Document:

Unassociated Document

    
      EXECUTION
VERSION

    

     

    SECURITIES
PURCHASE AGREEMENT

     

    SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated
as of November 3, 2010, by and among China Linen Textile
Industry, Ltd., an exempted company incorporated in the Cayman Islands with
headquarters located at Chengdong Street, Lanxi County, Heilongjiang Province
151500, China (the “Company”), and the investors
listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the
“Buyers”).

     

    WHEREAS:

     

    A. The Company and each Buyer is
executing and delivering this Agreement in reliance upon the exemption from
securities registration afforded by Section 4(2) of the Securities Act of 1933,
as amended (the “1933
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated
by the United States Securities and Exchange Commission (the “SEC”) under the 1933
Act.

     

    B. The Company has authorized a
new series of senior, unsecured convertible notes of the Company, in the form
attached hereto as Exhibit A (the “Notes”), which Notes shall be
convertible into the Company’s ordinary shares, par value $0.002 per share
(the “Ordinary
Shares”), in accordance with the terms of the Notes.

     

    C. Each Buyer wishes to
purchase, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, that aggregate principal amount of the Notes set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers attached
hereto (which aggregate amount for all Buyers together shall be $7,045,000 (as
converted, collectively, the “Conversion
Shares”).

     

    D. Contemporaneously with the
execution and delivery of this Agreement, the parties hereto are executing and
delivering a Registration Rights Agreement, substantially in the form attached
hereto as Exhibit
B (the “Registration
Rights Agreement”) pursuant to which the Company has agreed to provide
certain registration rights with respect to Registrable Securities (as defined
in the Registration Rights Agreement) under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities
laws.

     

    E. The Notes and the Conversion
Shares collectively are referred to herein as the “Securities”.

     

    F. The Notes will rank senior to
all outstanding and future unsecured, subordinated indebtedness of the
Company.

     

    G. NOW, THEREFORE, the Company
and each Buyer hereby agree as follows:

     

    
      	
               
      

            	
              1.
      PURCHASE AND
      SALE OF NOTES.

            

    

     

    (a)  Purchase of
Notes.  Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), a principal amount of
Notes as is set forth opposite such Buyer’s name in column (3) on the Schedule
of Buyers (the “Closing”).  The
Closing shall occur on the Closing Date at the offices of Reed Smith LLP, 599
Lexington Avenue, New York, New York 10022.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  Purchase
Price.  The aggregate purchase price for the Notes to be
purchased by each Buyer at the Closing shall be the amount set forth opposite
such Buyer’s name in column (4) of the Schedule of Buyers (the “Purchase
Price”).  Each Buyer shall pay $1,000 for each $1,000 of
principal amount of Notes to be purchased by such Buyer at the
Closing.

     

    (c) Closing
Date.  The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City time, on the date hereof (or such other date and time as is
mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below.

     

    (d) Form of
Payment.  On the Closing Date, (i) each Buyer shall pay its
respective Purchase Price (less in the case of CNH Diversified Opportunities
Master Account, L.P. (“CNH”), the amounts withheld
pursuant to Section 4(g)) to the Company for the Notes to be issued and sold to
such Buyer at the Closing, by wire transfer of immediately available funds in
accordance with that Closing Escrow Agreement, dated as of November 3, 2010, by
and among the Company, the Buyers, the Placement Agent (as defined below), and
the Company Counsel (as defined below) as escrow agent, and (ii) the
Company shall deliver to each Buyer the Notes (allocated in the principal
amounts as such Buyer shall request) which such Buyer is then purchasing
hereunder, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.

     

    
      	
               
      

            	
              2.
      BUYER’S
      REPRESENTATIONS AND
WARRANTIES.

            

    

     

    Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself that, as of the date hereof and as of the Closing Date:

     

    (a) No Public Sale or
Distribution.  Such Buyer is (i) acquiring the Notes and (ii)
upon conversion of the Notes will acquire the Conversion Shares issuable upon
conversion of the Notes in the ordinary course of business for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act and such Buyer does not have a present arrangement to effect any
distribution of the Securities to or through any person or entity; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.  Such Buyer
is acquiring the Securities hereunder in the ordinary course of its
business.  Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person (as defined in Section
3(s)) to distribute any of the Securities.

