Common use of 2006 Performance Adjustment Clause in Contracts

2006 Performance Adjustment. The Company hereby represents to the Investors that the Company's after Tax Net Profit on a consolidated, pro forma basis, as reported under GAAP and as prepared by an accounting firm acceptable to the Investors ("2006 Net Profit") for the fiscal year ending 2006 shall be no less than $10,700,000 (the "2006 Target Profit"). Except for the acquisition of Dalian Tongfa New Materials Science and Technology Co., Ltd., the 2006 Net Profit shall be based upon the performance of the Business in the form which it exists as of Closing (assuming completion of the transactions contemplated by the Restructuring Agreements), and shall not include any amounts from any Subsidiary, business division, assets or contractual arrangement or other source of the Company acquired after the Closing. In the event the 2006 Net Profit is not equal to or greater than 90% of the 2006 Target Profit, the Company agrees to issue a number of additional shares of Common Stock to the Investors (the "2006 Performance Shares") pro rata in accordance their original investment holdings as set forth on Exhibit C. The number of 2006 Performance Shares shall be calculated by (A) subtracting the 2006 Net Profit from the 2006 Target Profit to obtain the 2006 Performance Shortfall, (B) dividing the 2006 Performance Shortfall by the 2006 Target Profit to obtain the Shortfall Percentage and (C) multiplying the Shortfall Percentage by the number of shares of Common Stock (issuable upon conversion of the Series B) originally issued to the Investors under this Agreement. If the Shortfall Percentage is 10% or less, no 2006 Performance Shares shall be issued to the Investors. For avoidance of doubt, the 2006 Performance Adjustment under this Section C(ii) is intended for the benefit of all Investors under this Agreement and all Initial Investors. Sample Calculation: If the 2006 Net Profit is reported to be $9,095,000, the number of 2006 Performance Shares would be calculated as follows: 1) 2006 Target Profit - 2006 Net Profit = 2006 Performance Shortfall 10,700,000 - 9,095,000 = 1,605,000 2) 2006 Performance Shortfall --------------------------------- = Shortfall Percentage 2006 Target Profit 1,605,000 ------------ = 0.15 10,700,000 3) Shortfall Percentage X Shares = 2006 Performance Shares 0.15 X 4,250,000 = 637,500 2006 Performance Shares

2006 Performance Adjustment. The Company hereby represents to the Investors that the Company's after Tax Net Profit on a consolidated, pro forma basis, as reported under GAAP and as prepared by an accounting firm acceptable to the Investors ("2006 Net Profit") for the fiscal year ending 2006 shall be no less than $10,700,000 (the "2006 Target Profit"). Except for the acquisition of Dalian Tongfa New Materials Science and Technology Co., Ltd., the 2006 Net Profit shall be based upon the performance of the Business in the form which it exists as of Closing (assuming completion of the transactions contemplated by the Restructuring Agreements), and shall not include any amounts from any Subsidiary, business division, assets or contractual arrangement or other source of the Company acquired after the Closing. In the event the 2006 Net Profit is not equal to or greater than 90% of the 2006 Target Profit, the Company agrees to issue a number of additional shares of Common Stock to the Investors (the "2006 Performance Shares") pro rata in accordance their original investment holdings as set forth on Exhibit C. The number of 2006 Performance Shares shall be calculated by (A) subtracting the 2006 Net Profit from the 2006 Target Profit to obtain the 2006 Performance Shortfall, (B) dividing the 2006 Performance Shortfall by the 2006 Target Profit to obtain the Shortfall Percentage and (C) multiplying the Shortfall Percentage by the number of shares of Common Stock (issuable upon conversion of the Series B) originally issued to the Investors under this Agreement. If the Shortfall Percentage is 10% or less, no 2006 Performance Shares shall be issued to the Investors. For avoidance of doubt, the 2006 Performance Adjustment under this Section C(ii) is intended for the benefit of all Investors under this Agreement and all Initial Investors. Sample Calculation: If the 2006 Net Profit is reported to be $9,095,000, the number of 2006 Performance Shares would be calculated as follows: 1) 2006 Target Profit - 2006 Net Profit = 2006 Performance Shortfall 10,700,000 - 9,095,000 = 1,605,000 2) 2006 Performance Shortfall --------------------------------- = Shortfall Percentage 2006 Target Profit 1,605,000 ------------ = 0.15 10,700,000 3) Shortfall Percentage X Shares = 2006 Performance Shares 0.15 X 4,250,000 = 637,500 2006 Performance Shares