EXHIBIT 10.20

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of February 11, 2008,
by and among China Direct, Inc., a Florida Corporation, with headquarters
located at 5301 North Federal Highway, Suite 120, Boca Raton, Florida 33487
(the ”Company”), and the undersigned buyers (each, a “Buyer”, and collectively,
the “Buyers”).

WHEREAS:

A.        In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue and sell to each Buyer (i) perpetual
convertible preferred shares (the “Preferred Shares”) which will, among other
things, be convertible into shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock,” as converted, collectively, the
“Conversion Shares”) and (ii) warrants (the “Warrants”), which will be
exercisable to purchase shares of Common Stock (as exercised collectively, the
“Warrant Shares”).

B.        The Preferred Shares may be entitled to dividends, which at the option
of the Company, subject to certain conditions, may be paid in shares of Common
Stock (the “Dividend Shares”) or in cash.

C.        In accordance with the terms of the Securities Purchase Agreement, the
Company has agreed to provide certain registration rights under the Securities
Act of 1933, as amended, and the rules and regulations thereunder, or any
similar successor statute (collectively, the “1933 Act”), and applicable state
securities laws.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the Buyers
hereby agree as follows:

 

1.

Definitions.

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:

a.         “Additional Filing Deadline” means if Cutback Shares are required to
be included in any Additional Registration Statement, the later of (i) the date
sixty (60) days after the date substantially all of the Registrable Securities
registered under the immediately preceding Registration Statement are sold and
(ii) the date six (6) months from the Initial Effective Date or the most recent
Additional Effective Date, as applicable.

b.         “Additional Registrable Securities” means, (i) any Cutback Shares not
previously included on a Registration Statement and (ii) any capital stock of
the Company issued

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or issuable with respect to the Preferred Shares, the Conversion Shares, the
Dividend Shares, the Warrant Shares, the Warrants or the Cutback Shares as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on conversion and/or
redemption of the Preferred Shares or exercise of the Warrants.

c.         “Additional Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.

d.         “Additional Required Registration Amount” means any Cutback Shares
not previously included on a Registration Statement, all subject to adjustment
as provided in Section 2(f), without regard to any limitations on conversions
and/or redemptions of the Preferred Shares or exercises of the Warrants.

e.         “Business Day” means any day other than Saturday, Sunday or any other
day on which commercial banks in the City of New York are authorized or required
by law to remain closed.

f.         “Closing Date” shall have the meaning set forth in the Securities
Purchase Agreement.

g.         “Cutback Shares” means any of the Initial Required Registration
Amount (without regard to clause (II) in the definition thereof) of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of shares
of Common Stock of the Company permitted to be registered by the staff of the
SEC pursuant to Rule 415. Each Investor shall be entitled to elect the
allocation of its Conversion Shares, Dividend Shares and/or Warrant Shares that
are to be considered Cutback Shares.

h.         “Effective Date” means the Initial Effective Date and the Additional
Effective Date, as applicable.

i.          “Effectiveness Deadline” means the Initial Effectiveness Deadline
and the Additional Effectiveness Deadline, as applicable.

j.          “Filing Deadline” means the Initial Filing Deadline and the
Additional Filing Deadline, as applicable.

k.         “Initial Effective Date” means the date that the Initial Registration
Statement has been declared effective by the SEC.

l.          “Initial Effectiveness Deadline” means the date one-hundred
thirty-five (135) calendar days after the Closing Date.

m.        “Initial Filing Deadline” means April 15, 2008.

n.         “Initial Registrable Securities” for the Initial Registration
Statement means (i) the Conversion Shares issued or issuable upon conversion of
the Preferred Shares, (ii)

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the Dividend Shares issued or issuable with respect to the Preferred Shares,
(iii) the Warrant Shares issued or issuable upon exercise of the Warrants and
(iv) any capital stock of the Company issued or issuable, with respect to the
Preferred Shares, the Conversion Shares, the Dividend Shares, the Warrant Shares
or the Warrants as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversion and/or redemption of the Preferred Shares or exercise
of the Warrants.

o.         “Initial Registration Statement” means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.

p.         “Initial Required Registration Amount” means (I) 130% of the sum of
(i) the number of Conversion Shares issued and issuable pursuant to the
Preferred Shares as of the Trading Day (as defined in the Securities Purchase
Agreement) immediately preceding the applicable date of determination, (ii) the
maximum number of Dividend Shares issued or issuable from the Closing Date
through the fifth (5th) anniversary of the Closing Date pursuant to the terms of
the Preferred Shares calculated as of the trading date immediately preceding the
applicable date of determination and (iii) the number of Warrant Shares issued
and issuable pursuant to the Warrants as of the Trading Day immediately
preceding the applicable date of determination, all subject to adjustment as
provided in Section 2(f), without regard to any limitations on exercises of the
Warrants or (II) such other amount as may be required by the staff of the SEC
pursuant to Rule 415 with any cutback applied pro rata to all Investors.