     

    (b) Accredited Investor
Status.  Such Buyer is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D.

     

    
      
        
        

      

      
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    (c) Reliance on
Exemptions.  Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

     

    (d) Information.  Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such
Buyer.  Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company.  Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
herein.  Such Buyer understands that its investment in the Securities
involves a high degree of risk and is able to afford a complete loss of such
investment.  Such Buyer has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.

     

    (e) No Governmental
Review.  Such Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

     

    (f) Transfer or
Resale.  Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to Loeb & Loeb LLP, the
Company’s outside counsel (“Company Counsel”), to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, “Rule
144”); (ii) any sale of the Securities made in reliance on Rule 144 may
be made only in accordance with the terms of Rule 144 and further, if Rule 144
is not applicable, any resale of the Securities under circumstances in which the
seller (or the Person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption
thereunder.  Notwithstanding the foregoing, the Securities may be
pledged in connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Buyer effecting a pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document (as defined in Section
3(b)), including, without limitation, this Section 2(f); provided, that in order
to make any sale, transfer or assignment of Securities, such Buyer and its
pledgee makes such disposition in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.

     

    
      
        
        

      

      
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    (g) Acknowledgment regarding
Buyer’s Trading Activity.  Until the earlier of (i) the
Maturity Date (as defined in the Notes) and (ii) the date upon which such Buyer
ceases to hold any Notes, such Buyer or Buyer’s affiliate will not, directly or
indirectly, engage in any short sales, swaps, forward sale transactions or other
derivative transactions with respect to the Company’s Ordinary Shares
(collectively, “Short
Sales”).  Buyer has not directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Buyer,
engaged in any transactions in the Company’s securities (including, without
limitation, any Short Sales involving the Company’s securities) since the time
that such Buyer was first contacted by the Company or any other Person regarding
the transactions contemplated hereby.  Such Buyer covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any transactions in the Company’s securities (including,
without limitation, any Short Sales involving the Company’s securities) prior to
the time that the transactions contemplated by this Agreement are publicly
disclosed.  For purposes of this Section, (i) “Person” shall include,
without limitation, any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company or joint stock company, and (ii) “Short Sales” shall include, without
limitation, all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the 1934 Act and all types of forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements. Nothing in
this Section 2(g), however, will restrict Buyer’s ability to sell shares of the
Company’s Ordinary Shares that it owns, including Conversion Shares received
upon conversion of the Notes.

     

    (h) Legends.  Such
Buyer understands that the certificates representing the Notes, and until such
time as the resale of the Conversion Shares has been registered under the 1933
Act as contemplated by the Registration Rights Agreement and sold pursuant to an
effective registration statement and current prospectus contained therein, the
share certificates representing the Conversion Shares, except as set forth
below, shall bear any legend as required by the “blue sky” laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

     

    
      
        
        

      

      
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    The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act and sold pursuant to an
effective registration statement and current prospectus contained therein, (ii)
in connection with a sale, assignment or other transfer, such holder provides
the Company with an opinion of counsel, in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act and that
such legend is no longer required, or (iii) such holder provides the Company
with reasonable assurances that the Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933
Act.  The Company shall be responsible for the fees of its transfer
agent and all DTC fees associated with such issuance.

    

    (i) Validity;
Enforcement.  This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and
remedies.

     

    (j) No
Conflicts.  The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such Buyer
or (ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order,
judgment  or decree (including federal and state securities laws)
applicable to such Buyer, except in the case of clauses (ii) and (iii) above,
for such conflicts, defaults, rights or violations which would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the ability of such Buyer to perform its obligations hereunder.

     

    (k) Residency.  Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.

