“Company”),
      to
      Cornell Capital Partners L.P. (together
      with its permitted successors and assigns, the “Holder”)
      pursuant to exemptions from registration
      under
      the Securities Act of 1933, as amended.

     

    ARTICLE
      I.

     

    Section
      1.01 Principal
      and Interest.
      For
      value
      received, on August 24, 2004, the Company hereby promises to pay to the order
      of
      the Holder in lawful money of the United States of America and in immediately
      available funds the principal sum of One Million Four Hundred Thousand
      Dollars ($1,400,000), together with interest on the unpaid principal of
      this Debenture at the rate of five percent (5%) per year (computed on the
      basis of a 365-day year and the actual days elapsed) from the date of this
      Debenture until paid. All amounts due and owing under this Debenture (including,
      without limitation, principal and accrued interest) shall be automatically
      converted on the third anniversary hereof in accordance with Section 4.03.
      This
      Debenture may not be converted into shares of Common Stock if such conversion
      would result in the Holder beneficially owning in excess of 4.99% of the
      Company’s outstanding shares of the Common Stock (which provision may be waived
      by the Investor by written notice from the Investor to the Company, which notice
      shall be effective 61 days after the date of such notice). This limitation
      shall
      not apply to an automatic conversion pursuant to Section 4.03
      hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      1.02 Optional
      Conversion.
      The
      Holder is entitled, at its option, to convert, and sell on the same day, at
      any
      time and from time to time, until payment in full of this Debenture, all or
      any
      part of the principal amount of the Debenture, plus accrued interest, into
      shares (the “Conversion
      Shares”)
      of the
      Company’s common stock, par value $0.001 per share (“Common
      Stock”),
      at
      the price per share (the “Conversion
      Price”)
      equal
      to 110% of a post-money market capitalization of $15 million (which shall be
      calculated by dividing (i) the product of 110% times 15,000,000 by (ii) the
      total outstanding capital stock of the Company on a fully-diluted basis as
      of
      the date the Company’s Common Stock is first quoted on the Principal Market (as
      defined herein)) (the “Fixed
      Price”),
      or
      (b) an amount equal to eighty percent (80%) of the volume weighted
      average price of the Company’s Common Stock, as quoted by Bloomberg, LP (the
“Closing
      Bid Price”),
      for
      the five (5) trading days immediately preceding the Conversion
      Date (as defined herein). Subparagraphs (a) and (b) above are
      individually referred to as a “Conversion
      Price”.
      As
      used herein, “Principal
      Market”
shall
      mean The National Association of Securities Dealers Inc.’s Over-The-Counter
      Bulletin Board, Nasdaq SmallCap Market, or American Stock Exchange. If the
      Common Stock is not traded on a Principal Market, the Closing Bid Price shall
      mean the reported Closing Bid Price for the Common Stock, as furnished by the
      National Association of Securities Dealers, Inc., for the applicable periods.
      No
      fraction of shares or scrip representing fractions of shares will be issued
      on
      conversion, but the number of shares issuable shall be rounded to the nearest
      whole share. To convert this Debenture, the Holder hereof shall deliver written
      notice thereof, substantially in the form of Exhibit ”A” to this Debenture,
      with appropriate insertions (the “Conversion
      Notice”),
      to
      the Company at its address as set forth herein. The date upon which the
      conversion shall be effective (the “Conversion
      Date”)
      shall
      be deemed to be the date set forth in the Conversion Notice.

     

    Section
      1.03 Reservation
      of Common Stock.
      The
      Company shall reserve and keep available out of its authorized but unissued
      shares of Common Stock, solely for the purpose of effecting the conversion
      of
      this Debenture, such number of shares of Common Stock as shall from time to
      time
      be sufficient to effect such conversion, based upon the Conversion Price. If
      at
      any time the Company does not have a sufficient number of Conversion Shares
      authorized and available, then the Company shall call and hold a special meeting
      of its stockholders within sixty (60) days of that time for the sole
      purpose of increasing the number of authorized shares of Common
      Stock.

     

    Section
      1.04 Right
      of Redemption.
      The
      Company at its option shall have the right to redeem, with fifteen (15) days
      advance written notice (the “Redemption
      Notice”),
      a
      portion or all outstanding convertible debenture. The redemption price shall
      be
      one hundred twenty percent (120%) of the amount redeemed plus accrued
      interest. 

     

    In
      the
      event the Company exercises a redemption of either all or a portion the
      Convertible Debenture, the Holder shall receive a warrant to purchase fifty
      thousand (50,000) shares of the Company’s Common Stock for every One Hundred
      Thousand Dollars ($100,000) redeemed, pro rata (the “Warrant”).
      The
      Warrant shall be exercisable on a “cash basis” and have an exercise price equal
      to the Fixed Price. The Warrant shall have “piggy-back” registration rights and
      shall survive for two (2) years from the Closing Date.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    Section
      1.05 Registration
      Rights.
      The
      Company is obligated to register the resale of the Conversion Shares under
      the
      Securities Act of 1933, as amended, pursuant to the terms of a Registration
      Rights Agreement of even date herewith between the Company and the
      Holder (the “Investor
      Registration Rights Agreement”).

     

    Section
      1.06 Interest
      Payments.
      Accrued
      interest shall be paid at the time of maturity or conversion to the person
      in
      whose name this Debenture is registered. At the time such interest is payable,
      the Holder, in its sole discretion, may elect to receive the interest in cash
      (via wire transfer or certified funds) or in the form of Common Stock. In the
      event of default, as described in Article III Section 3.01 hereunder,
      the Holder may elect that the interest be paid in cash (via wire transfer or
      certified funds) or in the form of Common Stock. If paid in the form of Common
      Stock, the amount of stock to be issued will be calculated as follows: the
      value
      of the stock shall be the Closing Bid Price on: (i) the date the interest
      payment is due; or (ii) if the interest payment is not made when due, the
      date the interest payment is made. A number of shares of Common Stock with
      a
      value equal to the amount of interest due shall be issued. No fractional shares
      will be issued; therefore, in the event that the value of the Common Stock
      per
      share does not equal the total interest due, the Company will pay the balance
      in
      cash.

     

    Section
      1.07 Paying
      Agent and Registrar.
      Initially, the Company will act as paying agent and registrar. The Company
      may
      change any paying agent, registrar, or Company-registrar by giving the Holder
      not less than ten (10) business days’ written notice of its election to do
      so, specifying the name, address, telephone number and facsimile number of
      the
      paying agent or registrar. The Company may act in any such
      capacity.

     

    Section
      1.08 Secured
      Nature of Debenture.
      This
      Debenture is secured by certain assets and property of the Company, as more
      fully described in the Security Agreement of even date herewith. 

     

    ARTICLE
      II.

     

    Section
      2.01 Amendments
      and Waiver of Default.
      The
      Debenture may not be amended without the consent of the Holder. Notwithstanding
      the above, without the consent of the Holder, the Debenture may be amended
      to
      cure any ambiguity, defect or inconsistency, to provide for assumption of the
      Company obligations to the Holder or to make any change that does not adversely
      affect the rights of the Holder.

     

    ARTICLE
      III.

     

    Section
      3.01 Events
      of Default.
      An
      Event
      of Default is defined as follows: (a) failure by the Company to pay amounts
      due hereunder within fifteen (15) days of the date of maturity of this
      Debenture; (b) failure by the Company to comply with the terms of the
      Irrevocable Transfer Agent Instructions; (c) failure by the Company’s transfer
      agent to issue freely tradeable Common Stock to the Holder within five (5)
      days of the Company’s receipt of the attached Notice of Conversion from Holder;
      (d) failure by the Company for ten (10) days after notice to it to
      comply with any of its other material agreements in the Debenture; (e) if
      the Company files for relief under the United States Bankruptcy Code (the
“Bankruptcy Code”) or under any other state or federal bankruptcy or insolvency
      law, or files an assignment for the benefit of creditors, or if an involuntary
      proceeding under the Bankruptcy Code or under any other federal or state
      bankruptcy or insolvency law is commenced against the Company; (f) a
      material breach by the Company of its obligations under the Securities Purchase
      Agreement, the Escrow Agreement, the Security Agreement, the Investor
      Registration Rights Agreement or any other agreement entered into on the date
      hereof between the Company and the Holder which is not cured by the Company
      within ten (10) days after receipt of written notice thereof. Upon the
      occurrence of an Event of Default, the Holder may, in its sole discretion,
      accelerate full repayment of all debentures outstanding and accrued interest
      thereon or may, notwithstanding any limitations contained in this Debenture
      and/or the Securities Purchase Agreement of even date herewith between the
      Company and Cornell Capital Partners, L.P. (the “Securities
      Purchase Agreement”),
      convert all debentures outstanding and accrued interest thereon into shares
      of
      Common Stock pursuant to Section 1.02 herein and sell all shares of Common
      Stock
      received upon such conversion. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Section
      3.02 Failure
      to Issue Unrestricted Common Stock.
      As
      indicated in Article III Section 3.01, a breach by the Company of its
      obligations under the Investor Registration Rights Agreement shall be deemed
      an
      Event of Default, which if not cured within ten (10) days, shall entitle
      the Holder to accelerate full repayment of all debentures outstanding and
      accrued interest thereon or, notwithstanding any limitations contained in this
      Debenture and/or the Securities Purchase Agreement, to convert all debentures
      outstanding and accrued interest thereon into shares of Common Stock pursuant
      to
      Section 1.02 herein. The Company acknowledges that failure to honor a Notice
      of
      Conversion shall cause irreparable harm to the Holder. 

     

    ARTICLE
      IV.

     

    Section
      4.01 Rights
      and Terms of Conversion.
      This
      Debenture, in whole or in part, may be converted at any time following the
      date
      of closing into shares of Common Stock at a price equal to the Conversion Price
      as described in Section 1.02 above.

     

    Section
      4.02 Re-issuance
      of Debenture.
      When
      the
      Holder elects to convert a part of the Debenture, then the Company shall reissue
      a new Debenture in the same form as this Debenture to reflect the new principal
      amount.

     

    Section
      4.03 Termination
      of Conversion Rights.
      The
      Holder’s right to convert the Debenture into the Common Stock in accordance with
      paragraph 4.01 shall terminate on the date that is the third (3rd) year
      anniversary from the date hereof and this Debenture shall be automatically
      converted on that date in accordance with the formula set forth in
      Section 4.01 hereof, and the appropriate shares of Common Stock and amount
      of interest shall be issued to the Holder.

     

    ARTICLE
      V.

     

    Section
      5.01 Anti-dilution.
      In
      the
      event that the Company shall at any time subdivide the outstanding shares of
      Common Stock, or shall issue a stock dividend on the outstanding Common Stock,
      the Conversion Price in effect immediately prior to such subdivision or the
      issuance of such dividend shall be proportionately decreased, and in the event
      that the Company shall at any time combine the outstanding shares of Common
      Stock, the Conversion Price in effect immediately prior to such combination
      shall be proportionately increased, effective at the close of business on the
      date of such subdivision, dividend or combination as the case may
      be.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Section
      5.02 Consent
      of Holder to Sell Capital Stock or Grant Security
      Interests.
      Except
      for the Standby Equity Distribution Agreement dated the date hereof between
      the
      Company and Cornell Capital Partners, LP. so long as any of the principal of
      or
      interest on this Note remains unpaid and unconverted, the Company shall not,
      without the prior consent of the Holder, issue or sell (i) any Common Stock
      or Preferred Stock without consideration or for a consideration per share less
      than its lowest bid price determined immediately prior to its issuance,
      (ii) issue or sell any Preferred Stock, warrant, option, right, contract,
      call, or other security or instrument granting the holder thereof the right
      to
      acquire Common Stock without consideration or for a consideration per share
      less
      than such Common Stock’s fair market value determined immediately prior to its
      issuance, or (iii)
      file any
      registration statement on Form S-8 for more than 10,000,000 shares of Common
      Stock.

     

    ARTICLE
      VI.

     

    Section
      6.01 Notice.
      Notices
      regarding this Debenture shall be sent to the parties at the following
      addresses, unless a party notifies the other parties, in writing, of a change
      of
      address:

     

    
      	
              If
                to the Company, to:

            	
              Texas
                Prototypes, Inc.

            
	 	
              1299
                Commerce Drive

            
	 	
              Richardson,
                Texas 75081

            
	 	
              Attention: Michael
                C. Shores, President

            
	 	
              Telephone: (214)
                575-9300

            
	 	
              Facsimile: (214)
                575-9314

            
	 	 
	
              With
                a copy to:

            	
              Schiff
                Hardin LLP

            
	 	
              1101
                Connecticut Avenue, N.W.

            
	 	
              Suite
                600

              Washington,
                D.C. 20036

            
	 	
              Telephone: (202)
                778-6461

            
	 	
              Facsimile: (202)
                778-6460

            
	 	 
	
              If
                to the Holder:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07303

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	
              With
                a copy to:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07303

            
	 	
              Attention: Troy
                J. Rillo, Esq.

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            

    

    

    Section
      6.02 Governing
      Law.
      This
      Debenture shall be deemed to be made under and shall be construed in accordance
      with the laws of the State of New Jersey without giving effect to the principals
      of conflict of laws thereof. Each of the parties consents to the exclusive
      jurisdiction of the U.S. District Court sitting in the District of the State
      of
      New Jersey or the state courts of the State of New Jersey sitting in Hudson
      County, New Jersey in connection with any dispute arising under this Debenture
      and hereby waives, to the maximum extent permitted by law, any objection,
      including any objection based on forum non conveniens
      to the
      bringing of any such proceeding in such jurisdictions.

     

    Section
      6.03 Severability.
      The
      invalidity of any of the provisions of this Debenture shall not invalidate
      or
      otherwise affect any of the other provisions of this Debenture, which shall
      remain in full force and effect.

     

    Section
      6.04 Entire
      Agreement and Amendments.
      This
      Debenture represents the entire agreement between the parties hereto with
      respect to the subject matter hereof and there are no representations,
      warranties or commitments, except as set forth herein. This Debenture may be
      amended only by an instrument in writing executed by the parties
      hereto.

     

    Section
      6.05 Counterparts.
      This
      Debenture may be executed in multiple counterparts, each of which shall be
      an
      original, but all of which shall be deemed to constitute on
      instrument.

     

    IN
      WITNESS WHEREOF,
      with
      the intent to be legally bound hereby, the Company as executed this Debenture
      as
      of the date first written above.

    
      	 	 	 
	 	
              TEXAS
                PROTOTYPES, INC. 