q.         “Investor” means a Buyer or any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

r.         “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

s.         “register,” “registered,” and “registration” refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.

t.          “Registrable Securities” means the Initial Registrable Securities
and the Additional Registrable Securities.

u.         “Registration Statement” means the Initial Registration Statement and
the Additional Registration Statement, as applicable.

v.         “Required Holders” means the holders of at least a majority of the
Registrable Securities.

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w.        “Required Registration Amount” means either the Initial Required
Registration Amount or the Additional Required Registration Amount, as
applicable.

x.         “Rule 415” means Rule 415 promulgated under the 1933 Act or any
successor rule providing for offering securities on a continuous or delayed
basis.

y.         “SEC” means the United States Securities and Exchange Commission.

 

2.

Registration.

a.      Initial Mandatory Registration. The Company shall prepare, and, as soon
as practicable, but in no event later than the Initial Filing Deadline, file
with the SEC the Initial Registration Statement on Form S-3 covering the resale
of all of the Initial Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders, subject to the provisions of Section 2(e).
The Initial Registration Statement prepared pursuant hereto shall register for
resale at least the number of shares of Common Stock equal to the Initial
Required Registration Amount determined as of the date the Initial Registration
Statement is initially filed with the SEC. The Initial Registration Statement
shall contain (except if otherwise directed by the Required Holders) the
“Selling Stockholders” and “Plan of Distribution” sections in substantially the
form attached hereto as Exhibit B. The Company shall use its best efforts to
have the Initial Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than the Initial Effectiveness Deadline. By
9:30 a.m. New York time on the third (3rd) Business Day following the Initial
Effective Date, the Company shall file with the SEC in accordance with Rule 424
under the 1933 Act the final prospectus to be used in connection with sales
pursuant to such Initial Registration Statement.

b.      Additional Mandatory Registrations. The Company shall prepare, and, as
soon as practicable but in no event later than the Additional Filing Deadline,
file with the SEC an Additional Registration Statement on Form S-3 covering the
resale of all of the Additional Registrable Securities not previously registered
on an Additional Registration Statement hereunder. To the extent the staff of
the SEC does not permit the Additional Required Registration Amount to be
registered on an Additional Registration Statement, the Company shall file
Additional Registration Statements successively trying to register on each such
Additional Registration Statement the maximum number of remaining Additional
Registrable Securities until the Additional Required Registration Amount has
been registered with the SEC. In the event that Form S-3 is unavailable for such
a registration, the Company shall use such other form as is available for such a
registration on another appropriate form reasonably acceptable to the Required
Holders, subject to the provisions of Section 2(e). Each Additional Registration
Statement prepared pursuant hereto shall register for resale at least that
number of shares of Common Stock equal to the Additional Required Registration
Amount determined as of the date such Additional Registration Statement is
initially filed with the SEC. Each Additional Registration Statement shall
contain (except if otherwise directed by the Required Holders) the “Selling
Stockholders” and “Plan of Distribution” sections in substantially the form
attached hereto as Exhibit B. The Company shall use its best efforts to have
each Additional Registration Statement declared effective by the SEC as soon as
practicable, but in

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no event later than the Additional Effectiveness Deadline. By 9:30 a.m. New York
time on the third (3rd) Business Day following the Additional Effective Date,
the Company shall file with the SEC in accordance with Rule 424 under the 1933
Act the final prospectus to be used in connection with sales pursuant to such
Additional Registration Statement.

c.      Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the number
of Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities covered by such Registration Statement shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement. In no event shall the Company include any securities
other than Registrable Securities and 300,000 shares of Common Stock underlying
warrants issued to the Placement Agent (as defined in the Securities Purchase
Agreement) on any Registration Statement without the prior written consent of
the Required Holders.

d.      Legal Counsel. Subject to Section 5 hereof, the Required Holders shall
have the right to select one legal counsel to review and oversee any
registration pursuant to this Section 2 (“Legal Counsel”), which shall be
Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company’s obligations under this Agreement.

e.      Ineligibility for Form S-3. In the event that Form S-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on another
appropriate form reasonably acceptable to the Required Holders and (ii)
undertake to register the Registrable Securities on Form S-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness of
the Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.