     

    (l) Organization.  Such
Buyer is an entity duly organized and validly existing in good standing under
the laws of the jurisdiction in which it is formed, and has the requisite power
and authority to enter into and perform its obligations under this Agreement and
the other Transaction Documents to which it is a party and otherwise to carry
out its obligations hereunder and thereunder.

     

    
      
        
        

      

      
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              3.
      REPRESENTATIONS
      AND WARRANTIES OF THE
COMPANY.

            

    

     

    The
Company represents and warrants to each of the Buyers that:

     

    (a) Organization and
Qualification.  Except as set forth in the SEC Documents (as
defined below),  each of the Company and its “Subsidiaries” (which for
purposes of this Agreement means any entity in which the Company, directly or
indirectly, owns any of the capital stock or holds an equity or similar
interest) are entities duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their
business as now being conducted.  Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect.  As used in this Agreement, “Material Adverse Effect” means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, individually or taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below).  The
Company has no Subsidiaries except as set forth in the SEC
Documents.

     

    (b) Authorization; Enforcement;
Validity.  The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Notes, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), the Lock-Up Agreements (as defined
below) and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (individually, a
“Transaction Document”,
collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms
hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes, and the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion of the Notes, have been duly authorized by the
Company’s Board of Directors and other than (i) the filing of a Form D pursuant
to Regulation D under the 1933 Act and any required notices or filings under
applicable state securities or Blue Sky laws of the United States (“Blue Sky Laws”) with respect
to the transactions contemplated hereby, (ii) the filing with the SEC of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement and (iii) as contemplated pursuant to Section 4(l)
hereof, no further filing, consent or authorization is required by the Company,
its Board of Directors or its shareholders.  This Agreement and the
other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

     

    
      
        
        

      

      
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    (c) Issuance of
Securities.  The issuance of the Notes is duly authorized and,
upon issuance in accordance with the terms hereof, shall be validly issued and
free from all taxes, liens and charges with respect to the issue
thereof.  As of the Closing, subject to the provisions of Section 4(l)
hereof, a number of Ordinary Shares shall have been duly authorized and reserved
for issuance which equals or exceeds 130% of the sum of the maximum number of
Ordinary Shares issuable upon conversion of the Notes.  Upon
conversion or payment in accordance with the Notes, the Conversion Shares will
be validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Ordinary
Shares.  Assuming the accuracy of the representations and warranties
set forth in Section 2 of this Agreement, the offer and issuance by the Company
of the Securities is exempt from registration under the 1933 Act.

     

    (d) No
Conflicts.  Except as set forth on Schedule 3(d) or in
the SEC Documents, the execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes, and subject to the provisions of Section 4(l) hereof, reservation for
issuance and issuance of the Conversion Shares) will not (i) result in a
violation of any memorandum and articles of association, certificate of
incorporation, any certificate of designations or other constituent documents of
the Company or any of its Subsidiaries, any capital stock of the Company or any
of its Subsidiaries or the bylaws of the Company or any of its Subsidiaries or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) in any respect under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the “Principal
Market”)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect.

     

    (e) Consents.  Except
for the filing of a Form D pursuant to Regulation D under the 1933 Act and any
required notices or filings under applicable Blue Sky Laws, neither the Company
nor any of its Subsidiaries is required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental
agency or any regulatory or self-regulatory agency or any other Person in order
for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents, in each case in accordance with the
terms hereof or thereof.  All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the Closing
Date, except for the filing of Form D and any required notices or filings under
applicable Blue Sky Laws.  The Company and its Subsidiaries are
unaware of any facts or circumstances that could reasonably be expected to
prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence.  Except as
set forth on Schedule 3(e), the Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts that
could reasonably be expected to lead to delisting or suspension of the Ordinary
Shares in the foreseeable future.