            
	 
 	 
 	 
 
	 	By:  	/s/ Michael
              C. Shores
	 	
              

              Name: Michael
                C. Shores

            
	 	Title: President 

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      “A”

     

    NOTICE
      OF CONVERSION

     

    (To
      be executed by the Holder in order to Convert the
      Debenture)

    

    
      	
              TO:

            	 

    

    

    The
      undersigned hereby irrevocably elects to convert
      $________________________ of
      the
      principal amount of the above Debenture into Shares of Common Stock of Texas
      Prototypes, Inc., according to the conditions stated therein, as of the
      Conversion Date written below.

     

    
      	
              Conversion
                Date:

            	 	______________________________________________________________________
	 	 	
            
	
              Applicable
                Conversion Price:

            	 	______________________________________________________________________
	 	 	
            
	
              Signature:

            	 	______________________________________________________________________
	 	 	
            
	
              Name:

            	 	______________________________________________________________________
	 	 	
            
	
              Address:

            	 	______________________________________________________________________
	 	 	
            
	
              Amount
                to be converted:

            	 	
              $_____________________________________________________________________

            
	 	 	 
	
              Amount
                of Debenture unconverted:

            	 	
              $_____________________________________________________________________

            
	 	 	 
	
              Conversion
                Price per share: 

            	 	
              $_____________________________________________________________________

            
	 	 	 
	
              Number
                of shares of Common Stock to be issued:

            	 	______________________________________________________________________
	 	 	
            
	
              Please
                issue the shares of Common Stock in the following name and to the
                following address:

            	 	______________________________________________________________________
	 	 	
            
	
              Issue
                to:

            	 	______________________________________________________________________
	 	 	
            
	
              Authorized
                Signature:

            	 	______________________________________________________________________
	 	 	 
	
              Name:

            	 	______________________________________________________________________
	 	 	
            
	
              Title:

            	 	______________________________________________________________________
	 	 	
            
	
              Phone
                Number:

            	 	______________________________________________________________________
	 	 	
            
	
              Broker
                DTC Participant Code:

            	 	______________________________________________________________________
	 	 	 
	
              Account
                Number:

            	 	______________________________________________________________________
	 	 	
            

    

     

    
      
        
        

      

      
        A-1Unassociated Document

    EXHIBIT
      4.1

     

    

     

    

     

    FUSHI
      INTERNATIONAL, INC.

     

    $40,000,000
      Guaranteed Senior Secured Floating Rate Notes due 2012 

     

    and
      

     

    $20,000,000
      3.0% Senior Secured Convertible Notes due 2012 

     

    NOTES
      PURCHASE AGREEMENT (THE “AGREEMENT”)

     

    January 24, 2007

     

    Citadel
      Equity Fund Ltd.

    c/o
      Citadel Investment Group (Hong Kong) Limited

    Chater
      House, 18th Floor

    8
      Connaught Road

    Central,
      Hong Kong

     

     

    Ladies
      and Gentlemen:

     

    Fushi
      International, Inc., a Nevada corporation (the “Company”),
      the
      other Group Companies (as defined below) and Mr. Fu Li (the “Controlling
      Shareholder”),
      hereby agree with the Purchaser (as defined below) as follows:

     

    1. Issuance
      of Securities.
      

     

    Subject
      to the terms and conditions of this Agreement, the Company will, at the Closing
      provided for in Section
      3,
      (i)
      issue and sell to Citadel Equity Fund Ltd. (the “Purchaser”)
      and
      the Purchaser will purchase from the Company, (x) the Company’s 400 Guaranteed
      Senior Secured Floating Rate Notes due 2012 (the “HY
      Notes”)
      of
      $100,000 principal amount each, and (y) the Company’s 200 3.0% Senior Secured
      Convertible Notes due 2012 (the “Convertible
      Notes”,
      and
      together with the HY Notes, the “Notes”)
      of
      $100,000 principal amount each, convertible into shares of common stock of
      the
      Company, par value $.006 per share (the “Common
      Stock”),
      at an
      initial conversion price of $7 per share, and (ii) cause the Guarantor to issue
      the Guarantees (as hereinafter defined). 

     

    The
      HY
      Notes are to be issued pursuant to the provisions of an indenture (the
“HY
      Note Indenture”),
      to be
      dated as of the Closing Date (as defined in Section
      3),
      by and
      among the Company, the Guarantor and The Bank of New York, a New York banking
      corporation, as trustee (the “Trustee”),
      substantially in the form attached hereto as Exhibit
      A-1,
      and the
      Convertible Notes are to be issued pursuant to the provisions of an indenture
      (the “Convertible
      Note Indenture”,
      and
      together with the HY Note Indenture, the “Indentures”),
      to be
      dated as of the Closing Date, by and among the Company, the Guarantor and the
      Trustee, substantially in the form attached hereto as Exhibit
      A-2.
      As used
      herein, the term “Securities”
shall
      mean, collectively, the Notes, the Common Stock issuable upon the conversion
      of
      the Convertible Notes (the “Conversion
      Shares”)
      and
      the Guarantees. 

     

    Capitalized
      terms used but not defined herein shall have the meanings given to such terms
      in
      the Indentures.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      Notes
      and the Guarantees will be secured by (i) a perfected first-priority Lien on
      all
      of the equity interests of the Guarantors pursuant to a share pledge agreement
      to be dated as of the Closing Date between The Bank of New York, a New York
      banking corporation, as the collateral agent (in such capacity, the
“Offshore
      Collateral Agent”),
      the
      Company and the Guarantor, substantially in the form attached hereto as
Exhibit
      B
      (the
“Offshore
      Share Pledge Agreement”)
      and
      (ii) subject to the completion of the undertakings and conditions set forth
      in
      Section 5 (m), a perfected first-priority Lien on all of the equity interests
      of
      the WFOE (as defined below) pursuant to a share pledge agreement to be dated
      as
      of the Closing Date between the collateral agent (in such capacity, the
“Onshore
      Collateral Agent”,
      together with the Offshore Collateral Agent, the “Collateral
      Agents”),
      the
      Company and the Guarantor (the “Onshore
      Share Pledge Agreement”,
      together with the Offshore Share Pledge Agreement and the Uniform Commercial
      Code financing statement, the “Security
      Documents”).
      

     

    The
      Notes
      will be offered and sold to the Purchaser pursuant to Regulation S under the
      Securities Act of 1933, as amended (the “Act”).
      Upon
      original issuance thereof, and until such time as the same is no longer required
      under the applicable requirements of the Act, the Notes and the Conversion
      Shares shall bear the legends relating to the offer and the sale of the Notes
      and the Conversion Shares as required by (i) Regulation S under the Act or
      (ii)
      any other applicable laws or regulations relating to the issuance of the
      Notes.

     

    2. Guarantees.
      Pursuant to the Indentures, Fushi Holdings, Inc. (“FHI”),
      a
      wholly-owned subsidiary of the Company incorporated under the laws of the State
      of Delaware and all of the Company’s other existing and future subsidiaries
      domiciled in the United States of America (each, a “Guarantor”)
      shall
      irrevocably and unconditionally guarantee, on a senior secured basis, to the
      Purchaser and to the Trustee the payment and performance of the Company’s
      obligations under the Documents (as defined below) (collectively, the
“Guarantees”).

     

    This
      Agreement, the Indentures, the Notes, the Guarantees, the Security Documents,
      the Investor Rights Agreement to be entered into by and among the Company,
      the
      Controlling Shareholder, the Senior Management and the Purchaser dated the
      Closing Date in the form attached hereto as Exhibit
      C-1,
      the
      escrow agreement to be entered into by and between the Company and The Bank
      of
      New York dated the Closing Date, the escrow agreement to be entered into by
      and
      among the Company, Guzov Ofsink, LLC, as escrow agent, and the Purchaser dated
      the Closing Date in the form attached hereto as Exhibit
      C-2
      and the
      escrow agreement to be entered into by and among the WFOE, Shenzhen Development
      Bank and the Purchaser dated the Closing Date in the form attached hereto as
      Exhibit
      C-3
      are,
      collectively, referred to herein as the “Documents.”

     

    3. Purchase,
      Sale and Delivery.
      The
      issue and sale of the Notes to be purchased by the Purchaser shall occur at
      the
      Shanghai office of Weil, Gotshal & Manges LLP, at 4:00 p.m., Shanghai time,
      at a closing (the “Closing”)
      on
      January 25,
      2007 or
      on such other Business Day thereafter as may be agreed upon in writing by the
      Company and the Purchaser (such date referred to herein as the “Closing
      Date”).
      At
      the Closing, the Company shall deliver to the Purchaser one or more global
      certificates representing each of the HY Notes and the Convertible Notes,
      registered in such names and denominations as the Purchaser may request, against
      payment by the Purchaser of the aggregate purchase price in the amount of $56.4
      million for the HY Notes and the Convertible Notes by immediately available
      Federal funds bank wire transfer to such bank account or accounts as the Company
      shall have theretofore designated to the Purchaser. The HY Notes and the
      Convertible Notes, each to be represented by one or more global certificates
      in
      book-entry form, will be deposited on the Closing Date, by or on behalf of
      the
      Company, with the Trustee as common depositary for Clearstream Banking, sociėtė
anonyme (or any successor securities agency) (“Clearstream”)
      and
      Euroclear Bank, S.A./N.V. (or any successor securities clearing agency)
      (“Euroclear”,
      together with Clearstream, the “Clearing
      Facilities”),
      or
      its designated custodian, and registered in the name of the Trustee. The Common
      Stock is approved for quotation on the OTC Bulletin Board (the “Trading
      Market”).

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    4. Representations
      and Warranties of the Group Companies and the Controlling
      Shareholder.
      Each of
      the Company, FHI, Fushi International (Dalian) Bimetallic Cable Co., Ltd.,
      a
      wholly-owned subsidiary of FHI, incorporated under the laws of the People’s
      Republic of China (the “WFOE”),
      and
      Dalian Fushi Bimetallic Manufacturing Co., Ltd. (“Dalian
      Fushi”,
      and
      together with the Company, FHI, the WFOE and any other Subsidiary (as defined
      in
Section
      4(b)(i)
      below),
      the “Group
      Companies”),
      a
      limited liability company organized under the laws of the People’s Republic of
      China (“PRC”)
      and
      the Controlling Shareholder, jointly and severally, represents and warrants
      to
      the Purchaser that, except as set forth in the Disclosure Schedule attached
      hereto as Exhibit
      D
      which
      exceptions shall be deemed to part of the representations and warranties made
      hereunder, the following representations and warranties. The Disclosure Schedule
      shall be arranged in sections corresponding to the numbered and lettered
      sections contained in this Section
      4.

     

    
      	
              (a)

            	
              SEC
                Reports; Financial Statements.
                The Company has filed all reports, schedules, forms, statements and
                other
                documents required to be filed by it under the Act and the Securities
                and
                Exchange Act of 1934, as amended (the “Exchange
                Act”),
                including pursuant to Section 13(a), 13(c) or 15(d) thereof (the
                foregoing
                materials, including the exhibits thereto and documents incorporated
                by
                reference therein, being collectively referred to herein as the
                “SEC
                Reports”)
                on a timely basis or has received a valid extension of such time
                of filing
                and has filed any such SEC Reports prior to the expiration of any
                such
                extension. As of the date of filing, in the case of SEC Reports filed
                pursuant to the Exchange Act (and to the extent such SEC Report was
                amended, then as of the date of filing of such amendment), and as
                of the
                date of effectiveness in the case of SEC Reports filed pursuant to
                the Act
                (and to the extent such SEC Report was amended, then as of the date
                of
                effectiveness of such amendment), the SEC Reports complied in all
                material
                respects with the requirements of the Act and the Exchange Act and
                the
                rules and regulations of the Securities and Exchange Commission (the
                “Commission”)
                promulgated thereunder, as applicable, and none of the SEC Reports,
                as of
                the date of filing, in the case of SEC Reports filed pursuant to
                the
                Exchange Act (and to the extent such SEC Report was amended, then
                as to
                the date of filing of such amendment), and as of the date of effectiveness
                in the case of SEC Reports filed pursuant to the Act (and to the
                extent
                such SEC Report was amended, then as of the date of effectiveness
                of such
                amendment), contained any untrue statement of a material fact or
                omitted
                to state a material fact required to be stated therein or necessary
                in
                order to make the statements therein, in the light of the circumstances
                under which they were made, not misleading. Except as disclosed in
                Schedule
                4(a)
                of
                the Disclosure Schedule, the financial statements of the Company
                included
                in the SEC Reports have been prepared in accordance with the applicable
                accounting requirements and the rules and regulations of the Commission
                with respect thereto as in effect at the time of filing. Such financial
                statements have been prepared in accordance with United States generally
                accepted accounting principles applied on a consistent basis during
                the
                periods involved (“GAAP”),
                except as may be otherwise specified in such financial statements,
                the
                notes thereto or in Schedule
                4(a)
                of
                the Disclosure Schedule, and except that unaudited financial statements
                may not contain all footnotes required by GAAP, and fairly present
                in all
                material respects the financial condition, results of operations
                and cash
                flows of the Company and its consolidated subsidiaries as of and
                for the
                dates thereof and the results of operations and cash flows for the
                periods
                then ended, subject, in the case of unaudited statements, to normal,
                immaterial, year-end audit
                adjustments.

            

    

     

    
      	
              (b)

            	
              Ownership
                of Shares of Subsidiaries; Affiliates.

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
      	 	
              (i)

            	
              Schedule
                4(b)(i)
                of
                the Disclosure Schedule contains (except as noted therein) complete
                and
                correct lists of each individual partnership, limited liability company,
                joint venture, corporation, association, trust or any other entity
                or
                organization (collectively, a “Person”)
                in which the Company owns, directly or indirectly, a majority of
                its
                capital stock or similar equity interests (each, a “Subsidiary”
                and collectively, the “Subsidiaries”),
                showing, as to each Subsidiary, the correct name thereof, the jurisdiction
                of its organization, and the percentage of shares of each class of
                its
                capital stock or similar equity interests outstanding owned by the
                Company
                and each other Subsidiary.

            

    

     

    
      	 	
              (ii)

            	
              All
                of the outstanding shares of capital stock or similar equity interests
                of
                each Subsidiary shown in Schedule
                4(b)(i)
                of
                the Disclosure Schedule as being owned by the Company and its Subsidiaries
                have been validly issued, are fully paid and non-assessable and are
                owned
                by the Company or another Subsidiary free and clear of any
                Lien.