f.      Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor’s allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least
the Required Registration Amount as of the Trading Day immediately preceding the
date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises. The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of the foregoing

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provision, the number of shares available under a Registration Statement shall
be deemed “insufficient to cover all of the Registrable Securities” if at any
time the number of shares of Common Stock available for resale under the
Registration Statement is less than the product determined by multiplying (i)
the Required Registration Amount as of such time by (ii) 0.90. The calculation
set forth in the foregoing sentence shall be made without regard to any
limitations on the conversion and/or redemption of the Preferred Shares or
exercise of the Warrants and such calculation shall assume that the Preferred
Shares are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Certificate of Designations) and that the
Warrants are then exercisable for shares of Common Stock at the then prevailing
Exercise Price (as defined in the Warrants) and the maximum number of Dividend
Shares under the Preferred Shares are issuable at the then prevailing Dividend
Conversion Price (as defined in the Certificate of Designations), assuming the
total number of Preferred Shares remains outstanding through the fifth (5th)
anniversary of the Closing Date and assuming no conversions or redemptions of
the Preferred Shares prior to the scheduled maturity date.

g.      Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If (i) a Registration Statement covering all of the
Registrable Securities required to be covered thereby and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the Filing Deadline (a “Filing Failure”) or (B) not declared effective by
the SEC on or before the Effectiveness Deadline (an “Effectiveness Failure”) or
(ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be made
(other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement or otherwise (including, without
limitation, because of a failure to keep such Registration Statement effective,
to disclose such information as is necessary for sales to be made pursuant to
such Registration Statement, to register a sufficient number of shares of Common
Stock or to maintain the listing of the Common Stock) (a “Maintenance Failure”)
then, as partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying shares of Common
Stock (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Registrable
Securities relating to such Registration Statement an amount in cash equal to
two percent (2.0%) of the aggregate Purchase Price (as such term is defined in
the Securities Purchase Agreement) of such Investor’s Registrable Securities
whether or not included in such Registration Statement, on each of the following
dates: (i) the day of a Filing Failure; (ii) the day of an Effectiveness
Failure; (iii) the initial day of a Maintenance Failure; (iv) on every thirtieth
day after the day of a Filing Failure and thereafter (pro rated for periods
totaling less than thirty days) until such Filing Failure is cured; (v) on every
thirtieth day after the day of an Effectiveness Failure and thereafter (pro
rated for periods totaling less than thirty days) until such Effectiveness
Failure is cured; and (vi) on every thirtieth day after the initial day of a
Maintenance Failure and thereafter (pro rated for periods totaling less than
thirty days) until such Maintenance Failure is cured. The payments to which a
holder shall be entitled pursuant to this Section 2(f) are referred to herein as
“Registration Delay Payments.” Registration Delay Payments shall be paid on the
earlier of (I) the dates set forth above and (II) the third Business Day after
the event or failure giving rise to the Registration Delay Payments is cured. In
the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest at the rate of one
and one half

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percent (1.5%) per month (prorated for partial months) until paid in full.
Notwithstanding anything herein or in the Securities Purchase Agreement to the
contrary, in no event shall any Registration Delay Payments accrue hereunder
from and after the six (6) month anniversary of the Closing Date.

 

3.

Related Obligations.

At such time as the Company is obligated to file a Registration Statement with
the SEC pursuant to Section 2(a), 2(b), 2(e) or 2(f), the Company will use its
best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

a.      The Company shall promptly prepare and file with the SEC a Registration
Statement with respect to the Registrable Securities and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the Effectiveness Deadline). The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without the requirement to be in
compliance with Rule 144(c)(1) and otherwise without restriction pursuant to
Rule 144 (or any successor thereto) promulgated under the 1933 Act or (ii) the
date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement (the “Registration Period”). The Company
shall ensure that each Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading. The term “best efforts” shall mean, among other things, that the
Company shall submit to the SEC, within two (2) Business Days after the later of
the date that (i) the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, and (ii)
the approval of Legal Counsel pursuant to Section 3(c) (which approval is
immediately sought), a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than two (2) Business Days
after the submission of such request. The Company shall respond in writing to
comments made by the SEC in respect of a Registration Statement as soon as
practicable, but in no event later than fifteen (15) days after the receipt of
comments by or notice from the SEC that an amendment is required in order for a
Registration Statement to be declared effective.

b.      The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration

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Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form
10-QSB, Form 10-K, Form 10-KSB or any analogous report under the Securities
Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement such Registration Statement.