     

    
      
        
        

      

      
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    (f) Acknowledgment Regarding
Buyer’s Purchase of Securities.  The Company acknowledges and
agrees that each Buyer is acting solely in the capacity of arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that no Buyer is (i) an officer or director
of the Company or any of its Subsidiaries, (ii) an “affiliate” of the Company or
any of its Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of
the Company, a “beneficial owner” of more than 10% of the Ordinary Shares (as
defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the “1934
Act”)).  The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company or any of its
Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  The
Company further represents to each Buyer that the Company’s decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

     

    (g) No General Solicitation;
Placement Agent’s Fees.  Neither the Company, nor any of its
Subsidiaries or affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby.  The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney’s fees and out-of-pocket expenses)
arising in connection with any such claim.  The Company acknowledges
that it has engaged Rodman & Renshaw, LLC as placement agent (the “Placement Agent”) in
connection with the sale of the Securities.  Other than the Placement
Agent, neither the Company nor any of its Subsidiaries has engaged any placement
agent or other agent in connection with the sale of the Securities.

     

    (h) No Integrated
Offering.  None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of any of the
Securities under the 1933 Act, whether through integration with prior offerings
or otherwise, or cause this offering of the Securities to require the approval
of stockholders of the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated.  None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings for
purposes of any such applicable stockholder approval provisions.

     

    
      
        
        

      

      
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    (i) Dilutive
Effect.  The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes will increase
in certain circumstances.  The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other shareholders of the Company.

     

    (j) Application of Takeover
Protections; Rights Agreement.  The Company and its board of
directors (the “Board of
Directors”) have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Association (as defined below) or
the laws of the Cayman Islands which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Buyer’s
ownership of the Securities; provided that any conversion of the Conversion
Shares that results in a change in control of the Company shall require the
approval of the Company’s shareholders.  Neither the Company nor its
Board of Directors has adopted a shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Ordinary Shares or a change
in control of the Company.

     

    (k) SEC Documents; Financial
Statements.  Except as set forth on Schedule 3(k), during
the two years prior to the date hereof, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof or prior to the date of the
Closing, and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the “SEC
Documents”).  The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system.  Except as set forth in
Schedule 3(k)
or as disclosed in the SEC Documents, as of their respective filing dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.  As of their respective filing
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto.  Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).  No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in the disclosure schedules to
this Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made, not
misleading.

     

    
      
        
        

      

      
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    (l) Absence of Certain
Changes.  Except as disclosed in Schedule 3(l) or in
the SEC Documents, since June 30, 2010, there has been no material adverse
change and no material adverse development in the business, assets, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries.  Except as disclosed in
Schedule 3(l)
or in the SEC Documents, since June 30, 2010, neither the Company nor any of its
Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $100,000.  Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do
so.  The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below).  For purposes of this Section 3(l),
“Insolvent” means, with
respect to any Person (i) the present fair saleable value of such Person’s
assets is less than the amount required to pay such Person’s total Indebtedness
(as defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

     

    (m) No Undisclosed Events,
Liabilities, Developments or Circumstances.  Except as
disclosed in the SEC Documents, since June 30, 2010, no event, liability,
development or circumstance has occurred or exists, or is contemplated to occur,
with respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement on Form F-1 filed with the SEC relating to an issuance
and sale by the Company of its Ordinary Shares and which has not been publicly
announced.

     

    (n) Conduct of Business;
Regulatory Permits.  Except as set forth in Schedule 3(n) or in
the SEC Documents, neither the Company nor its Subsidiaries is in violation of
any term of or in default under any certificate of designations of any
outstanding series of preferred stock of the Company, the Articles of
Association or their organizational charter or articles of incorporation or
bylaws, respectively.  Neither the Company nor any of its Subsidiaries
is in violation of any judgment, decree or order or any statute, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries, and neither
the Company nor any of its Subsidiaries will conduct its business in violation
of any of the foregoing, except for possible violations which would not,
individually or in the aggregate, have a Material Adverse
Effect.  Without limiting the generality of the foregoing, the Company
is not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Ordinary Shares by the
Principal Market in the foreseeable future.  Since the date two years
prior to the date hereof, (i) the Ordinary Shares have been designated for
quotation or listed on the Principal Market, (ii) trading in the Ordinary Shares
has not been suspended by the SEC or the Principal Market and (iii) the Company
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Ordinary Shares from the
Principal Market.  The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

     

    
      
        
        

      

      
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    (o) Foreign Corrupt
Practices.  Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other Person acting on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company or any of its Subsidiaries (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

     

    (p) Sarbanes-Oxley
Act.  Except as set forth on Schedule 3(p) or in
the SEC Documents, the Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.

