SEPARATION AND SEVERANCE AGREEMENT

SEPARATION AND SEVERANCE AGREEMENT   This Separation and Severance Agreement (“Agreement”) is made and entered into on January 23, 2009 by and between China Direct, Inc., a Florida corporation, and its various subsidiaries and affiliates, (hereafter collectively referred to as the “Company”), and Marc Siegel (“Siegel”).
RECITALS
A.           Siegel has been employed by the Company as its President.   B.           Siegel and the Company entered into an employment agreement on August 7, 2008, as amended (the “Employment Agreement”).   C.           Siegel holds the following securities of China Direct, Inc.   (i) Common Stock:   4,400,000 shares of China Direct, Inc. common stock, par value, $.0001, (“Common Stock”)   (ii) Options to purchase Common Stock:

D.           The parties desire to terminate their relationship on an amicable basis pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, undertakings and releases, receipt of which is hereby acknowledged as sufficient consideration by both parties, the parties agree as follows:
1.           Recitals.  The above recitals are true, correct, and are herein incorporated by reference.
2.           Resignation of Employment.  Siegel hereby resigns as President and Director and from any and all other offices or positions he may have with the Company or any of its subsidiaries or affiliated companies, to be effective on the date hereof (“Termination Date”).
3.           Termination.  The Employment Agreement is permanently terminated effective on the Termination Date.  The Company shall reimburse Siegel pursuant to section 4. D. of the August 7, 2008 Employment Agreement for expenses incurred up to and including the Termination Date.  In addition Siegel hereby waives his right to receive all Base Salary, Incentive Compensation, performance bonus, if any, and additional forms of compensation provided for in the Employment Agreement whether due or accrued through the Termination Date.
4.           Severance and Benefits. Subject to the conditions set forth herein, the Company and Siegel agree to the following.
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           (a) Siegel’s obligations under this Agreement are conditioned upon Siegel entering into an agreement to sell an aggregate of 1,500,000 shares of Common Stock in exchange for $1,650,000.
(b) On the Termination Date, the Company shall pay Siegel $165,000 in either cash or Common Stock, at the option of the Company (the “Severance Shares”).  The number of Severance Shares, if issued in lieu of the cash amount, shall be equal to the result of dividing $165,000 by the per share closing price of the Common Stock on the business day immediately following the Company’s filing of a public announcement disclosing the resignation of Marc Siegel.  The Severance Shares can be sold by Siegel on a daily basis at no more than 10% of the daily trading volume of the Common Stock at the Volume-Weighted Average Price (“VWAP”) of the Common Stock.  The Severance Shares shall be issued pursuant to the Company’s 2008 Non-Executive Stock Incentive Plan and are subject to approval of the Compensation Committee of the Company’s board of directors.  The award of the Severance Shares are intended to be exempt from Section 16(b) of the Securities Exchange Act of 1934 (the “Act”) pursuant to Rule 16b-3 of the Act.   (c) The Company shall retain Siegel as a consultant pursuant to consulting agreement mutually agreeable to the Company and Siegel to be entered into upon execution of this Severance Agreement.   (d) Commencing on the Termination Date and continuing until January 31, 2010, the Company shall pay for all insurance premiums for Siegel to participate in the Company’s health care and dental insurance plans (the “Benefit Plans”).  Should Siegel elect not to participate in the Benefit Plans, the Company will reimburse Siegel in cash for the expense incurred in participating in another health care and dental insurance plan procured by Siegel.  The Company’s obligation to reimburse Siegel is limited to the Company’s cost of providing benefits to Siegel under the Benefit Plans.   (e) Commencing on the Termination Date, Siegel will enter into the Lock-Up Agreement attached to this Severance Agreement as Exhibit A (the “Lock-Up Agreement”).  Siegel hereby agrees to forfeit the following options to purchase shares of the Company’s Common Stock:   Options to purchase Common Stock:

(f) So long as the Company is a reporting company under the Act, the Company agrees to maintain a current registration statement covering the resale of the Severance Shares.  The Company shall maintain the effectiveness of the current registration statement covering the shares of Common Stock issuable pursuant to the stock options to be retained by Siegel.  Following the issuance of shares pursuant to the exercise of such stock options, the Company will have no obligation to maintain a registration statement covering those shares.   (g) At the request of the Company, Siegel, during normal business hours, will reasonably assist the Company in furnishing, to the extent he has or can ascertain, documents and information for any filings required by the Company with the state or federal authorities and in responding to other inquiries on matters handled during his employment with the Company.  The  
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 Company shall reimburse Siegel in cash for all preapproved expenses incurred by Siegel in the performance of this Section 4 (i).   (h) The Company agrees that if Siegel is made a party, is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative, or investigative (a “Proceeding”), by reason of the fact that Siegel is or was an employee of the Company, is or was a consultant to the Company, or is or was serving at the request of the Company as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, including service with respect to clients of the Company, whether or not the basis of such Proceeding is Siegel’s alleged action in an official capacity while serving as an employee, agent or consultant, Siegel shall be indemnified and held harmless by the Company, to the same extent as the officers and directors of the Company, to the fullest extent legally permitted against all cost, expense, liability, and loss (including, without limitation, attorney’s fees, judgments, fines, ERISA excise taxes or other liabilities or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Siegel in connection therewith, and such indemnification shall continue as to Siegel even if he has ceased to be an employee or agent of the Company or other entity and shall inure to the benefit of Siegel’s heirs, executors, and administrators.  In return for the above provision, Siegel promises to cooperate with the Company at its expense in his or the Company's defense of any actions taken by private parties and/or federal or state governmental bodies against the Company.  Such cooperation includes, but is not limited to, travel to the State of Florida at the Company’s expense, for purposes of deposition and/or trial, if necessary.   (i) The Company shall pay in cash, as and when due, any and all attorneys’ fees and costs incurred by Siegel in connection with any dispute or settlement arising from his affiliation with the Company, as an em