c.      The Company shall (A) permit Legal Counsel to review and comment upon
(i) a Registration Statement at least three (3) Business Days prior to its
filing with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K or Form 10-KSB, Quarterly
Reports on Form 10-Q or Form 10-QSB, Current Reports on Form 8-K, and any
similar or successor reports) within a reasonable number of days prior to their
filing with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel reasonably objects. The
Company shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without the prior
approval of Legal Counsel, which consent shall not be unreasonably withheld. The
Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, (ii) promptly after the
same is prepared and filed with the SEC, one copy of any Registration Statement
and any amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto. The Company shall reasonably cooperate with
Legal Counsel in performing the Company’s obligations pursuant to this Section
3.

d.      The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) promptly after
the same is prepared and filed with the SEC, at least one copy of such
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, one (1) copy (which may be
by email) of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.

e.      The Company shall use its best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or “blue sky” laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the

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Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction.
The Company shall promptly notify each Investor who holds Registrable Securities
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

f.      The Company shall notify each Investor in writing of the happening of
any event, as promptly as practicable after becoming aware of such event, as a
result of which the prospectus included in a Registration Statement, as then in
effect, includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material,
nonpublic information), and, subject to Section 3(r), promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission and deliver one (1) copy (which may be by email) of such
supplement or amendment to each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify each Investor in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective (notification of
such effectiveness shall be delivered to each Investor by facsimile or e-mail on
the same day of such effectiveness and by overnight mail), (ii) of any request
by the SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company’s reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.

g.      The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
of the issuance of such order and the resolution thereof or its receipt of
actual notice of the initiation or threat of any proceeding for such purpose.

h.      If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, at the reasonable request of such Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company’s independent
certified public accountants in form and substance as is customarily given by
independent certified

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public accountants to underwriters in an underwritten public offering, addressed
to the Investors, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investors.

i.       If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, the Company shall make available for inspection by (i) such
Investor, (ii) such Investor’s legal counsel and (iii) one firm of accountants
or other agents retained by the Investors (collectively, the “Inspectors”), all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the “Records”), as shall be reasonably
deemed necessary by each Inspector, and cause the Company’s officers, directors
and employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall agree to hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
Agreement. Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors’ ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

j.       The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor’s
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

k.      The Company shall use its best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed,

10

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if any, if the listing of such Registrable Securities is then permitted under
the rules of such exchange or (ii) secure the inclusion for quotation of all of
the Registrable Securities on the American Stock Exchange or (iii) if, despite
the Company’s best efforts, the Company is unsuccessful in satisfying the
preceding clauses (i) and (ii), to secure the inclusion for quotation on The New
York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Capital Market
or The NASDAQ Global Market for such Registrable Securities and, without
limiting the generality of the foregoing, to use its best efforts to arrange for
at least two market makers to register with the Financial Industry Regulatory
Authority, Inc. (“FINRA”) as such with respect to such Registrable Securities.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).

l.       The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.

m.     If requested by an Investor, the Company shall as soon as practicable (i)
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.

n.      The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.

o.      The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a twelve-month period beginning not later than the first day of the Company’s
fiscal quarter next following the applicable Effective Date of a Registration
Statement.

p.      The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.

q.      Within two (2) Business Days after a Registration Statement which covers
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable

11

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Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.

r.      Notwithstanding anything to the contrary herein, at any time after the
Effective Date, the Company may delay the disclosure of material, non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a “Grace Period”); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed forty (40)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of eighty (80) days and the first
day of any Grace Period must be at least five (5) Trading Days after the last
day of any prior Grace Period (each, an “Allowable Grace Period”). For purposes
of determining the length of a Grace Period above, the Grace Period shall begin
on and include the date the Investors receive the notice referred to in clause
(i) and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period. Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is
no longer applicable. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale, prior to the
Investor’s receipt of the notice of a Grace Period and for which the Investor
has not yet settled.

s.      Neither the Company nor any Subsidiary or affiliate thereof shall
identify any Buyer as an underwriter in any public disclosure or filing with the
SEC or any Principal Market (as defined in the Securities Purchase Agreement) or
Eligible Market and any Buyer being deemed an underwriter by the SEC shall not
relieve the Company of any obligations it has under this Agreement or any other
Transaction Document (as defined in the Securities Purchase Agreement);
provided, however, that the foregoing shall not prohibit the Company from
including the disclosure found in the “Plan of Distribution” section attached
hereto as Exhibit B in the Registration Statement.

 

4.