     

    (q) Transactions With
Affiliates.  Except as set forth in the SEC Documents, none of
the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers or
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any of its
Subsidiaries, any corporation, partnership, trust or other entity in which any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

     

    (r) Equity
Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of 500,000,000 shares of Ordinary Shares, of which
as of the date hereof, 20,215,003 shares are issued and
outstanding.  All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and
nonassessable.  Except as set forth on Schedule 3(r) or in
the SEC Documents: (i) no shares of the Company’s share capital are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries; (iii) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness of the Company or any of its Subsidiaries or
by which the Company or any of its Subsidiaries is or may become bound; (iv)
there are no financing statements securing obligations in any material amounts,
either singly or in the aggregate, filed in connection with the Company or any
of its Subsidiaries; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company’s or any Subsidiary’s respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.  The Company has furnished or made available to the Buyer upon
such Buyer’s request, true, correct and complete copies of the Company’s
Articles of Association, as amended and as in effect on the date hereof (the
“Articles of
Association”), and the terms of all securities convertible into, or
exercisable or exchangeable for, Ordinary Shares and the material rights of the
holders thereof in respect thereto.

     

    
      
        
        

      

      
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    (s) Indebtedness and Other
Contracts.  Except as disclosed in Schedule 3(s) or in
the SEC Documents (except that Schedule 3(s)
includes any Indebtedness (as defined below) in excess of $50,000), neither the
Company nor any of its Subsidiaries (i) has any outstanding Indebtedness, (ii)
is a party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or
instrument would result in a Material Adverse Effect, (iii) is in violation of
any term of or in default under any contract, agreement or instrument relating
to any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect.  Schedule 3(s)
provides the parties names, maturity date and principal amount of any such
outstanding Indebtedness in excess of $50,000.  For purposes of this
Agreement: (x) “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including, without limitation, “capital leases” in
accordance with United States generally accepted accounting principles (other
than trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; and (z) “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.

     

    
      
        
        

      

      
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    (t) Absence of
Litigation.  Except as set forth in the SEC Documents, there is
no action, suit, proceeding, inquiry or investigation before or by the Principal
Market, any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company, the Ordinary Shares or any of its Subsidiaries or any of
the Company’s or the Company’s Subsidiaries’ officers or directors, whether of a
civil or criminal nature or otherwise.  The matters set forth in the
SEC Documents would not have a Material Adverse Effect.

     

    (u) Insurance.  The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged.  Except as set
forth in the SEC Documents, neither the Company nor any Subsidiary has been
refused any insurance coverage sought or applied for. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

     

    (v) Employee
Relations.  (i) Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or employs any member of a
union.  The Company and its Subsidiaries believe that their relations
with their employees are good.  No executive officer of the Company or
any of its Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified
the Company or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such officer’s employment
with the Company or any such Subsidiary.  No executive officer of the
Company or any of its Subsidiaries, to the knowledge of the Company or any of
its Subsidiaries, is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and, to the knowledge of the Company or any of its
Subsidiaries, the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

     

    
      
        
        

      

      
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    (ii) The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.

     

    (w) Title.  Except
as set forth in the SEC Documents, the Company and its Subsidiaries have land
use rights as permitted under the law of the People’s Republic of China with
respect to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries.  Any real property and facilities
held under lease by the Company and any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.