            

    

     

    
      	 	
              (iii)

            	
              No
                Subsidiary is a party to, or otherwise subject to any legal or regulatory
                restriction or any agreement (other than this Agreement, the restrictions
                disclosed in Schedule
                4(b)(iii)
                of
                the Disclosure Schedule, and limitations imposed by corporate law
                statutes) restricting the ability of such Subsidiary to pay dividends
                out
                of profits or make any other similar distributions of profits to
                the
                Company or any of its Subsidiaries that owns outstanding shares of
                capital
                stock or similar equity interests of such
                Subsidiary.

            

    

     

    
      	 	
              (iv)

            	
              As
                of the date hereof, FHI is the sole
                Guarantor.

            

    

     

    
      	 	
              (v)

            	
              Schedule
                4(b)(v)
                of
                the Disclosure Schedule shows the correct name of Dalian Fushi, the
                jurisdiction of its organization, and the percentage of shares of
                each
                class of its capital stock or similar equity interests outstanding
                owned
                by its shareholders. All of the outstanding shares of capital stock
                or
                similar equity interests of Dalian Fushi shown in Schedule
                4(b)(v)
                of
                the Disclosure Schedule as being owned by its shareholders have been
                validly issued, are fully paid and non-assessable and are owned by
                such
                shareholders free and clear of any
                Lien.

            

    

     

    
      	
              (c)

            	
              Organization.
                Each of the Group Companies (i) has been duly organized, is validly
                existing and is in good standing under the laws of its jurisdiction
                of
                organization, (ii) has all requisite power and authority to carry
                on its
                business and to own, lease and operate its properties and assets,
                and
                (iii) is duly qualified or licensed to do business and is in good
                standing
                as a foreign corporation or limited liability company, as the case
                may be,
                authorized to do business in each jurisdiction in which the nature
                of such
                business or the ownership or leasing of such properties requires
                such
                qualification, except where the failure to be so qualified would
                not,
                individually or in the aggregate, have a material adverse effect
                on (A)
                the properties, business, prospects, operations, earnings, assets,
                liabilities or condition (financial or otherwise) of the Group Companies,
                taken as a whole, (B) the ability of the Group Companies to perform
                their
                respective obligations under any Document or (C) the validity of
                any of
                the Documents or the consummation of any of the transactions contemplated
                therein (each, a “Material
                Adverse Effect”).

            

    

     

    
      	
              (d)

            	
              Capitalization
                and Voting Rights.

            

    

     

    (i) Capital
      Stock.
      The
      authorized capital of the Company consists, immediately prior to the Closing,
      of
      (i) One Hundred Million (100,000,000) shares of Common Stock, of which
      19,990,087 shares are issued and outstanding immediately prior to the Closing,
      and (ii) Five Million (5,000,000) shares of preferred stock with no shares
      of
      preferred stock outstanding. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (ii) Issued
      Shares.
      As at
      the date hereof and immediately prior to the Closing, the aggregate number
      of
      shares of Common Stock issued and which are issuable pursuant to any exercise,
      conversion, exchange, subscription or otherwise in connection with any warrants,
      options (including pursuant to the Company’s stock option plan), convertible
      securities or any agreement to sell or issue Common Stock or securities which
      may be exercised, converted or exchanged for Common Stock (collectively,
“Fully-Diluted”)
      is
      22,782,107. The Conversion Shares issuable upon conversion of the Convertible
      Notes have been duly reserved for issuance, which will constitute 11.14% of
      the
      Company’s Common Stock on a Fully-Diluted basis. All of the issued and
      outstanding shares of each of the Group Company’s shares as of the Closing are
      duly authorized, validly issued, fully paid and non-assessable, were issued
      in
      accordance with the registration or qualification provisions of the Act and
      any
      relevant blue sky laws of the United States of America or pursuant to valid
      exemptions therefrom and were issued in compliance with other applicable laws
      (including, without limitation, applicable PRC laws, rules and regulations)
      and
      are not subject to any rescission right or put right on the part of the holder
      thereof nor does any holder thereof have the right to require the Company to
      repurchase such share capital.

     

    (iii) Voting
      and other Agreements.
      Except
      as set forth on Schedule
      4(d)(iii)
      of the
      Disclosure Schedule, there are no outstanding (A) options, warrants or other
      rights to purchase from any Group Company, (B) agreements, contracts,
      arrangements or other obligations of any Group Company to issue, or (C) other
      rights to convert any obligation into or exchange any securities for, in the
      case of each of clauses (A) through (C), shares of capital stock of, or other
      ownership or equity interests in, any Group Company. Except as otherwise
      contemplated by that certain voting agreement set forth in the Investor Rights
      Agreement, the Company is not a party or subject to any agreement or
      understanding, and, to the Company’s knowledge after due inquiry, there is no
      agreement or understanding with any Person that affects or relates to (i) the
      voting or giving of written consents with respect to any security of the Company
      (including, without limitation, any voting agreements, voting trust agreements,
      shareholder agreements or similar agreements) or the voting by a director of
      the
      Company or (ii) the sale, transfer or other disposition with respect to any
      security of the Company.

     

    (iv) The
      Common Stock is registered pursuant to 12(g) of the Exchange Act, and the
      Company has taken no action designed to, or which to its knowledge is likely
      to
      have the effect of, terminating the registration of the Common Stock under
      the
      Exchange Act, nor has the Company received any notification that the Commission
      is contemplating terminating such registration. The Company has not, in the
      12
      months preceding the date hereof, received notice from the Trading Market to
      the
      effect that the Company is not in compliance with the requirements of the
      Trading Market. The Company is, and expects to be, in compliance with all of
      the
      listing requirements of the Trading Market in the foreseeable
      future.

     

    
      	
              (e)

            	
              No
                Registration Rights.
                Except as set forth on Schedule
                4(e),
                no holder of securities of any of the Group Companies is or will
                be
                entitled to have any registration rights with respect to such
                securities.

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    
      	
              (f)

            	
              Authorization.
                Each of the Group Companies has all requisite corporate power and
                authority to execute, deliver and perform its obligations under each
                of
                the Documents and each Restructuring Agreement (as defined below)
                to which
                it is a party and to consummate the transactions contemplated thereby.
                This Agreement has been duly authorized, executed and delivered by
                the
                Group Companies and the Controlling Shareholder. Each of the Documents
                has
                been duly authorized and when executed and delivered by the Group
                Companies and the Controlling Shareholder (to the extent it is a
                party
                thereto) shall constitute a legal, valid and binding obligation of
                each of
                the Group Companies and the Controlling Shareholder (to the extent
                it is a
                party thereto) enforceable against each of the Group Companies and
                the
                Controlling Shareholder (to the extent it is a party thereto) in
                accordance with its terms, and each Restructuring Agreement considered
                individually and with all other Restructuring Agreements, has been duly
                authorized, executed and delivered by the Group Companies and the
                Controlling Shareholder (to the extent it is a party thereto) and
                constitutes a legal, valid and binding obligation of each of the
                Group
                Companies and the Controlling Shareholder (to the extent it is a
                party
                thereto) enforceable against each of the Group Companies and the
                Controlling Shareholder (to the extent it is a party thereto) in
                accordance with its terms, except (i) as limited by applicable bankruptcy,
                insolvency, reorganization, moratorium and other laws of general
                application affecting enforcement of creditors’ rights generally, (ii) as
                limited by laws relating to the availability of specific performance,
                injunctive relief or other equitable remedies, and (iii) to the extent
                the
                indemnification provisions contained in Section
                8
                of
                this Agreement may be limited by applicable federal or state securities
                laws. For the purpose of this Agreement, the “Restructuring
                Agreement”
                or “Restructuring
                Agreements”
                shall refer to those agreements as disclosed by the Company in “Our
                Company—Restructuring Agreements” of the Prospectus filed by the Company
                with the SEC on August 2, 2006 pursuant to Rule 424B(3) under the
                Act.

            

    

     

    
      	
              (g)

            	
              Valid
                Issuance of Notes.
                Each of the HY Notes and the Convertible Notes, when issued, sold
                and
                delivered in accordance with the terms thereof and for the consideration
                set forth herein, will be free of restrictions on transfer, other
                than
                restrictions on transfer under applicable state and federal securities
                laws. Assuming the accuracy of the Purchaser’s representations in
                Section
                6
                below, the Notes will be issued in compliance with applicable state
                and
                federal securities laws. The HY Notes, when issued, will be in the
                form
                contemplated by the HY Note Indenture, and the Convertible Notes,
                when
                issued, will be in the form contemplated by the Convertible Note
                Indenture. Each of the HY Notes and the Convertible Notes has been
                duly
                authorized by the Company and, when executed and delivered by the
                Company,
                authenticated by the Trustee and delivered to the Purchaser in accordance
                with the terms of this Agreement and its respective Indenture, such
                Notes
                will have been duly executed, issued and delivered by the Company
                and will
                constitute legal, valid and binding obligations of the Company, entitled
                to the benefits of its respective Indenture, and enforceable against
                the
                Company in accordance with their terms, except as limited by applicable
                bankruptcy, insolvency, reorganization, moratorium and other laws
                of
                general application affecting enforcement of creditors’ rights generally.
                The Guarantees have been duly authorized, and, when the Notes have
                been
                duly executed, authenticated and issued in accordance with the provisions
                of its respective Indenture and delivered to and paid for by the
                Purchaser
                with the Guarantees endorsed thereon by the Guarantor, will constitute
                the
                legal, valid and binding obligations of the Guarantor entitled to
                the
                benefits of such Indenture.

            

    

     

    
      	
              (h)

            	
              Valid
                Issuance of Conversion Shares.
                The Conversion Shares have been duly and validly authorized for issuance
                by the Company, and when issued pursuant to the terms of the Convertible
                Note Indenture, will be validly issued, fully paid and non-assessable,
                not
                subject to any preemptive or similar rights, free from all taxes,
                Liens,
                charges and security interests with respect to the issuance thereof
                and
                free of restrictions on transfer other than as expressly contemplated
                by
                the Documents.

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
      	
              (i)

            	
              Compliance
                with Instruments.
                None of the Group Companies is in violation of its respective certificate
                of incorporation, by-laws or other organizational documents (the
                “Charter
                Documents”).
                None of the Group Companies is, nor does any condition exist (with
                the
                passage of time or otherwise) that could reasonably be expected to
                cause
                any of the Group Companies to be, (i) in violation of any statute,
                rule,
                regulation, law or ordinance, or any judgment, decree or order applicable
                to any of the Group Companies or any of their properties (collectively,
                “Applicable
                Law”)
                of any federal, state, PRC national, provincial, local or other
                governmental authority, governmental or regulatory agency or body,
                court,
                arbitrator or self-regulatory organization of applicable jurisdictions,
                domestic or foreign (each, a “Governmental
                Authority”),
                or (ii) in breach of or in default under any bond, debenture, note
                or
                other evidence of indebtedness, indenture, mortgage, deed of trust,
                lease
                or any other agreement or instrument to which any of them is a party
                or by
                which any of them or their respective property is bound (collectively,
                “Applicable
                Agreements”),
                other than in each of clause (i) and (ii) such violations, breaches
                or
                defaults that are (a) disclosed in Schedule
                4(i)
                of
                the Disclosure Schedule or (b) not material. Except as set forth
                in
                Schedule
                4(i)
                of
                the Disclosure Schedule, all Applicable Agreements are in full force
                and
                effect with respect to the Group Companies and to the Company’s knowledge,
                with respect to the other parties, are the legal, valid and binding
                obligations of the parties thereto.

            

    

     

    
      	
              (j)

            	
              No
                Conflicts.
                Neither the execution, delivery or performance of any of the Documents
                nor
                the consummation of any of the transactions contemplated therein
                will
                conflict with, violate, constitute a breach of or a default (with
                the
                passage of time or otherwise) under, require the consent of any person
                or
                a Governmental Authority (other than consents already obtained) or
                result
                in the imposition of a Lien (other than a Lien arising under the
                Security
                Documents and the transactions contemplated by this Agreement) on
                any
                assets of any of the Group Companies under or pursuant to (i) the
                Charter
                Documents, (ii) any Applicable Agreement, or (iii) any Applicable
                Law,
                other than in each of clause (ii) and (iii) such violations, breaches
                or
                defaults that would not, individually or in aggregate, have a Material
                Adverse Effect. After consummation of the transactions contemplated
                in the
                Documents, no Default or Event of Default will exist under either
                Indenture.

            

    

     

    
      	
              (k)

            	
              Security
                Interest.
                When executed and delivered, the Offshore Share Pledge Agreement
                will
                create valid and enforceable first-priority security interests in
                favor of
                the Offshore Collateral Agent in all the “Pledged Collateral” (as defined
                therein)), which security interests will secure the repayment of
                the Notes
                and the other obligations purported to be secured thereby and when
                the
                Offshore Share Pledge Agreement is filed with the Secretary of the
                State
                of the State of Nevada on a Uniform Commercial Code financing statement,
                in the case of the pledge of shares in the Guarantor under the Offshore
                Share Pledge Agreement, such security interests will be perfected.
                When
                executed and delivered and subject to the approval by relevant
                Governmental Authority, the Onshore Share Pledge Agreement will create
                valid and enforceable first-priority security interests in favor
                of the
                collateral agent appointed thereunder in all the equity interest
                in the
                WFOE which security interests will secure the repayment of the Notes
                and
                the other obligations purported to be secured
                thereby.

            

    

     

    
      	
              (l)

            	
              Governmental
                Consents.
                No filing with, consent, approval, authorization or order of, any
                Governmental Authority is required for the consummation of the
                transactions contemplated by the Documents, except (i) as have been
                obtained or will have been obtained on or before the Closing Date,
                (ii) as
                may be necessary to perfect security interests granted pursuant to
                the
                Security Documents, and (iii) as may be required under the Act or
                state
                securities laws or “Blue Sky” laws.

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
      	
              (m)

            	
              Proceedings.
                There is no action, claim, suit, demand, hearing, notice of violation
                or
                deficiency, or proceeding, domestic or foreign (collectively,
                “Proceedings”),
                pending or, to the knowledge of the Company, threatened, that seeks
                to
                restrain, enjoin, prevent the consummation of, or otherwise challenges
                any
                of the Documents, any Restructuring Agreement (considered alone or
                with
                other Restructuring Agreements) or any of the transactions contemplated
                therein. Except as disclosed in the SEC Reports, none of the Group
                Companies is subject to any judgment, order or decree of which the
                Company
                has knowledge.