Obligations of the Investors.

a.      At least five (5) Business Days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor’s Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to

12

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this Agreement with respect to the Registrable Securities of a particular
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it, as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. Notwithstanding the
foregoing, to the extent that each Investor provides the information required
pursuant to page B-3 of Annex B, the Company hereby acknowledges and agrees that
no further information will be required from such Investor in connection with
the filing of any Registration Statement.

b.      Each Investor, by such Investor’s acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.

c.      Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor’s receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.

d.      Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it or an
exemption therefrom in connection with sales of Registrable Securities pursuant
to the Registration Statement.

 

5.

Expenses of Registration.

All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company shall be paid by the Company. The Company shall also
reimburse the Investors for the fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2 and
3 of this Agreement which amount shall be limited to $10,000 for all
registrations, filings or qualifications. The Company shall not be obligated to
reimburse any Investor for the fees and disbursements of any other legal counsel
in connection with any registration, filing or qualification pursuant to this
Agreement.

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6.

Indemnification.

In the event any Registrable Securities are included in a Registration Statement
under this Agreement:

a.      To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an “Indemnified Person”), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys’ fees, amounts paid in settlement or expenses, joint or several,
(collectively, “Claims”) incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto (“Indemnified Damages”),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other “blue sky” laws of any jurisdiction in
which Registrable Securities are offered (“Blue Sky Filing”), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, “Violations”). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

14

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b.      In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
“Indemnified Party”), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c), such Investor shall
reimburse the Indemnified Party, promptly as such expenses are incurred and are
due and payable, for any legal or other expenses reasonably incurred by an
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld or delayed; provided, further, however, that the Investor
shall be liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.

c.      Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for all such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
Claim. The

15

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indemnifying party shall keep the Indemnified Party or Indemnified Person fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the prior written consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.

d.      The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or Indemnified Damages are incurred.

e.      The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

 

7.

Contribution.

To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the amount of net proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.

 

8.

Reports Under the 1934 Act.

With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration (“Rule 144”), the Company agrees to:

16

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a.      make and keep public information available, as those terms are
understood and defined in Rule 144;

b.      file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and

c.      furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

 

9.

Assignment of Registration Rights.

The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of such Investor’s Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act or applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

 

10.

Amendment of Registration Rights.

Provisions of this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.

 

11.

Miscellaneous.

a.      A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to

17

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the same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from such record owner of such
Registrable Securities.

b.      Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same; or (iv) upon receipt, when delivered by electronic
mail, provided the subject line references “Notice for CDS Transaction”
(provided confirmation of transmission is electronically guaranteed and kept on
file by the sending party). The addresses and facsimile numbers for such
communications shall be:

 

If to the Company:

 

China Direct, Inc.

5301 North Federal Highway, Suite 120

Boca Raton, Florida 33487

 

Telephone:

(561) 989-9171

 

Facsimile:

(561) 989-9206

 

Attention:

Gary Stuart, Esq., General Counsel

 

E-mail:

gstuart@cdii.net

 

With a copy (for informational purposes only) to:

Schneider Weinberger & Beilly LLP

2200 Corporate Blvd, N.W., Suite 210

Boca Raton, Florida 33431

 

Telephone:

(561) 362-9595

 

Facsimile:

(561) 362-9612

 

Attention:

James Schneider, Esq.

 

E-mail:

jim@swblaw.net

 

If to the Transfer Agent:

Computershare Trust Company, N.A.

350 Indiana Street, Suite 800

Golden, Colorado 80401

 

Telephone:

(303) 262-0600

 

Facsimile:

(303) 262-0700

 

Attention:

Amanda Lewis

 

E-mail:

amanda.lewis@computershare.com

 

If to Legal Counsel:

 

 

Schulte

Roth & Zabel LLP

 

18

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919 Third Avenue

New York, New York 10022

 

Telephone:

(212) 756-2000

 

Facsimile:

(212) 593-5955

 

Attention:

Eleazer N. Klein, Esq.

 

 

E-mail:

eleazer.klein@srz.com

 

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer’s representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

c.      Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

d.      All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. The Company hereby appoints Schneider
Weinberger & Beilly LLP, with offices at 2200 Corporate Blvd., N.W., Suite 210,
Boca Raton, Florida 33431, as its agent for service of process in the United
States. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

19

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e.      If any provision of this Agreement is prohibited by law or otherwise
determined to be invalid or unenforceable by a court of competent jurisdiction,
the provision that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be valid and
enforceable, and the invalidity or unenforceability of such provision shall not
affect the validity of the remaining provisions of this Agreement so long as
this Agreement as so modified continues to express, without material change, the
original intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).

f.      This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

g.      Subject to the requirements of Section 9, this Agreement shall inure to
the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto.