     

    (x) Intellectual Property
Rights.  (i) The Company and its Subsidiaries own, or are
licensed, or otherwise possess legally enforceable rights, to use, sell or
license, as applicable, all Intellectual Property that is reasonably necessary
for the operation of their respective businesses as currently
conducted.  The Company and its Subsidiaries possess or have access to
the original (or, if owned by a third party, copies) of all documentation and
all source code, as applicable, for all of the Business Intellectual Property
consisting of software.  Schedule 3(x)(i)(a)
sets forth a true and complete list of all (i) Registered or otherwise material
Owned Intellectual Property; and (ii) Intellectual Property
Contracts.  All such rights are free of all liens and are fully
assignable by the Company and its Subsidiaries to any Person, without payment,
consent of any Person or other condition or restriction.  There exists
no event, condition or occurrence which, with the giving of notice or lapse of
time, or both, would constitute a breach or default by the Company, its
Subsidiaries or another Person under any Intellectual Property
Contract.

     

    (ii)
Except as set forth on Schedule 3(x)(ii), no
Owned Intellectual Property has expired or terminated or has been abandoned, or
is expected to expire or terminate or be abandoned, within three years from the
date of this Agreement.  All Owned Intellectual Property (and to the
knowledge of the Company all Licensed Intellectual Property) is subsisting, has
been used by the Company and its Subsidiaries and made available to their
distributors and customers with all patent, trademark, copyright, confidential,
proprietary, and other Intellectual Property notices and legends prescribed by
law or otherwise permitted, and, to the knowledge of the Company, is valid and
enforceable.  No Owned Intellectual Property (and to the knowledge of
the Company, no Licensed Intellectual Property), is subject to any outstanding
order, judgment or decree restricting its use by the Company or its Subsidiaries
or their distributors and customers or adversely affecting the Company’s or any
Subsidiary’s rights thereto.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (iii) The
Company does not have any knowledge of any infringement by the Company or its
Subsidiaries of Intellectual Property of others.  There is no claim,
action or proceeding being made or brought, or to the knowledge of the Company,
being threatened in writing, against the Company or any of its Subsidiaries
regarding any Business Intellectual Property.  The Company is unaware
of any facts or circumstances which could reasonably be expected to give rise to
any of the foregoing infringements or claims, actions or
proceedings.

     

    (iv) Each
employee who in the regular course of his employment may create programs,
modifications, enhancements or other inventions, improvements, discoveries,
methods or works of authorship and all consultants have signed an assignment or
similar agreement with the Company and/or its Subsidiaries confirming the
Company’s or a Subsidiary’s ownership or, in the alternate, transferring and
assigning to the Company or a Subsidiary all right, title and interest in and to
such programs, modifications, enhancements or other inventions including
copyright and other intellectual property rights therein.  No Person
(other than the Company and/or its Subsidiaries) has any reasonable basis for
claiming any right, title or interest in and to any such Intellectual
Property.

     

    (v) (1)
No Product contains, and no Product is derived from Public Software, (2) neither
the Company nor any Subsidiary has distributed Public Software in conjunction
with any Products, or (3) used Public Software in the development of a
derivative work of any Intellectual Property.  The Company and the
Subsidiaries are in compliance with all agreements and other terms and
conditions governing the use of Public Software and there exists no event,
condition or occurrence which, with the giving of notice or lapse of time, or
both, would constitute a breach or default by the Company or a Subsidiary of
such agreements, terms and conditions.  Neither the Company nor any
Subsidiary has received any notice of any alleged breach or other violation of
any such agreement, term or condition.  No Product or any other
Intellectual Property is required to be (a) disclosed or distributed in source
code form; (b) licensed for the purpose of making derivative works; or (c)
redistributable at no charge, in each case, as a result of the Company’s or a
Subsidiary’s use, modification or distribution of Public Software.

     

    (vi) Each
of the Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all material Trade Secrets
used in or on behalf of its business.  To the Company’s knowledge, no
unauthorized disclosure of any of the Business Intellectual Property consisting
of Trade Secrets has occurred within the last three (3) years.

     

    (vii) The
use by or on behalf of the Company and its Subsidiaries of the Data in
connection with their business does not infringe or violate the rights of any
Person or otherwise violate any applicable law.