            

    

     

    
      	
              (n)

            	
              Permits.
                Each of the Group Companies possesses all licenses, permits, certificates,
                consents, orders, approvals and other authorizations from, and has
                made
                all declarations and filings with, all Governmental Authorities,
                presently
                required or necessary to own or lease, as the case may be, and to
                operate
                their respective properties and to carry on their respective businesses
                as
                now conducted (“Permits”).
                All of the Permits are valid and in full force and effect. Each of
                the
                Group Companies has fulfilled and performed all of its respective
                obligations with respect to such Permits and no event has occurred
                which
                allows, or after notice or lapse of time could allow, revocation
                or
                termination thereof or result in any other material impairment of
                the
                rights of the holder of any such Permit. None of the Group Companies
                has
                received actual notice of any Proceeding relating to revocation or
                modification of any such Permit.

            

    

     

    
      	
              (o)

            	
              Title
                to Property.
                Each of the Group Companies has good and marketable title to all
                real
                property and personal property owned by it, in each case free and
                clear of
                any Liens as of the Closing Date, except such Liens as permitted
                under the
                Documents. For the real property not owned by any of the Group Companies
                and currently used or planned to be used for the business operations
                of
                the Group Companies, each of such Group Companies has good and marketable
                title to all leasehold estates in real and personal property being
                leased
                by it and, in each case free and clear of all Liens as of the Closing
                Date.

            

    

     

    
      	
              (p)

            	
              Insurance.
                Each of the Group Companies maintains reasonable adequate insurance
                covering its material properties, operations, personnel and business,
                and
                is insured by insurers of recognized financial responsibility against
                such
                losses and risks and in such amounts as are prudent and customary
                in the
                businesses in which it is engaged. All policies of insurance insuring
                the
                Group Companies and their respective businesses, assets, employees,
                officers and directors are in full force and effect. Each of the
                Group
                Companies is in compliance with the terms of such policies and instruments
                in all material respects, and there are no claims by any of the Group
                Companies under any such policy or instrument as to which any insurance
                company is denying liability or defending under a reservation of
                rights
                clause. None of the Group Companies has been refused any insurance
                coverage sought or applied for, and none of the Group Companies 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 could not, individually or in the aggregate, have a Material
                Adverse Effect.

            

    

     

    
      	
              (q)

            	
              Taxes.
                All Tax returns required to be filed by each of the Group Companies
                have
                been filed, and all such returns are true, complete and correct in
                all
                material respects. All material Taxes that are due from each of the
                Group
                Companies have been paid other than those (i) currently payable without
                penalty or interest or (ii) being diligently contested in good faith
                and
                by appropriate proceedings and for which adequate reserves have been
                established in accordance with GAAP. To the knowledge of the Company
                after
                due inquiry, there are no proposed Tax assessments against any of
                the
                Group Companies. The accruals and reserves on the books and records
                of
                each of the Group Companies in respect of any Tax liability for any
                Taxable period not finally determined are adequate to meet any assessments
                of Tax for any such period. For purposes of this Agreement, the term
                “Tax”
                and “Taxes”
                shall mean all Federal, state, PRC national, provincial, local and
                foreign
                taxes, and other assessments of a similar nature (whether imposed
                directly
                or through withholding), including any interest, additions to tax,
                or
                penalties applicable thereto.

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    
      	
              (r)

            	
              Intellectual
                Property.
                

            

    

     

    
      	 	
              (i)

            	
              Each
                of the Group Companies owns, or is validly licensed under, or has
                the
                right to use, all patents, patent rights, licenses, inventions,
                copyrights, know-how (including trade secrets and other unpatented
                and/or
                unpatentable proprietary or confidential information, systems or
                procedures), trademarks, service marks and trade names (collectively,
                “Intellectual
                Property”)
                necessary for the conduct of its businesses and which as of the Closing
                Date, will be free and clear of all Liens, except where the failure
                to
                own, possess, or have the right to use such Intellectual Property
                would
                not have a Material Adverse Effect. To the Company’s knowledge, no claims
                or notices of any potential claim have been asserted by any person
                challenging the use of any such Intellectual Property by any of the
                Group
                Companies or questioning the validity or effectiveness of the Intellectual
                Property or any license or agreement related thereto, and, to the
                Company’s knowledge, there are no facts which would form a valid basis for
                any such claim. To the Company’s knowledge, the use of such Intellectual
                Property by any of the Group Companies will not infringe on the
                Intellectual Property rights of any other person.
                

            

    

     

    
      	 	
              (ii)

            	
              Schedule
                4(r)(ii)
                of
                the Disclosure Schedule sets forth a complete list of (i) the Registered
                IP owned by or licensed to any of the Group Companies and (ii) all
                other
                material Intellectual Property licensed to any of the Group Companies.
                “Registered
                IP”
                means Intellectual Property that is registered, filed, or issued
                under the
                authority of any Governmental Authority, including all patents, registered
                copyrights, registered mask works, and registered trademarks and
                all
                applications for any of the foregoing. All Intellectual Properties
                owned
                by each of the Group Companies are valid and enforceable and are
                in
                compliance with formal legal
                requirements.

            

    

     

    
      	 	
              (iii)

            	
              Each
                of the Group Companies has taken reasonable steps and measures to
                establish and preserve ownership of or right to use all Intellectual
                Property material to the operation of its business. Each of the Group
                Companies has taken reasonable steps to register, protect, maintain,
                and
                safeguard the Intellectual Property material to its business, including
                any Intellectual Property that is jointly developed with any
                third-parties, or any Intellectual Property for which improper or
                unauthorized disclosure would impair its value or validity, and has
                had
                executed appropriate nondisclosure and confidentiality agreements
                and made
                all appropriate filings, registrations and payments of fees in connection
                with the foregoing. There is no infringement or misappropriation
                by any
                other Person of any Intellectual Property of any of the Group Companies.
                No proceedings or claims in which any of the Group Companies alleges
                that
                any Person is infringing upon, or otherwise violating, any Intellectual
                Property of any of the Group Companies are pending, and none has
                been
                served, instituted or asserted by any of the Group
                Companies.

            

    

     

    
      	 	
              (iv)

            	
              Each
                of the Group Companies owns all rights in and to any and all Intellectual
                Property used or planned to be used by the Group Companies, or covering
                or
                embodied in any past, current or planned activity or service of the
                Group
                Companies, which Intellectual Property was made, developed, conceived,
                created or written by any consultant retained, or any employee employed,
                by the Group Companies. No former or current employee, no former
                or
                current consultant, and no third-party joint developer of any of
                the Group
                Companies has any rights in any Intellectual Property made, developed,
                conceived, created or written by the aforesaid employee or consultant
                during the period of his or her retention by the Group Companies
                which can
                be asserted against any Group
                Company.

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
      	 	
              (v)

            	
              No
                Intellectual Property owned by any Group Company is the subject of
                any
                security interest, Lien, license or other contract granting rights
                therein
                to any other Person. Each of the Group Companies has not (a) transferred
                or assigned, (b) granted an exclusive license to or (c) provided
                or
                licensed, any Intellectual Property owned by the Group Companies
                to any
                Person who is the subject of any security interest, Lien, license
                or other
                contract granting rights therein to any other Person.
                

            

    

     

    
      	
              (s)

            	
              Internal
                Controls.
                Each of the Group Companies maintains a system of internal accounting
                controls sufficient to provide reasonable assurance that (i) transactions
                are executed in accordance with management’s general or specific
                authorization, (ii) transactions are recorded as necessary to permit
                preparation of financial statements in conformity with GAAP 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 quarterly intervals and appropriate action is taken with
                respect
                to any material differences.

            

    

     

    
      	
              (t)

            	
              Financial
                Statements.
                

            

    

     

    
      	 	
              (i)

            	
              Except
                as disclosed in Schedule
                4(t)(i)
                of
                the Disclosure Schedule, the audited consolidated financial statements
                and
                related notes of the Company contained in the Form 10-KSB for the
                three
                years ended December 31, 2005 and the unaudited consolidated financial
                statements and related notes in the Form 10-QSB for the nine months
                ended
                September 30, 2006 (collectively, the “Financial
                Statements”)
                present fairly in all material respects the financial position, results
                of
                operations and cash flows of the Company and its consolidated
                Subsidiaries, as of the respective dates and for the respective periods
                to
                which they apply and have been prepared in accordance with GAAP and
                comply
                as to form with the applicable requirements of Regulation S-X of
                the Act.
                All other financial, statistical, and market and industry-related
                data
                included in the SEC Reports are based on or derived from sources
                that the
                Company reasonably believes to be reliable and
                accurate.

            

    

     

    
      	 	
              (ii)

            	
              Subsequent
                to the date of the Company’s audited financial statements filed for the
                year ended December 31, 2005, except as disclosed therein or in any
                subsequent SEC Report, (i) none of the Group Companies has incurred
                any
                liabilities, direct or contingent, that are material, individually
                or in
                the aggregate, to the Company, or has entered into any material
                transactions not in the ordinary course of business, (ii) there has
                not
                been any material decrease in the capital stock or any material increase
                in long-term indebtedness or any material increase in short-term
                indebtedness of the Group Companies, or any payment of or declaration
                to
                pay any dividends or any other distribution with respect to the Group
                Companies, and (iii) there has not been any material adverse change
                in the
                properties, business, prospects, operations, earnings, assets, liabilities
                or condition (financial or otherwise) of the Group Companies taken
                as a
                whole; excluding any changes caused by (x) the condition of the industry
                of the Company that do not disproportionately affect the Company,
                (y) the
                failure of the Company to meet its financial projections or (z) the
                execution and delivery of this Agreement and consummation of the
                transactions contemplated hereby (each of clauses (i), (ii) and (iii),
                a
                “Material
                Adverse Change”).
                To the knowledge of the Company, there is no event that is reasonably
                likely to occur in the foreseeable future, which if it were to occur,
                could, individually or in the aggregate, have a Material Adverse
                Change.

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
      	
              (u)

            	
              Indebtedness.
                All Indebtedness represented by the Notes and the Guarantees is being
                incurred for proper purposes and in good faith. Based on the financial
                condition of the Company as of the Closing Date after giving effect
                to the
                receipt by the Company of the proceeds from the sale of the Securities
                hereunder, (i) the fair saleable value of the Group Companies’ assets
                exceeds the amount that will be required to be paid on or in respect
                of
                the Group Companies’ existing debts and other liabilities (including
                contingent liabilities) as they mature; (ii) the present fair saleable
                value of the assets of the Group Companies is greater than the amount
                that
                will be required to pay the probable liabilities of the Group Companies
                on
                their respective debt as they become absolute and mature, and (iii)
                the
                Group Companies are able to realize upon their assets and pay their
                debt
                and other liabilities (including contingent obligations) as they
                mature;
                (iv) the Group Companies’ assets do not constitute unreasonably small
                capital to carry on their respective businesses as now conducted
                and as
                proposed to be conducted including their respective capital needs
                taking
                into account the particular capital requirements of the business
                conducted
                by the Group Companies, and projected capital requirements and capital
                availability thereof; and (v) the current cash flow of each of the
                Group
                Companies, together with the proceeds the Company would receive,
                were it
                to liquidate all of its assets, after taking into account all anticipated
                uses of the cash, would be sufficient to pay all amounts on or in
                respect
                of its liabilities when such amounts are required to be paid. None
                of the
                Group Companies intends to incur debts beyond its ability to pay
                such
                debts as they mature (taking into account the timing and amounts
                of cash
                to be payable on or in respect of its debt). The Company has no knowledge
                of any facts or circumstances which lead it to believe that it or
                any
                other Group Companies will file for reorganization or liquidation
                under
                the bankruptcy or reorganization laws of any jurisdiction within
                one year
                from the Closing Date. For the purposes of this Agreement, “Indebtedness”
                shall mean (a) any liabilities for borrowed money or amounts owed
                in
                excess of $75,000 (other than trade accounts payable incurred in
                the
                ordinary course of business), (b) all guaranties, endorsements and
                other
                contingent obligations in respect of Indebtedness of others, whether
                or
                not the same are or should be reflected in the Company’s balance sheet (or
                the notes thereto), except guaranties by endorsement of negotiable
                instruments for deposit or collection or similar transactions in
                the
                ordinary course of business; and (c) the present value of any lease
                payments in excess of $75,000 due under leases required to be capitalized
                in accordance with GAAP. None of the Group Companies is, or is reasonably
                likely to be, in default with respect to any Indebtedness and no
                waiver of
                default is currently in effect. None of the Group Companies has agreed
                or
                consented to cause or permit in the future (upon the happening of
                a
                contingency or otherwise) any of its property, whether now owned
                or
                hereafter acquired, to be subject to a Lien. None of the Group Companies
                is a party to, or otherwise subject to any provision contained in,
                any
                instrument evidencing Indebtedness of any of the Group Companies,
                any
                agreement relating thereto or any other agreement (including, but
                not
                limited to, its Charter Document) which limits the amount of, or
                otherwise
                imposes restrictions on the incurring of, Indebtedness of the
                Company.

            

    

     

    
      	
              (v)

            	
              No
                Stabilization.
                None of the Group Companies has and, to each of its knowledge after
                due
                inquiry, no one acting on its behalf has, (i) taken, directly or
                indirectly, any action designed to cause or to result in, or that
                has
                constituted or which might reasonably be expected to constitute,
                the
                stabilization or manipulation of the price of any security of any
                of the
                Group Companies to facilitate the sale or resale of any of the Securities,
                (ii) sold, bid for, purchased, or paid anyone any compensation for
                soliciting purchases of, the Notes, or (iii) paid or agreed to pay
                to any
                person any compensation for soliciting another to purchase any other
                securities of the Company or its Subsidiaries (other than Merrill
                Lynch
                Far East Limited).

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
      	
              (w)

            	
              No
                Sale to the U.S.
                None of the Group Companies, their respective Affiliates, or any
                person
                acting on its or their behalf has, directly or indirectly, made offers
                or
                sales of any security, or solicited offers to buy, sell or offer
                to sell
                or otherwise negotiate in respect of, in the United States or to
                any
                United States citizen or resident, any security which is or would
                be
                integrated with the sale of the Securities in a manner or under
                circumstances that would require the registration of the Securities
                under
                the Act.

            

    

     

    
      	
              (x)

            	
              No
                Directed Selling Efforts.
                None of the Group Companies, their respective Affiliates, or any
                person
                acting on its or their behalf (other than the Purchaser, its Affiliates
                or
                persons acting on its behalf, as to whom the Company makes no
                representation) has engaged in any directed selling efforts (within
                the
                meaning of Regulation S) with respect to the Securities; and each
                of the
                Company, its Subsidiaries, their respective Affiliates and each person
                acting on its or their behalf has complied with the offering restrictions
                requirement of Regulation S.  