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

i.       This Agreement may be executed in identical counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.

j.       Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

k.      All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders.

20

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l.       The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.

m.     This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

n.      The obligations of each Investor hereunder are several and not joint
with the obligations of any other Investor, and no provision of this Agreement
is intended to confer any obligations on any Investor vis-à-vis any other
Investor. Nothing contained herein, and no action taken by any Investor pursuant
hereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.

* * * * * *

[Signature Page Follows]

 

21

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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

COMPANY:

 

 

CHINA DIRECT, INC.

 

 

 

By:  /s/ Yuejian (James) Wang

Name:  Yuejian (James) Wang

Title:  Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Registration Rights Agreement]

 

22

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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

 

BUYERS:

 

 

 

[BUYERS]

 

 

 

 

 

 

 

By:__________________________________

Name:

Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Registration Rights Agreement]

 

23

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SCHEDULE OF BUYERS

 

Buyer

Buyer Address
and Facsimile Number

Buyer’s Representative’s Address
and Facsimile Number

 

 

 

Hudson Bay Fund, LP

120 Broadway, 40th Floor
New York, New York 10271
Attention: Yoav Roth
Facsimile: 212-571-1279
Telephone: 212-571-12444
Residence: United States
E-mail: investments@hudsonbaycapital.com

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Attn: Eleazer Klein, Esq.

Facsimile: (212) 593-5955

Telephone: (212) 756-2000

Hudson Bay Overseas Fund, Ltd.

120 Broadway, 40th Floor
New York, New York 10271
Attention: Yoav Roth
Facsimile: 212-571-1279
Telephone: 212-571-12444
E-mail: investments @hudsonbaycapital.com

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Attn: Eleazer Klein, Esq.

Facsimile: (212) 593-5955

Telephone: (212) 756-2000

Liberty Harbor Master Fund I, L.P.

c/o Liberty Harbor I GP, LLC
1 New York Plaza
New York, New York 10004
Attention: Brendan McGovern
Facsimile: 646-835-3510
Telephone: 212-357-5817
E-mail: brendan.mcgovern@libertyharborllc.com

 

1 New York Plaza
New York, New York 10004
Attention: Jon Yoder, Esq.
Facsimile: 212-256-5597
Telephone: 212-902-0328
E-mail: jon.yoder@gs.com

Cranshire Capital, L.P.

Cranshire Capital, L.P.

666 Dundee Road, Suite 1901

Northbrook, IL 60062

Attn: Mitch Kopin

T: 847-562-9030

F: 847-562-9031

mkopin@cranshirecapital.com

 

n/a

Portside Growth & Opportunity Fund

Portside Growth & Opportunity Fund

666 Third Avenue, 26th Floor

New York, NY 10017

Attn: Jeff Smith

F: 212-845-7955

T: 212-201-4802

 

n/a

Whitebox Intermarket Partners, LP

c/o: Whitebox Advisors, LLC

3033 Excelsior Blvd., Suite 300

Minneapolis, MN 55416

Attn: Barb Reller

T: 612-253-6014

F: 612-253-6114

breller@whiteboxadvisors.com

 

Esbin & Alter, LLC

497 South Main Street

New York, NY 10956

Attn: Frank Jaklitsch

T: 845-634-7909

F: 845-634-4160

fjaklitsch@esbinalter.com

Enable Growth Partners LP

 

Enable Growth Partners

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn: Brendan O’Neil

T: 415-677-1578

F: 415-677-1580

boneil@enablecapital.com

 

 

 

24

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Enable Opportunity Partners LP

 

Enable Opportunity Partners LP

One Ferry Building, Suite 255

San Francisco, CA 94111

Attn: Brendan O’Neil

T: 415-677-1578

F: 415-677-1580

boneil@enablecapital.com

 

 

Pierce Diversified Strategy Master Fund LLC, Ena

Pierce Diversified Strategy Master Fund LLC, Ena One Ferry Building, Suite 255

San Francisco, CA 94111

Attn: Brendan O’Neil

T: 415-677-1578

F: 415-677-1580

boneil@enablecapital.com

 

 

Harborview Master Fund L.P.

Harborview Master Fund L.P.