            

    

     

    
      	
              (y)

            	
              No
                Registration.
                Assuming the accuracy of the Purchaser’s representations and warranties
                set forth in Section
                6,
                no registration under the Act of the Securities is required for the
                offer,
                sale and delivery of the Securities in the manner contemplated herein
                or
                to qualify any Indenture under the Trust Indenture Act of
                1939.

            

    

     

    
      	
              (z)

            	
              Labor
                Matters.
                None of the Group Companies is bound by or subject to (and none of
                its
                assets or properties is bound by or subject to) any written or oral,
                express or implied, contract, commitment or arrangement with any
                labor
                union, and no labor union has requested or, to the knowledge of the
                Company, has sought to represent any of the employees, representatives
                or
                agents of the Group Companies. There is no strike or other labor
                dispute
                involving any of the Group Companies pending or threatened, which
                could
                have a Material Adverse Effect. There is no employment related charge,
                complaint, grievance, investigation, unfair labor practice claim
                or
                inquiry of any kind, pending against any of the Group Companies that
                could, individually or in the aggregate, have a Material Adverse
                Effect.
                

            

    

     

    
      	
              (aa)

            	
              Brokers
                and Finders.
                The Company has not engaged any broker, finder, commission agent
                or other
                similar person (other than Merrill Lynch Far East Limited) in connection
                with the transactions contemplated under the Documents, and the Company
                is
                not under any obligation to pay any broker’s fee or commission in
                connection with such transactions (other than commissions or fees
                to
                Merrill Lynch Far East Limited).

            

    

     

    
      	
              (bb)

            	
              Environmental
                Matters.
                Each of the Group Companies (i) is in compliance with any and all
                applicable foreign, federal, state, PRC national, provincial, and
                local
                laws and regulations relating to the protection of the environment
                or
                hazardous or toxic substances or wastes, pollutants or contaminants
                (“Environmental
                Laws”),
                (ii) has received and is in compliance with all permits, licenses
                or other
                approvals required of it under applicable Environmental Laws to conduct
                its business, (iii) has not received actual notice of any actual
                or
                potential liability for the investigation or remediation of any disposal
                or release of hazardous or toxic substances or wastes, pollutants
                or
                contaminants, (iv) has no knowledge of any facts which would give
                rise to
                any claim, public or private, of violation of Environmental Laws
                emanating
                from, occurring on or in any way related to real properties now or
                formerly owned, leased or operated by any of them or to other assets
                or
                their use, except, in each case, such as would not reasonably be
                expected
                to result in a Material Adverse Effect; and (v) has stored no hazardous
                materials on real properties now or formerly owned, leased or operated
                by
                any of them and has not disposed of any hazardous materials in a
                manner
                contrary to any Environmental Laws; except where such non-compliance
                with
                Environmental Laws, failure to receive required permits, licenses
                or other
                approvals, or liability would not, individually or in the aggregate,
                have
                a Material Adverse Effect.

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    In
      the
      ordinary course of its business, the Company periodically reviews the effect
      of
      Environmental Laws on the business, operations and properties of the Company
      and
      its Subsidiaries, in the course of which it identifies and evaluates associated
      costs and liabilities (including, without limitation, any capital or operating
      expenditures required for clean-up, closure of properties or compliance with
      Environmental Laws, or any permit, license or approval, any related constraints
      on operating activities and any potential liabilities to third parties). On
      the
      basis of such review, the Company has reasonably concluded that such associated
      costs could not have a Material Adverse Effect.

     

    
      	
              (cc)

            	
              Encumbrances.
                As of the Closing Date, there will be no encumbrances or contractual
                restrictions on the ability of any of the Group Companies (x) to
                pay
                dividends or make other distributions on such parties’ capital stock or to
                make loans or advances or pay any indebtedness to, or investments
                in, any
                of the Group Companies, or (y) to transfer any of its property or
                assets
                to any of the Group Companies, except for such restrictions set forth
                in
                the Documents or limitations imposed by corporate law
                statutes.

            

    

     

    
      	
              (dd)

            	
              Security
                Interest/Security Documents.
                As of the Closing Date:

            

    

     

    
      	 	
              (i)

            	
              The
                Company will own the Pledged Collateral free and clear of all Liens
                (except for Permitted Liens and Liens arising under the Offshore
                Share
                Pledge Agreement). 

            

    

     

    
      	 	
              (ii)

            	
              The
                representations and warranties contained in the Offshore Share Pledge
                Agreement will be true and correct in all material
                respects.

            

    

     

    The
      Liens
      on the Notes will have been duly perfected as to all Pledged Collateral upon
      the
      completion of the filing of the financing statements pursuant to Section
      5(l).

     

    
      	
              (ee)

            	
              Certificate.
                Each certificate signed by any officer of any of the Group Companies
                and
                delivered to the Purchaser shall be deemed a representation and warranty
                by such company (and not individually by such officer) to the Purchaser
                with respect to the matters covered
                thereby.

            

    

     

    
      	
              (ff)

            	
              Foreign
                Corrupt Practices Act.
                None of the Group Companies, nor to the knowledge of the Company,
                any
                agent or other person acting on behalf of any of the Group Companies,
                directly or indirectly, (i) has used any funds or will use such funds
                or
                any proceeds from the sale of the Notes for unlawful contributions,
                gifts,
                entertainment or other unlawful expenses related to foreign or domestic
                political activity, (ii) made any unlawful payment to foreign or
                domestic
                government officials or employees or to any foreign or domestic political
                parties or campaigns from corporate funds, (iii) failed to disclose
                fully
                any contribution made by the Group Companies (or made by any person
                acting
                on its behalf of which the Company is aware) which is in violation
                of law,
                or (iv) violated in any material respect any provision of the Foreign
                Corrupt Practices Act of 1977, as amended and the rules and regulations
                thereunder (the “FCPA”).

            

    

     

    
      	
              (gg)

            	
              Related
                Party Transactions.
                Except otherwise disclosed in Schedule
                4(gg)
                of
                the Disclosure Schedule, no material relationship, direct or indirect,
                exists between or among any of the Group Company or its Subsidiaries
                or
                any Affiliate of the Group Companies or its subsidiaries, on the
                one hand,
                and any former or current director, officer, stockholder, customer
                or
                supplier of any of them (including his or her spouse, child, sibling,
                any
                company or undertaking in which he or she holds any equity interest,
                or
                any person related by marriage or consanguinity), on the other
                hand.

            

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    
      	
              (hh)

            	
              Investment
                Company.
                None of the Group Companies is, and as a result of the offer and
                sale of
                the Securities contemplated herein will not be, required to register
                as an
                “investment company” under, and as such term is defined in, the U.S.
                Investment Company Act of 1940, as amended, in connection with or
                as a
                result of the offer and sale of the
                Securities.

            

    

     

    
      	(ii)	
              PFIC. None
                of the Group Companies is or intends to become a “passive foreign
                investment company” (a “PFIC”)
                within the meaning of Section 1297 of the U.S. Internal Revenue Code.
                

            

    

     

    
      	
              (jj)

            	
              OFAC.
                Neither the Company nor, to the knowledge of the Company, any director,
                officer, agent, employee, Affiliate or Person acting on behalf of
                the
                Company 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.

            

    

     

    
      	
              (kk)

            	
              Money
                Laundering Laws.
                The operations of each of the Group Companies are and have been conducted
                at all times in compliance with the money laundering statutes of
                applicable jurisdictions, the rules and regulations thereunder and
                any
                related or similar rules, regulations or guidelines, issued, administered
                or enforced by any applicable 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 any of the
                Group
                Companies with respect to the Money Laundering Laws is pending or,
                to the
                best knowledge of the Company,
                threatened.

            

    

     

    
      	
              (ll)

            	
              Other
                Representations and Warranties Relating to Dalian Fushi and the
                WFOE.
                

            

    

     

    
      	 	
              (i)

            	
              The
                constitutional documents and certificates and related material contracts
                of each of Dalian Fushi and the WFOE are valid and have been duly
                approved
                or registered (as applicable) by competent PRC Governmental
                Authorities.

            

    

     

    
      	 	
              (ii)

            	
              All
                material consents, approvals, authorizations or licenses requisite
                under
                PRC law for the due and proper establishment and operation of each
                of
                Dalian Fushi and the WFOE have been duly obtained from the relevant
                PRC
                Governmental Authorities and are in full force and
                effect.

            

    

     

    
      	 	
              (iii)

            	
              All
                filings and registrations with the PRC Governmental Authorities required
                in respect of each of Dalian Fushi and the WFOE and its operations
                including, without limitation, the registrations with the Ministry
                of
                Commerce, the State Administration of Industry and Commerce, the
                State
                Administration for Foreign Exchange, tax bureau and customs authorities
                have been duly completed in accordance with the relevant PRC rules
                and
                regulations.

            

    

     

    
      	 	
              (iv)

            	
              Each
                of Dalian Fushi and the WFOE has complied with all relevant PRC laws
                and
                regulations regarding the contribution and payment of its registered
                share
                capital, the payment schedule of which has been approved by the relevant
                PRC Government Authorities. There are no outstanding rights of, or
                commitments made by the Company or any Subsidiary to sell any equity
                interest in the WFOE, or by Dalian Fushi’s shareholders to sell any equity
                interest in Dalian Fushi.

            

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    
      	 	
              (v)

            	
              Neither
                Dalian Fushi nor the WFOE is in receipt of any letter or notice from
                any
                relevant PRC Governmental Authority notifying it of revocation of
                any
                licenses or qualifications issued to it or any subsidy granted to
                it by
                any PRC Governmental Authority for non-compliance with the terms
                thereof
                or with applicable PRC laws, or the need for compliance or remedial
                actions in respect of the activities carried out by Dalian Fushi
                or the
                WFOE.

            

    

     

    
      	 	
              (vi)

            	
              Each
                of Dalian Fushi and the WFOE has conducted its business activities
                within
                the permitted scope of business or has otherwise operated its business,
                including pursuant to the Restructuring Agreements, in compliance
                with all
                relevant legal requirements and with all requisite licenses and approvals
                granted by competent PRC Governmental
                Authorities.

            

    

     

    
      	 	
              (vii)

            	
              As
                to licenses, approvals and government grants and concessions requisite
                or
                useful for the conduct of any part of either Dalian Fushi’s or the WFOE’s
                business which are subject to periodic renewal, the Company has no
                knowledge of any grounds on which such requisite renewals will not
                be
                granted by the relevant PRC Governmental
                Authorities.

            

    

     

    
      	 	
              (viii)

            	
              With
                regard to employment and staff or labor, each of Dalian Fushi or
                the WFOE
                has complied with all applicable PRC laws and regulations in all
                material
                respects, including without limitation, laws and regulations pertaining
                to
                welfare funds, social benefits, medical benefits, insurance, retirement
                benefits, pensions or the like.

            

    

     

    
      	
              (mm)

            	
              Full
                Disclosure.
                All disclosure furnished by or on behalf of the Company to the Purchaser
                regarding any of the Group Companies, their respective businesses
                and the
                transactions contemplated under the Documents, including the Disclosure
                Schedule to this Agreement, with respect to the representations and
                warranties made herein are true and correct with respect to such
                representations and warranties and do not contain any untrue statement
                of
                a material fact or omit to state any material fact necessary in order
                to
                make the statements made therein, in light of the circumstances under
                which they were made, not misleading. The Company acknowledges and
                agrees
                that the Purchaser does not make any representations or warranties
                with
                respect to the transactions contemplated hereby other than those
                specifically set forth in Section
                6
                hereof.

            

    

     

    5. Covenants
      of the Group Companies and the Controlling Shareholder.
      Each of
      the Group Companies and the Controlling Shareholder, jointly and severally,
      hereby agrees: 

     

    
      	
              (a)

            	
              To
                (i) advise the Purchaser promptly after obtaining knowledge (and,
                if
                requested by the Purchaser, confirm such advice in writing) of the
                issuance by any state securities commission of any stop order suspending
                the qualification or exemption from qualification of the Securities
                for
                offer or sale in any jurisdiction, or the initiation of any proceeding
                for
                such purpose by any state securities commission or other regulatory
                authority, (ii) use its commercially reasonable efforts to prevent
                the
                issuance of any stop order or order suspending the qualification
                or
                exemption from qualification of the Securities under any state securities
                or Blue Sky laws, and (iii) if at any time any state securities commission
                or other regulatory authority shall issue an order suspending the
                qualification or exemption from qualification of the Securities under
                any
                such laws, use its commercially reasonable efforts to obtain the
                withdrawal or lifting of such order at the earliest possible
                time.

            

    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    
      	
              (b)

            	
              So
                long as any of the Securities are “restricted securities” within the
                meaning of Rule 144(a)(3) or Rule 905 under the Act, to, during any
                period
                in which the Company is not subject to and in compliance with Section
                13
                or 15(d) of the Exchange Act, provide to each holder of such restricted
                securities and to each prospective purchaser (as designated by such
                holder) of such restricted securities, upon the request of such holder
                or
                prospective purchaser, any information required to be provided by
                Rule
                144A(d)(4) under the Act.

            

    

     

    
      	
              (c)

            	
              Whether
                or not any of the transactions contemplated under the Documents are
                consummated or this Agreement is terminated, to pay (i) all costs,
                expenses, fees and taxes incident to and in connection with: (A)
                the
                printing, processing and distribution (including, without limitation,
                word
                processing and duplication costs) and delivery of, each of the Documents,
                and (B) the preparation, issuance and delivery of the Securities,
                (ii) all
                fees and expenses of the counsel, accountants and any other experts
                or
                advisors retained by the Company, (iii) all expenses in connection
                with
                qualifying the Notes for settlement in the Clearing Facilities, (iv)
                all
                fees and expenses (including fees and expenses of counsel) of the
                Company
                in connection with approval of the Securities for “book-entry” transfer,
                and (v) all fees and expenses (including reasonable fees and expenses
                of
                counsel) of the Trustee, the Calculation Agent, Merrill Lynch Far
                East, as
                Placement Agent, and the Collateral
                Agents.

            

    

     

    
      	
              (d)

            	
              To
                do and perform all things required to be done and performed under
                the
                Documents prior to and after the Closing
                Date.

            

    

     

    
      	
              (e)

            	
              Prior
                to making any public disclosure or filings as may be required by
                applicable law with respect to this Agreement and the transactions
                contemplated hereby, to provide the Purchaser and its counsel with
                the
                reasonable opportunity to review and comment on such public disclosure
                documents and consider in good faith any comments received by the
                Purchaser or its counsel.

            

    

     

    
      	
              (f)

            	
              To
                maintain the trading of the Common Stock in the Trading
                Market.

            

    

     

    
      	
              (g)

            	
              For
                so long as the Purchaser owns any of the Securities, the Company
                will
                furnish to the Purchaser copies of all reports and other communications
                (financial or otherwise) furnished by the Company to the Trustee
                or to the
                holders of its Securities and, as soon as available, copies of any
                reports
                or financial statements furnished to or filed by the Company with
                the
                Commission or any national securities exchange on which any class
                of
                securities of the Company may be listed; provided,
                however,
                that any such report or financial statements filed on the Commission’s
                EDGAR database need not be separately
                furnished.

            

    

     

    
      	
              (h)

            	
              During
                the two-year period after the Closing Date (or such shorter period
                as may
                be provided for in Rule 144(k) under the Act, as the same may be
                in effect
                from time to time), not to, and not to permit any current or future
                Subsidiaries of the Company or any other affiliates (as defined in
                Rule
                144(a) under the Act) controlled by the Company to, resell any of
                the
                Securities which constitute “restricted securities” under Rule 144 that
                have been reacquired by the Company, any current or future Subsidiaries
                of
                the Company or any other affiliates (as defined in Rule 144(a) under
                the
                Act) controlled by the Company, except pursuant to an effective
                registration statement under the
                Act.

            

    

     

    
      	
              (i)

            	
              To
                pay all stamp, documentary and transfer taxes and other duties, if
                any,
                which may be imposed by any Governmental Authorities or any political
                subdivision thereof or taxing authority thereof or therein with respect
                to
                the issuance of the Notes or the sale thereof to the
                Purchaser.

            

    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    
      	
              (j)

            	
              The
                Company will use commercially reasonable efforts not to become, and
                cause
                its Subsidiaries not to become, a PFIC. If the Company determines
                that it
                or any of its Subsidiaries has become a PFIC, the Company will promptly
                notify the Purchaser and provide all information requested by the
                Purchaser that is necessary for the Purchaser to make a qualified
                electing
                fund (QEF) election.

            

    

     

    
      	
              (k)

            	
              The
                Company agrees that it will not register any transfer of the Securities
                that is not (i) made in accordance with the provisions of Regulation
                S
                under the Act, (ii) made pursuant to registration under the Act,
                or (iii)
                made pursuant to an available exemption under the
                Act.

            

    

     

    
      	
              (l)

            	
              The
                Company and the Controlling Shareholder shall use their best efforts
                to
                assist the Purchaser to timely file the financing statements under
                Article
                9 of the Uniform Commercial Code of Nevada with the Secretary of
                the State
                of the State of Nevada, which initial filing shall be completed or
                cause
                to be completed no later than one month from the date of the Closing.
                

            

    

     

    
      	
              (m)

            	
              The
                Company shall, as soon as reasonably practicable, use its best efforts
                to
                (i) procure a collateral agent acceptable to the Purchaser to serve
                as a
                collateral agent under the Onshore Share Pledge Agreement, which
                agreement
                shall be in the form acceptable to the Purchaser, (ii) obtain approvals
                from, and complete filing procedures with, relevant Governmental
                Authorities in order to create a valid and enforceable first-priority
                security interest over all of the equity interests issued by the
                WFOE,
                including the approval from the Dalian Foreign Trade & Economic
                Cooperation Bureau and the registration with the Dalian Industrial
                and
                Commercial Administration Bureau.

            

    

     

    
      	
              (n)

            	
              The
                Company will use the proceeds from the offer and sale of the Notes
                for (i)
                capital expenditures (in particular, installation of additional production
                lines), and (ii) acquisition by the Company of equity interests in
                or
                assets of other entities, with the prior written consent of the Purchaser
                which will not be unreasonably withheld. The balance of the proceeds
                will
                be used by the Company for working capital and general corporate
                purposes.

            

    

     

    
      	
              (o)

            	
              The
                Company shall at all times keep reserved for issuance and delivery
                upon
                conversion of the Convertible Notes such number of Conversion Shares
                or
                other shares of the Company as are from time to time issuable upon
                conversion of any Convertible Note and will, from time to time, take
                all
                necessary steps to amend its articles of incorporation to provide
                a
                sufficient reserve of Conversion Shares for issuance upon conversion
                of
                the Convertible Notes.

            

    

     

    
      	
              (p)

            	
              In
                connection with the conversion of the Convertible Notes into Conversion
                Shares, neither the Company nor any Person acting on its behalf will
                take
                any action which would result in the Conversion Shares being exchanged
                by
                the Company other than with the then existing holders of the Convertible
                Notes exclusively where no commission or other remuneration is paid
                or
                given directly or indirectly for soliciting the exchange in compliance
                with Section 3(a)(9) of the Act.

            

    

     

    
      	
              (q)

            	
              Each
                of the Group Companies and the Controlling Shareholder undertakes
                that (i)
                they will comply with the FCPA, including, without limitation, not
                making
                use of the mails or any means or instrumentality of interstate commerce
                corruptly in furtherance of an offer, payment, promise to pay or
                authorization of the payment of any money, or other property, gift,
                promise to give, or authorization of the giving of value to any “foreign
                official” (as the term is defined in the FCPA) or any foreign political
                party or official thereof or any candidate for foreign political
                office,
                in contravention of the FCPA, (ii) they will conduct its business
                in
                compliance with the FCPA, and (iii) they will institute and maintain
                policies and procedures designed to ensure, and which are reasonably
                expected to continue to ensure, continued compliance
                therewith.

            

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    
      	
              (r)

            	
              The
                Company covenants to timely file (or obtain extensions in respect
                thereof
                and file within the applicable grace period) all reports required
                to be
                filed by the Company after the date hereof pursuant to the Exchange
                Act.
                As long as the Conversion Shares are “restricted securities” as defined in
                Rule 144(a)(3), if the Company is not required to file reports pursuant
                to
                the Exchange Act, it will prepare and make publicly available in
                accordance with Rule 144(c) (and, if the Purchaser owns any Conversion
                Shares, furnish to the Purchaser) such information as is required
                to sell
                such Conversion Shares under Rule 144. The Company further covenants
                that
                it will take such further action as any holder of the Conversion
                Shares
                may reasonably request, to the extent required from time to time
                to enable
                such person to sell such Conversion Shares without registration under
                the
                Securities Act within the requirements of the exemption provided
                by Rule
                144.

            

    

     

    
      	
              (s)

            	
              The
                Company shall, by 8:30 a.m. New York City time on the trading day
                immediately following the date hereof, issue a Current Report on
                Form 8-K,
                disclosing the material terms of the transactions contemplated hereby,
                and
                shall attach the Documents that are required by the Commission’s rules and
                regulations to be filed thereto. Such current report on Form 8-K
                shall be
                filed after the Purchaser’s prior review of such report and consent
                thereto. The Company and the Purchaser shall consult with each other
                in
                issuing any other press releases with respect to the transactions
                contemplated hereby, and neither the Company nor the Purchaser shall
                issue
                any such press release or otherwise make any such public statement
                (i)
                without the prior consent of the Company, with respect to any press
                release of the Purchaser, or (ii) without the prior consent of the
                Purchaser, with respect to any press release of the Company, in either
                case of (i) and (ii), which consent shall not unreasonably be withheld
                or
                delayed, except if such disclosure is required by law, in which case
                the
                disclosing party shall promptly provide the other party with prior
                notice
                of such public statement or communication. Notwithstanding the foregoing,
                the Company shall not publicly disclose the name of the Purchaser,
                or
                include the name of the Purchaser in any filing with the Commission
                or any
                regulatory agency or Trading Market, without the prior written consent
                of
                the Purchaser, except (x) as required by federal securities law in
                connection with the filing of the Documents (including signature
                pages
                thereto) with the Commission and (y) to the extent such disclosure
                is
                required by law or Trading Market regulations, in which case the
                Company
                shall provide the Purchaser with prior notice of such disclosure
                permitted
                hereunder.

            

    

     

    
      	
              (t)

            	
              The
                Controlling Shareholder shall, as soon as reasonably practicable,
                use his
                commercially reasonable efforts to (i) complete, or cause to complete,
                the
                registration formalities with the local office of the Administration
                of
                Industry and Commerce and other relevant PRC authorities to register
                the
                Controlling Shareholder, in his individual capacity, as the legal
                shareholder of Dalian Fushi pursuant to the share transfer agreement,
                dated December 12, 2006, between the Controlling Shareholder and
                Dalian
                Fushi Enterprise Group Co., Ltd. ("Fushi
                Group")
                and (ii) effect, or cause to effect, the pledge of Fushi Group's
                shares in
                Dalian Fushi as contemplated in the Shares Pledge Agreement, dated
                as of
                December 13, 2005, among the WFOE, Fushi Group, Yue Yang, Xishan
                Yang and
                Chunyan Xu.

            

    

     

    6. Purchaser’s
      Representations, Warranties and Agreements.
      

     

    The
      Purchaser represents and warrants to the Company that:

     

    
      	
              (a)

            	
              it
                is not a “U.S. Person” (as defined in Rule 902 of Regulation S under the
                Act) and it understands that no action has been or will be taken
                in any
                jurisdiction by the Company that would permit a public offering of
                the
                Notes in any country or jurisdiction where action for that purpose
                is
                required. It is not acquiring the Notes for the account or benefit
                of any
                U.S. persons except in accordance with exemption from registration
                requirements of the Act below or in a transaction not subject
                thereto.

            

    

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    
      	
              (b)

            	
              It
                is not acquiring the Notes with a view to any distribution thereof
                that
                would violate the Act or the securities laws of any state of the
                United
                States or any other applicable
                jurisdiction.

            

    

     

    
      	
              (c)

            	
              It
                (A) agrees that it will not offer, sell or otherwise transfer any
                of the
                Notes nor, unless in compliance with the Act, engage in hedging
                transactions involving such securities, on or prior to (x) the date
                which
                is 40 days (in the case of the HY Notes) or one year (in the case
                of the
                Convertible Notes and the Conversion Shares) after the later of the
                date
                of the commencement of the offering and the date of original issuance
                (or
                of any predecessor of any Security proposed to be transferred by
                the
                Purchaser) and (y) such later date, if any, as may be required by
                applicable law, except (a) to the Company, (b) pursuant to a registration
                statement that has been declared effective under the Act, (c) for
                so long
                as any Security is eligible for resale pursuant to Rule 144A under
                the
                Act, to a person it reasonably believes is a “qualified institutional
                buyer” as defined in Rule 144A that purchases for its own account or for
                the account of another qualified institutional buyer to whom notice
                is
                given that the transfer is being made in reliance on Rule 144A, (d)
                pursuant to offers and sales to Persons who are not “U.S. Persons” (within
                the meaning of Regulation S) that occur outside the United States
                within
                the meaning of Regulation S or (e) pursuant to any other available
                exemption from the registration requirements of the Act, and (B)
                agrees
                that it will give to each person to whom such Security is transferred
                a
                notice substantially to the effect of this paragraph.
                

            

    

     

    
      	
              (d)

            	
              The
                Purchaser acknowledges that the Convertible Notes and the Conversion
                Shares are “restricted securities” as defined in Rule 144 under the Act
                and subject to resale restrictions during the period set forth in
                Rule
                144.

            

    

     

    
      	
              (e)

            	
              No
                form of “directed selling efforts” (as defined in Rule 902 of Regulation S
                under the Act), general solicitation or general advertising in violation
                of the Act has been or will be used nor will any offers by means
                of any
                directed selling efforts in the United States be made by the Purchaser
                or
                any of its representatives in connection with the offer and sale
                of any of
                the Notes.

            

    

     

    
      	
              (f)

            	
              The
                Notes to be acquired by the Purchaser will be acquired for investment
                for
                the Purchaser’s own account, not as a nominee or agent, and not with a
                view to the resale or distribution of any part thereof, and the Purchaser
                has no present intention of selling, granting any participation in,
                or
                otherwise distributing the same. The Purchaser does not presently
                have any
                contract, undertaking, agreement or arrangement with any Person,
                directly
                or indirectly, to sell, transfer, distribute or grant participations
                to
                such Person or to any third Person, with respect to any of the Notes.
                

            

    

     

    7. Conditions
      to Purchase Securities at Closing.
      The
      Purchaser’s obligation to purchase the Securities under this Agreement is
      subject to the satisfaction or waiver of each of the following
      conditions:

     

    
      	
              (a)

            	
              All
                the representations and warranties of each of the Group Companies
                contained in this Agreement and in each of the Documents shall be
                true and
                correct as of the date hereof and at the Closing Date. On or prior
                to the
                Closing Date, the Group Companies, the Controlling Shareholder and
                each
                other party to the Documents (other than the Purchaser) 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 pursuant to the Documents to the satisfaction of the
                Purchaser.

            

    

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    
      	
              (b)

            	
              No
                injunction, restraining order or order of any nature by a Governmental
                Authority shall have been issued as of the Closing Date that could
                prevent
                or materially interfere with the consummation of the transactions
                contemplated under the Documents or the Restructuring Agreements;
                and no
                stop order suspending the qualification or exemption from qualification
                of
                any of the Securities in any jurisdiction shall have been issued
                and no
                Proceeding for that purpose shall have been commenced or, to the
                knowledge
                of the Company after due inquiry, be pending or threatened as of
                the
                Closing Date.

            

    

     

    
      	
              (c)

            	
              No
                action shall have been taken and no Applicable Law shall have been
                enacted, adopted or issued that could, as of the Closing Date, reasonably
                be expected to prevent the consummation of the transactions contemplated
                under the Documents or the Restructuring Agreements. No Proceeding
                shall
                be pending or, to the knowledge of the Company after due inquiry,
                threatened other than Proceedings that (A) are disclosed in the Disclosure
                Schedule, (B) if adversely determined could not, individually or
                in the
                aggregate, adversely affect the issuance or marketability of the
                Notes, or
                (C) could not, individually or in the aggregate, have a Material
                Adverse
                Effect.

            

    

     

    
      	
              (d)

            	
              The
                Company shall have obtained any and all approvals, consents and waivers
                necessary for consummation of the transactions contemplated by this
                Agreement, including, but not limited to, all Permits, authorizations,
                approvals or consents of any Governmental
                Authority.