Harbour House, Waterfront Drive Road Town, Box 972

Tortola, BVI

Attn: David Stefansky

T: 646-218-1400

F: 284-494-4771

dstefansky@harborviewcm.com

 

 

Ellis International LP

c/o SDC Capital

20 East Hwy Suite 302

Valley Stream, NY 11581

Attn: Matt Drillman

T: 516-887-6000

F: 516-887-8990

md@sdccapital.com / faigy@sdccapital.com

 

 

Alpha Capital Anstalt

Alpha Capital Anstalt

Pradafant 7, 9490 Furstentums

Vaduz, Lichtenstein

Attn : Konrad Ackerman / Rainer Posch

T : 212-586-8224

F : 212-586-8244

akluger@lhfin.com

 

 

Whalehaven Capital Fund Limited

Whalehaven Capital

160 Summit Avenue

Montvale, NJ 07645

Attn: Brian Mazzella

T: 201-746-6031

F: 201-782-9327

brian@whalehavencapital.com

 

 

CMS Capital

CMS Capital

9612 Van Nuys Blvd, Suite 108

Panorama City, CA 91403

Attn : Howard Weiss

T : 818-599-3636

F : 818-907-3372

hmweiss@hotmail.com

 

 

 

25

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EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

Computershare Trust Company, N.A.

350 Indiana Street, Suite 800

Golden, Colorado 80401

Attention: Amanda Lewis

 

 

Re:

China Direct, Inc.

Ladies and Gentlemen:

[We are][I am] counsel to China Direct, Inc., a Florida corporation (the
“Company”), and have represented the Company in connection with that certain
Securities Purchase Agreement (the “Securities Purchase Agreement”) entered into
by and among the Company and the buyers named therein (collectively, the
“Holders”) pursuant to which the Company issued to the Holders perpetual
convertible preferred (the “Preferred Shares”) which shall be convertible into
the Company’s common stock, par value $0.0001 per share (the “Common Stock”) and
warrants (the “Warrant”) exercisable for shares of Common Stock. Pursuant to the
Securities Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the “Registration Rights Agreement”) pursuant
to which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and the
shares of Common Stock issuable upon exercise of the Warrant under the
Securities Act of 1933, as amended (the “1933 Act”). In connection with the
Company’s obligations under the Registration Rights Agreement, on ____________
___, 200_, the Company filed a Registration Statement on Form S-3 (File No.
333-_____________) (the “Registration Statement”) with the Securities and
Exchange Commission (the “SEC”) relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.

In connection with the foregoing, [we][I] advise you that a member of the SEC’s
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC’s staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

This letter shall serve as our standing instruction to you that the shares of
Common Stock are freely transferable by the Holders pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or

A-1

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reissuance of shares of Common Stock to the Holders as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated February 11, 2008.

Very truly yours,

[ISSUER’S COUNSEL]

By:_____________________

CC:

[LIST NAMES OF HOLDERS]

 

A-2

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EXHIBIT B

 

SELLING STOCKHOLDERS

The shares of common stock offered by the selling stockholders are issuable upon
exercise of the warrants, upon conversion of the convertible preferred shares
and in payment of dividend on the convertible Preferred Shares. For additional
information regarding the issuance of those warrants and convertible preferred
shares, see “Private Placement of Convertible Preferred Shares and Warrants”
above. We are registering the shares of common stock in order to permit the
selling stockholders to offer the shares for resale from time to time. Except
for the ownership of the convertible preferred shares and warrants issued
pursuant to the Securities Purchase Agreement, the selling stockholders have not
had any material relationship with us within the past three years.

The table below lists the selling stockholders and other information regarding
the beneficial ownership of the shares of common stock by each of the selling
stockholders. The second column lists the number of shares of common stock
beneficially owned by each selling stockholder, based on its ownership of the
convertible preferred shares and warrants, as of ________, 2008, assuming
conversion of all convertible preferred shares and exercise of the warrants held
by the selling stockholders on that date, without regard to any limitations on
conversions or exercise.

The third column lists the shares of common stock being offered by this
prospectus by the selling stockholders.

In accordance with the terms of a registration rights agreement with the selling
stockholders, this prospectus generally covers the resale of at least 130% of
the sum of (i) number of shares of common stock issuable upon conversion of the
convertible preferred shares as of the Trading Day immediately preceding the
date the registration statement is initially filed with the SEC, (ii) the number
of shares of common stock issuable upon exercise of the related warrants as of
the Trading Day immediately preceding the date the registration statement is
initially filed with the SEC and (iii) the maximum number of Dividend Shares
issued or issuable from the Closing Date through the fifth (5th) anniversary of
the Closing Date pursuant to the terms of the Preferred Shares calculated as of
the trading day immediately preceding the date the registration statement is
initially filed with the SEC. Because the conversion price of the convertible
preferred shares and the exercise price of the warrants may be adjusted may be
adjusted, the number of shares that will actually be issued may be more or less
than the number of shares being offered by this prospectus. The fourth column
assumes the sale of all of the shares offered by the selling stockholders
pursuant to this prospectus.

Under the terms of the convertible preferred shares and the warrants, a selling
stockholder may not convert the convertible preferred shares or exercise the
warrants to the extent such conversion or exercise would cause such selling
stockholder, together with its affiliates, to beneficially own a number of
shares of common stock which would exceed 4.99% of our then outstanding shares
of common stock following such conversion or exercise, excluding for purposes of
such determination shares of common stock issuable upon conversion of the
convertible preferred shares which have not been converted and upon exercise of
the

B-1

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warrants which have not been exercised. The number of shares in the second
column does not reflect this limitation. The selling stockholders may sell all,
some or none of their shares in this offering. See “Plan of Distribution.”

B-2

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Name of Selling Stockholder

Number of Shares of Common Stock Owned Prior to Offering

Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus

Number of Shares of Common Stock Owned After Offering

Hudson Bay Fund LP (1)

 

 

0

Hudson Bay Overseas Fund Ltd. (2)

 

 

0

Liberty Harbor Master Fund I, L.P. (3)

 

 

0

 

(1) Sander Gerber, Yoav Roth and John Doscas share voting and investment power
over these securities. Each of Sander Gerber, Yoav Roth and John Doscas disclaim
beneficial ownership over the securities held by Hudson Bay Fund LP. The selling
stockholder acquired the securities offered for its own account in the ordinary
course of business, and at the time it acquired the securities, it had no
agreements, plans or understandings, directly or indirectly to distribute the
securities.

 

(2) Sander Gerber, Yoav Roth and John Doscas share voting and investment power
over these securities. Each of Sander Gerber, Yoav Roth and John Doscas disclaim
beneficial ownership over the securities held by Hudson Bay Overseas Fund LTD.
The selling stockholder acquired the securities offered for its own account in
the ordinary course of business, and at the time it acquired the securities, it
had no agreements, plans or understandings, directly or indirectly to distribute
the securities.

(3)

 

B-3

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PLAN OF DISTRIBUTION

We are registering the shares of common stock issuable upon conversion of the
convertible preferred shares, upon exercise of the warrants and in payment of
dividend on the Preferred Shares to permit the resale of these shares of common
stock by the holders of the convertible preferred shares and warrants from time
to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling stockholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register
the shares of common stock.

The selling stockholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent’s commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,

 

•

on any national securities exchange or quotation service on which the securities
may be listed or quoted at the time of sale;

 

•

in the over-the-counter market;

 

•

in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

 

•

through the writing of options, whether such options are listed on an options
exchange or otherwise;

 

•

ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

•

block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction;

 

•

purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

•

an exchange distribution in accordance with the rules of the applicable
exchange;

 

•

privately negotiated transactions;

 

•

short sales;

 

•

sales pursuant to Rule 144;

B-4

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•

broker-dealers may agree with the selling securityholders to sell a specified
number of such shares at a stipulated price per share;

 

•

a combination of any such methods of sale; and

 

•

any other method permitted pursuant to applicable law.

If the selling stockholders effect such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of common stock or otherwise, the selling stockholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short and
deliver shares of common stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales. The
selling stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.

The selling stockholders may pledge or grant a security interest in some or all
of the convertible preferred shares, warrants or shares of common stock issuable
upon conversion of the convertible preferred, exercise of the warrants and in
payment of dividend on the preferred shares owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling stockholders to include the pledgee, transferee
or other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer and donate the shares of common stock
in other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

The selling stockholders and any broker-dealer participating in the distribution
of the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in some states the

B-5

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

shares of common stock may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.

There can be no assurance that any selling stockholder will sell any or all of
the shares of common stock registered pursuant to the registration statement, of
which this prospectus forms a part.

The selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.

We will pay all expenses of the registration of the shares of common stock
pursuant to the registration rights agreement, estimated to be $[     ] in
total, including, without limitation, Securities and Exchange Commission filing
fees and expenses of compliance with state securities or “blue sky” laws;
provided, however, that a selling stockholder will pay all underwriting
discounts and selling commissions, if any. We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling stockholders will be entitled to contribution. We may be indemnified by
the selling stockholders against civil liabilities, including liabilities under
the Securities Act, that may arise from any written information furnished to us
by the selling stockholder specifically for use in this prospectus, in
accordance with the related registration rights agreement, or we may be entitled
to contribution.

Once sold under the registration statement, of which this prospectus forms a
part, the shares of common stock will be freely tradable in the hands of persons
other than our affiliates.

B-6

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