            

    

     

    
      	
              (e)

            	
              The
                Purchaser shall have received on the Closing
                Date:

            

    

     

    
      	 	
              (i)

            	
              certificates
                dated the Closing Date, signed by (1) the Chief Executive Officer
                and (2)
                the principal financial or accounting officer(s) of each of the Group
                Companies, on behalf of each of such Group Companies, respectively,
                to the
                effect that (a) the representations and warranties set forth in
                Section
                4
                hereof are true and correct with the same force and effect as though
                expressly made at and as of the Closing Date, (b) such Group Company
                has
                complied with all agreements and satisfied all conditions on its
                part to
                be performed or satisfied hereunder at or prior to the Closing Date,
                (c)
                at the Closing Date, since the date hereof or since the date of the
                most
                recent financial statements in the SEC Reports (exclusive of any
                amendment
                or supplement thereto after the date thereof), no event or events
                have
                occurred, no information has become known nor does any condition
                exist
                that could, individually or in the aggregate, have a Material Adverse
                Effect, (d) since the date of the most recent financial statements
                in the
                SEC Reports (exclusive of any amendment or supplement thereto after
                the
                date thereof), none of the Group Companies has incurred any liabilities
                or
                obligations, direct or contingent, not in the ordinary course of
                business,
                that are material to the Group Companies, taken as a whole, or entered
                into any transactions not in the ordinary course of business that
                are
                material to the business, condition (financial or otherwise), results
                of
                operations, prospects or regulatory status of the Group Companies,
                taken
                as a whole, and there has not been any change in the capital stock
                or
                long-term indebtedness of any of the Group Companies that is material
                to
                the business, condition (financial or otherwise) or results of operations,
                prospects or regulatory status of the Group Companies, taken as a
                whole,
                and (e) the sale of any of the Securities has not been enjoined
                (temporarily or permanently);

            

    

     

    
      	 	
              (ii)

            	
              certificates
                dated the Closing Date, executed by the Secretary or authorized officer
                of
                each of the Group Companies, certifying such matters as the Purchaser
                may
                reasonably request;

            

    

     

    
      	 	
              (iii)

            	
              certificates
                dated the Closing Date, executed by officers of the Company and the
                Controlling Shareholder, certifying such matters as the Purchaser
                may
                reasonably request;

            

    

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    
      	 	
              (iv)

            	
              the
                opinion of Guzov Ofsink, LLC, counsel to Fushi International, Inc.
                and
                Fushi Holdings, Inc. as to U.S. federal, New York State, Delaware
                State
                and Nevada State law, dated the Closing Date, in the form attached
                hereto
                as Exhibit
                E-1;
                

            

    

     

    
      	 	
              (v)

            	
              the
                opinion of Dacheng Law Firm, PRC counsel to Dalian Fushi and the
                WFOE,
                dated the Closing Date, in the form attached hereto as Exhibit
                E-2;
                and

            

    

     

    
      	 	
              (vi)

            	
              the
                opinion of King & Wood, PRC counsel to the Purchaser, dated the
                Closing Date.

            

    

     

    
      	
              (f)

            	
              Each
                of the Documents shall have been executed and delivered by all parties
                thereto to the satisfaction of the Purchaser, and the Purchaser shall
                have
                received a fully executed original (or clearly legible facsimile
                copy) of
                each Document.

            

    

     

    
      	
              (g)

            	
              The
                Purchaser shall have received copies of all opinions, certificates,
                letters and other documents delivered under or in connection with
                the
                transactions contemplated in the Documents that are required to be
                delivered at or prior to the Closing
                Date.

            

    

     

    
      	
              (h)

            	
              None
                of the other parties to any of the Documents shall be in breach or
                default
                under their respective obligations
                thereunder.

            

    

     

    
      	
              (i)

            	
              The
                Offshore Collateral Agent shall have received on the Closing
                Date:

            

    

     

    
      	 	
              (i)

            	
              the
                certificate representing the Pledged Stock (as defined in the Offshore
                Share Pledge Agreement), accompanied by undated stock powers duly
                executed
                in blank by the Pledgor pursuant to the Offshore Share Pledge
                Agreement;

            

    

     

    
      	 	
              (ii)

            	
              any
                appropriately
                completed copies, which have been duly authorized for filing by the
                appropriate Person, of Uniform Commercial Code financing statements
                naming
                the Company as a debtor and the Offshore Collateral Agent as the
                secured
                party, or other similar instruments or documents to be filed under
                the UCC
                of all jurisdictions as may be necessary or desirable to perfect
                the
                security interests of the Offshore Collateral Agent pursuant to the
                Indentures;

            

    

     

    
      	 	
              (iii)

            	
              any
                certified
                copies of Uniform Commercial Code Requests for Information or Copies
                (Form
                UCC-11), or a similar search report certified by a party acceptable
                to the
                Offshore Collateral Agent, dated a date reasonably near to the Closing
                Date, listing all effective financing statements which name the Company
                or
                the Guarantor (under its present name and any previous names) as
                the
                debtor, together with copies of such financing statements (none of
                which
                shall cover any collateral described in the
                Indentures);

            

    

     

    
      	 	
              (iv)

            	
              such
                other approvals, opinions, or documents as the Offshore Collateral
                Agent
                may reasonably request in form and substance reasonably satisfactory
                to
                the Offshore Collateral Agent; and

            

    

     

    
      	 	
              (v)

            	
              the
                Offshore Collateral Agent and its counsel shall be satisfied
                that
                (i)
                the Lien granted to the Offshore Collateral Agent, for the benefit
                of the
                “Secured Parties” (as defined in the Security Documents) in the collateral
                described above is a first priority Lien in the case of previously
                unencumbered property identified on Schedule
                4(k);
                and
                (ii)
                no
                Lien exists on any of the collateral described above other than the
                Lien
                created in favor of the Offshore Collateral Agent, for the benefit
                of the
                Secured Parties, pursuant to the Indentures and the Offshore Share
                Pledge
                Agreement.

            

    

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    
      	
              (j)

            	
              All
                Uniform Commercial Code financing statements or other similar financing
                statements required pursuant to Section
                7(i)
                (i), (ii) and (iii) above (collectively, the “Filing
                Statements”)
                shall have been delivered to CT Corporation System or another similar
                filing service company acceptable to the Offshore Collateral Agent
                (the
                “Filing
                Agent”).
                The Filing Agent shall have acknowledged in a writing reasonably
                satisfactory to the Offshore Collateral Agent and its counsel (i)
                the
                Filing Agent’s receipt of all Filing Statements, (ii) that the Filing
                Statements have either been submitted for filing in the appropriate
                filing
                offices or will be submitted for filing in the appropriate offices
                within
                ten days following the Closing Date and (iii) that the Filing Agent
                will
                notify the Offshore Collateral Agent and its counsel of the results
                of
                such submissions within 30 days following the Closing
                Date.

            

    

     

    
      	
              (k)

            	
              The
                respective Boards of Directors of the Group Companies shall have
                approved
                and authorized by all necessary corporate action (i) the execution
                and
                delivery of the Documents, (ii) all actions to be performed or satisfied
                under the Documents (including, without limitation, the reserve for
                issuance of the Conversion Shares issuable upon exercise of the
                Convertible Notes), (iii) the consummation of the transactions
                contemplated by the Documents, (iv) the pricing terms of the Notes
                and (v)
                all other actions necessary in connection with the transactions
                contemplated by the Documents and the offering of the Notes, and
                shall
                have provided the Purchaser with a copy of such authorizations.
                

            

    

     

    
      	
              (l)

            	
              The
                Purchaser shall have completed and be satisfied with the results
                of all
                business, legal and financial due diligence, and any items requiring
                correction identified by the Purchaser shall have been corrected
                to the
                Purchaser’s satisfaction. 

            

    

     

    
      	
              (m)

            	
              The
                Purchaser shall have received all necessary internal approval for
                the
                transactions contemplated hereunder or under the
                Documents.

            

    

     

    
      	
              (n)

            	
              The
                Purchaser shall be satisfied with the fund flow chart in the form
                attached
                hereto as Exhibit
                F
                setting forth how the proceeds from the issue of the Notes will be
                transferred to its direct or indirect PRC subsidiaries and how such
                PRC
                Subsidiaries will repatriate the funds to the Company for purposes
                of the
                performance of the Company’s obligations under the
                Documents.

            

    

     

    8. Indemnification.

     

    
      	
              (a)

            	
              Each
                of the Group Companies and the Controlling Shareholder, jointly and
                severally, agrees to indemnify and hold harmless the Purchaser, each
                of
                its affiliates (including any person who controls the Purchaser within
                the
                meaning of Section 15 of the Act or Section 20 of the Exchange Act)
                and
                their respective officers, directors, partners, shareholders, counsel,
                employees and agents (the Purchaser and each such other person being
                referred to as an “Indemnified
                Person”),
                to the fullest extent lawful, from and against any losses, claims,
                damages, liabilities and reasonable expenses (or actions in respect
                thereof), as incurred, related to or arising out of or in connection
                with:

            

    

     

    
      	 	
              (i)

            	
              actions
                taken or omitted to be taken by any of the Group Companies or the
                Controlling Shareholder, or their respective affiliates, officers,
                directors, employees or agents;

            

    

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    
      	 	
              (ii)

            	
              any
                breach by any of the Group Companies or the Controlling Shareholder
                of
                their respective representations, warranties, covenants and agreements
                set
                forth in this Agreement or in any of the other
                Documents;

            

    

     

    
      	 	
              (iii)

            	
              any
                untrue statement or alleged untrue statement of a material fact,
                or the
                omission or alleged omission to state in (x) any SEC Report or any
                amendment or supplement thereto or (y) the Disclosure Schedule, a
                material
                fact required to be stated therein, or necessary to make the statements
                therein in light of the circumstances under which they were made,
                not
                misleading.

            

    

     

    and,
      subject to the provisions hereof, will reimburse the Indemnified Persons for
      all
      reasonable expenses (including, without limitation, fees and expenses of
      counsel) as they are incurred in connection with investigating, preparing,
      defending or settling any such action or claim, whether or not in connection
      with litigation in which any Indemnified Person is a named party. If any of
      the
      Indemnified Persons’ personnel appears as witnesses, are deposed or are
      otherwise involved in the defense of any action against an Indemnified Person,
      any of the Group Companies, the Controlling Shareholder or their respective
      officers or directors, the Group Companies and the Controlling Shareholder
      will
      reimburse the Purchaser for all reasonable expenses incurred by the Purchaser
      by
      reason of any of the Indemnified Persons being involved in any such action;
      provided,
      however,
      any of
      the Group Companies and the Controlling Shareholder shall not be liable for
      indemnification hereunder with regard to any negligent act or omission or
      willful misconduct by the Purchaser or any other Indemnified Person which is
      the
      primary cause of, and results in, the unavailability to the Company (or any
      of
      its affiliates) or to the offering of the Notes of the exemption from the
      registration requirements of the Act provided by Regulation S thereunder. This
      indemnity will be in addition to any liability that any of the Group Companies
      and the Controlling Shareholder may otherwise have to the Indemnified
      Persons. 

     

    
      	
              (b)

            	
              As
                promptly as reasonably practical after receipt by an indemnified
                party
                under this Section
                8
                of
                notice of the commencement of any action for which such indemnified
                party
                is entitled to indemnification under this Section
                8,
                such indemnified party will, if a claim in respect thereof is to
                be made
                against the indemnifying party under this Section
                8,
                notify the indemnifying party of the commencement thereof in writing;
                but
                the omission to so notify the indemnifying party (i) will not relieve
                such
                indemnifying party from any liability under paragraph (a) above unless
                and
                only to the extent it is materially prejudiced as a result thereof
                and
                (ii) will not, in any event, relieve the indemnifying party from
                any
                obligations to any indemnified party other than the indemnification
                obligation provided in paragraph (a) above. In case any such action
                is
                brought against any indemnified party, and it notifies the indemnifying
                party of the commencement thereof, the indemnifying party will be
                entitled
                to participate therein and, to the extent that it may determine,
                jointly
                with any other indemnifying party similarly notified, to assume the
                defense thereof, with counsel satisfactory to such indemnified party
                (who
                shall not, except with the consent of such indemnified party, be
                counsel
                to the indemnifying party) at the expense of the indemnifying party;
                provided,
                however,
                that if (i) the use of counsel chosen by the indemnifying party to
                represent the indemnified party would present such counsel with a
                conflict
                of interest, (ii) the actual or potential defendants in, or are targets
                of, any such action include both the indemnified party and the
                indemnifying party, and the indemnified party shall have been advised
                by
                counsel that there may be one or more legal defenses available to
                it
                and/or any other indemnified party that are different from or additional
                to those available to the indemnifying party, or (iii) the indemnifying
                party shall not have employed counsel satisfactory to the indemnified
                party to represent the indemnified party within a reasonable time
                after
                notice of the institution of such action, then, in each such case,
                the
                indemnifying party shall not have the right to direct the defense
                of such
                action on behalf of such indemnified party or parties and such indemnified
                party or parties shall have the right to select separate counsel
                (including an additional local counsel) to defend such action on
                behalf of
                such indemnified party or parties at the expense of the indemnifying
                party. After notice from the indemnifying party to such indemnified
                party
                of its election so to assume the defense thereof and approval by
                such
                indemnified party of counsel appointed to defend such action, the
                indemnifying party will not be liable to such indemnified party under
                this
                Section
                8
                for any legal or other expenses, other than reasonable costs of
                investigation, subsequently incurred by such indemnified party in
                connection with the defense thereof, unless (i) the indemnified party
                shall have employed separate counsel in accordance with the proviso
                to the
                immediately preceding sentence (it being understood, however, that
                in
                connection with such action the indemnifying party shall not be liable
                for
                the expenses of more than one separate counsel (in addition to local
                counsel) in any one action or separate but substantially similar
                actions
                in the same jurisdiction arising out of the same general allegations
                or
                circumstances, representing the indemnified parties who are parties
                to
                such action or actions) or (ii) the indemnifying party has authorized
                in
                writing the employment of counsel for the indemnified party at the
                expense
                of the indemnifying party. After such notice from the indemnifying
                party
                to such indemnified party, the indemnifying party will not be liable
                for
                the costs and expenses of any settlement of such action effected
                by such
                indemnified party without the prior written consent of the indemnifying
                party (which consent shall not be unreasonably
                withheld).

            

    

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    
      	
              (c)

            	
              No
                indemnifying party shall, without the prior written consent of any
                indemnified party, effect any settlement or compromise of, or consent
                to
                the entry of any judgment with respect to, any pending or threatened
                action, claim, suit or proceeding in respect of which the indemnified
                party is or could have been a party, or indemnity could have been
                sought
                hereunder by any indemnified party (whether or not the indemnified
                party
                is an actual or potential party to such action or claim), unless
                such
                settlement (A) includes an unconditional express written release
                of any
                indemnified party in form and substance reasonably satisfactory to
                such
                indemnified party, from all losses, claims, damages or liabilities
                arising
                out of such action, claim, suit or proceeding and (B) does not include
                any
                statement as to an admission of fault, culpability or failure to
                act by or
                on behalf of such indemnified party. If a claim or action is settled,
                or
                if there be a final judgment for the plaintiff with respect to any
                such
                claim or action, each indemnifying party jointly and severally agrees,
                subject to the exceptions and limitations set forth above, to indemnify
                and hold harmless each indemnified party from and against any and
                all
                losses, claims, damages or liabilities (and legal and other expenses
                as
                set forth above) incurred by reason of such settlement or
                judgment.

            

    

     

    
      	
              (d)

            	
              The
                indemnity and expense reimbursement obligations set forth herein
                (i) shall
                be in addition to any liability any of the Group Companies or the
                Controlling Shareholder may have to any Indemnified Person at common
                law
                or otherwise, (ii) shall remain operative and in full force and effect
                regardless of any investigation made by or on behalf of the Purchaser
                or
                any other Indemnified Person and (iii) shall be binding on any successor
                or assignee of any of the Group Companies and successors or assignees
                of
                any of the Group Companies’ business and assets.
                

            

    

     

    
      	
              (e)

            	
              If
                any of the Group Companies enters into any agreement or arrangement
                with
                respect to, or effects, any proposed sale, exchange, dividend or
                other
                distribution or liquidation of all or a significant portion of its
                assets
                in one or a series of transactions or any significant recapitalization
                or
                reclassification of its outstanding securities, such Group Company
                shall
                provide for the assumption of their obligations under this Agreement
                by
                another party reasonably satisfactory to the
                Purchaser.

            

    

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    9. Termination.
      

     

    
      	
              (a)

            	
              The
                Purchaser may terminate this Agreement at any time prior to the Closing
                Date by written notice to the Company if any of the following has
                occurred:

            

    

     

    
      	 	
              (i)

            	
              since
                the date hereof, any Material Adverse Effect or development involving
                or
                reasonably expected to result in a prospective Material Adverse Effect
                that could, in the Purchaser’s reasonable judgment, be expected to (i)
                make it impracticable or inadvisable to proceed with the offering
                or
                delivery of the Securities on the terms and in the manner contemplated
                in
                this Agreement and the Indentures, or (ii) materially impair the
                investment quality of any of the
                Securities;

            

    

     

    
      	 	
              (ii)

            	
              the
                failure of any of the Group Companies to satisfy the conditions contained
                in Section
                7
                hereof on or prior to February 2,
                2007;

            

    

     

    
      	 	
              (iii)

            	
              any
                outbreak or escalation of hostilities or other national or international
                calamity or crisis, including acts of terrorism, or material adverse
                change or disruption in economic conditions in, or in the financial
                markets of, the United States, the European Union, or Hong Kong (it
                being
                understood that any such change or disruption shall be relative to
                such
                conditions and markets as in effect on the date hereof), if the effect
                of
                such outbreak, escalation, calamity, crisis, act or material adverse
                change in the economic conditions in, or in the financial markets
                of, the
                United States, the European Union or Hong Kong could be expected
                to make
                it, in the Purchaser’s sole judgment, impracticable or inadvisable to
                proceed with the consummation of the transactions on the terms and
                in the
                manner contemplated in this Agreement or the
                Indentures;

            

    

     

    
      	 	
              (iv)

            	
              trading
                in the Company’ Common Stock shall have been suspended by the Trading
                Market or the suspension or limitation of trading generally in securities
                on the New York Stock Exchange, the American Stock Exchange, the
                London
                Stock Exchange, the Hong Kong Stock Exchange, the NASDAQ Capital
                Market or
                the NASDAQ Global Market or any setting of limitations on prices
                for
                securities on any such exchange or the NASDAQ Capital Market or the
                NASDAQ
                Global Market;

            

    

     

    
      	 	
              (v)

            	
              the
                enactment, publication, decree or other promulgation after the date
                hereof
                of any Applicable Law that could be reasonably expected to have a
                Material
                Adverse Effect; or

            

    

     

    
      	 	
              (vi)

            	
              the
                declaration of a banking moratorium by any federal or New York state
                Governmental Authority; or the taking of any action by any Governmental
                Authority after the date hereof in respect of its monetary or fiscal
                affairs that could reasonably be expected to have a material adverse
                effect on the financial markets in the United States, European Union,
                Hong
                Kong or elsewhere.

            

    

     

    
      	
              (b)

            	
              The
                Company shall pay to the Purchaser a fee in the amount of $3 million
                (the
                “Company
                Breakup Fee”)
                if this Agreement is terminated by the Purchaser pursuant to Section
                9(a)(ii)
                above. The Company shall promptly (but in no event later than 7 days
                following such termination by the Purchaser) pay the Company Breakup
                Fee
                to the Purchaser.

            

    

     

    
      	
              (c)

            	
              The
                Company may terminate this Agreement at any time prior to the Closing
                Date
                by written notice to the Purchaser based upon the Purchaser’s breach of
                its representations, warranties, covenants and obligations under
                this
                Agreement, which has or is reasonably likely to have a material adverse
                effect on the consummation of the transactions contemplated
                herein.

            

    

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    
      	
              (d)

            	
              The
                Purchaser shall pay to the Company a fee in the amount of $3 million
                (the
                “Purchaser
                Breakup Fee”)
                if this Agreement is terminated by the Company pursuant to Section
                9(c)
                above; provided,
                however,
                that notwithstanding the foregoing or anything to the contrary contained
                herein, the Purchaser shall not be required to pay the Purchaser
                Breakup
                Fee based upon (i) the Purchaser’s discovery during its due diligence
                investigation of any material information of the Company not previously
                disclosed to the Purchaser by the Company prior to the date hereof,
                (ii)
                any reasonably material discrepancy found during the Purchaser’s due
                diligence investigation, or (iii) any material misstatement or omission
                by
                the Company in its audited financial statements or SEC Reports, in
                each
                case as determined solely at the discretion of the Purchaser. Subject
                to
                the foregoing proviso, the Purchaser shall promptly (but in no event
                later
                than 7 days following such termination by the Company) pay the Purchaser
                Breakup Fee to the Company.

            

    

     

    10. Survival
      of Representations and Indemnities.
      The
      representations and warranties, covenants, indemnities and contribution and
      expense reimbursement provisions and other agreements of any of the Group
      Companies, the Controlling Shareholder and the Purchaser set forth in this
      Agreement shall remain operative and in full force and effect, and will survive,
      regardless of (i) any investigation, or statement as to the results thereof,
      made by or on behalf of the Purchaser, any of the Group Companies or the
      Controlling Shareholder, and (ii) acceptance of the Notes, and payment for
      them
      hereunder.

     

    11. Substitution
      of Purchaser.
      The
      Purchaser shall have the right to substitute any one of its Affiliates as the
      purchaser of the Notes, by written notice to the Company, which notice shall
      be
      signed by the Purchaser and such Affiliate, shall contain such Affiliate’s
      agreement to be bound by this Agreement and shall contain a confirmation by
      such
      Affiliate of the accuracy with respect to it of the representations set forth
      in
Section
      6.
      Upon
      receipt of such notice, wherever the word “Purchaser” is used in this Agreement
      (other than in this Section
      11),
      such
      word shall be deemed to refer to such Affiliate in lieu of the original
      purchaser. In the event that such Affiliate is so substituted as a purchaser
      hereunder and such Affiliate thereafter transfers to the original purchaser
      all
      of the Notes then held by such Affiliate, upon receipt by the Company of notice
      of such transfer, wherever the word “Purchaser” is used in this Agreement (other
      than in this Section
      11),
      such
      word shall no longer be deemed to refer to such Affiliate, but shall refer
      to
      the original purchaser, and the original purchaser shall have all the rights
      of
      an original holder of the Notes under this Agreement.

     

    12. Miscellaneous.
      

     

    
      	
              (a)

            	
              Notices
                given pursuant to any provision of this Agreement shall be addressed
                as
                follows: (i) if to the Company and/or the other Group Companies,
                to: Fushi
                International, Inc., 1 Shuang Qiang Road, Jinzhou, Dalian, People’s
                Republic of China 116100, Fax: +86 10 8447 8847, Attention: Mr. Chris
                Wenbing Wang, with a copy to Guzov Ofsink, LLC, 600 Madison Avenue,
                New
                York, New York 10022, Fax: +1 212 688 7273, Attention: Darren L.
                Ofsink,
                Esq., and (ii) if to the Purchaser, to the addresses as indicated
                in
                Schedule
                A,
                with a copy to Simpson, Thacher and Bartlett LLP, ICBC Tower - 7th
                Floor,
                3 Garden Road, Central Hong Kong, China, Fax: +852 2869 7694, Attention:
                Youngjin Sohn, Esq. in the case of the
                Purchaser.

            

    

     

    
      	
              (b)

            	
              Except
                with respect to the material terms and conditions of the transactions
                contemplated by the Documents, the Company covenants and agrees that
                neither it nor any other person acting on its behalf will provide
                the
                Purchaser or its agents or counsel with any information that the
                Company
                believes constitutes material non-public information, unless prior
                thereto
                the Purchaser shall have executed a written agreement regarding the
                confidentiality and use of such information. The Company understands
                and
                confirms that the Purchaser shall be relying on the foregoing
                representations in effecting transactions contemplated
                hereunder.

            

    

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    
      	
              (c)

            	
              This
                Agreement has been and is made solely for the benefit of and shall
                be
                binding upon each of the Group Companies, the Controlling Shareholder
                and
                the Purchaser and, to the extent provided in Section
                8
                hereof, the controlling persons and their respective agents, employees,
                officers, directors, partners, counsel, and shareholders referred
                to in
                Section
                8,
                and their respective heirs, executors, administrators, successors
                and
                assigns, all as and to the extent provided in this Agreement, and
                no other
                person shall acquire or have any right under or by virtue of this
                Agreement; provided,
                however,
                that Merrill Lynch Far East Limited may rely on the representations
                and
                warranties herein contained as an intended third-party beneficiary
                thereof.

            

    

     

    
      	
              (d)

            	
              THIS
                AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
                LAWS
                OF THE STATE OF NEW YORK.

            

    

     

    
      	
              (e)

            	
              Each
                of the Group Companies and Controlling Shareholder agrees that any
                suit,
                action or proceeding against any of the Group Companies and Controlling
                Shareholder arising out of or based upon this Agreement or the
                transactions contemplated hereby may be instituted in any State or
                U.S.
                federal court in The City of New York and County of New York, and
                waives
                any objection which it may now or hereafter have to the laying of
                venue of
                any such proceeding, and irrevocably submits to the non-exclusive
                jurisdiction of such courts in any suit, action or
                proceeding.

            

    

     

    
      	
              (f)

            	
              The
                parties hereto each hereby waive any right to trial by jury in any
                action,
                proceeding or counterclaim arising out of or relating to this
                Agreement.

            

    

     

    
      	
              (g)

            	
              No
                failure to exercise, and no course of dealing with respect to, and
                no
                delay in exercising, any right, power or remedy hereunder shall operate
                as
                a waiver thereof; nor shall any single or partial exercise of any
                right,
                power or remedy hereunder preclude any other or further exercise
                thereof
                or the exercise of any other right, power or
                remedy.

            

    

     

    
      	
              (h)

            	
              This
                Agreement may be signed in various counterparts which together shall
                constitute one and the same
                instrument.

            

    

     

    
      	
              (i)

            	
              The
                headings in this Agreement are for convenience of reference only
                and shall
                not limit or otherwise affect the meaning of any provision of this
                Agreement.

            

    

     

    
      	
              (j)

            	
              If
                any term, provision, covenant or restriction of this Agreement is
                held by
                a court of competent jurisdiction to be invalid, illegal, void or
                unenforceable, the remainder of the terms, provisions, covenants
                and
                restrictions set forth herein shall remain in full force and effect
                and
                shall in no way be affected, impaired or invalidated, in each case,
                to the
                extent permitted by applicable law, and the parties hereto shall
                use their
                best efforts to find and employ an alternative means to achieve the
                same
                or substantially the same result as that contemplated by such term,
                provision, covenant or restriction. It is hereby stipulated and declared
                to be the intention of the parties that they would have executed
                the
                remaining terms, provisions, covenants and restrictions without including
                any of such that may be hereafter declared invalid, illegal, void
                or
                unenforceable, to the extent permitted by applicable
                law.

            

    

     

    
      	
              (k)

            	
              This
                Agreement may be amended, modified or supplemented, and waivers or
                consents to departures from the provisions hereof may be given;
                provided
                that the same are in writing and signed by all of the signatories
                hereto.

            

    

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    

    Please
      confirm that the foregoing correctly sets forth the agreement among the Group
      Companies, the Controlling Shareholder and the Purchaser.

     

     

    Very
      truly yours,

     

    GROUP
      COMPANIES

     

    FUSHI
      INTERNATIONAL, INC.

     

    By:_________________________________

    Name: 

    Title: 

     

    FUSHI
      HOLDINGS, INC.

     

    By:_________________________________

    Name: 

    Title: 

     

    FUSHI
      INTERNATIONAL (DALIAN) BIMETALLIC CABLE CO., LTD.

    

    By:_________________________________

    Name: 

    Title:   

    

    DALIAN
      FUSHI BIMETALLIC MANUFACTURING CO., LTD.

     

    By:_________________________________

           
      Name: 

           
      Title:

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    CONTROLLING
      SHAREHOLDER

     

    By:_________________________________

    Mr.
      Fu
      Li 

     

    

     

     

    
      
        [SIGNATURE
          PAGE TO PURCHASE AGREEMENT]

        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    Accepted
      and Agreed to:

     

    CITADEL
      EQUITY FUND LTD.

    

    By:
      Citadel Limited Partnership, its Portfolio Manager

    

    By:
      Citadel Investment Group, L.L.C., its General Partner

    

    By:_________________________________

    Name:
      

    Title:
      Authorized Signatory

     

    
      
        
          [SIGNATURE
            PAGE TO PURCHASE AGREEMENT]

        

        
        

      

      
        30

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