     

    
      
        
        

      

      
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    (viii)
The IT Systems of the Company and its Subsidiaries are adequate in all material
respects for their intended use and for the operation of such businesses as are
currently operated by the Company and its Subsidiaries, and are in good working
condition (normal wear and tear excepted).

     

    (ix) For
purposes of this Section 3(x), the following definitions shall
apply.

     

    (1)  “Ancillary Product Materials”
shall mean all documentation currently used or distributed by the Company or a
Subsidiary concerning the Products, including customer support materials such as
support and training materials, support bulletins, and any and all data
contained in the customer support organization computer system of the Company or
a Subsidiary; and marketing materials relating to the Products, including sales
and marketing material, white papers, performance benchmark reports, customer
training materials, sales training materials and sales presentation
materials.

    

    (2)
“Business Intellectual
Property” means the Owned Intellectual Property and the Licensed
Intellectual Property.

    

    (3)
“Data” means all
information and data, whether in printed or electronic form and whether
contained in a database or otherwise.

    

    (4)
“Intellectual Property”
means  (i) foreign and domestic trademarks, trade names, service
marks, service names, brand names, certification marks, collective marks,
d/b/a’s, Internet domain names, logos, symbols, trade dress, assumed names,
fictitious names, and other indicia of origin, all applications and
registrations for all of the foregoing, and all goodwill associated therewith
and symbolized thereby, including without limitation all extensions,
modifications and renewals of same; (ii) foreign and domestic inventions,
discoveries and ideas, whether patentable or not, and all patents,
registrations, and applications therefor, including without limitation
divisions, continuations, continuations-in-part and renewal applications, and
including without limitation renewals, extensions and reissues; (iii) foreign
and domestic published and unpublished works of authorship, whether
copyrightable or not (including, but not limited to, computer software),
copyrights therein and thereto, and registrations and applications therefor, and
all renewals, extensions, restorations and reversions thereof; (iv) confidential
and proprietary information, trade secrets and know-how, including without
limitation processes, schematics, databases, formulae, drawings, specifications,
prototypes, models, designs, research and development, manufacturing and
production processes and techniques, technical data, and customer and supplier
lists, pricing and cost information and business and marketing plans and
proposals (collectively, “Trade
Secrets”); (v) rights of publicity, name and likeness rights; (vi)
electronic data processing, information, recordkeeping, communications,
telecommunications, networking, account management, inventory management and
other such applications, software, and hardware, equipment and services
(including, but not limited to, all applications and software installed on all
hardware and equipment, and all databases, firmware, and related documentation),
and Internet websites and related content (collectively, “IT Systems”); and (vii) all
other intellectual property or proprietary rights and claims or causes of action
arising out of or related to any infringement, misappropriation or other
violation of any of the foregoing, including without limitation rights to
recover for past, present and future violations thereof.

     

    
      
        
        

      

      
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    (5)
“Intellectual Property
Contracts” means all agreements concerning the Business Intellectual
Property, including without limitation agreements granting the Company rights to
use the Licensed Intellectual Property, agreements granting rights to use Owned
Intellectual Property, confidentiality agreements, reseller agreements,
consulting agreements, trademark coexistence agreements, trademark consent
agreements and nonassertion agreements.

    

    (6)
“Licensed Intellectual
Property” means Intellectual Property that the Company and its
Subsidiaries has licensed or otherwise permitted by other Persons to
use.

    

    (7)
“Owned Intellectual
Property” means Intellectual Property owned by the Company or its
Subsidiaries, directly or indirectly, jointly or individually.

    

    (8)
“Products” shall mean
the software products marketed, sold, licensed, supported, serviced or
maintained by the Company or a Subsidiary, together with the inventory of the
Products, the Ancillary Product Materials, any and all such software related to,
comprising or constituting such products, any and all supplements,
modifications, updates, corrections and enhancements to past and current
versions of such products, shipping versions of such products, versions of such
products currently under development, and any and all English and foreign
language versions of current and past versions of such products, shipping
versions of such products and versions of such products currently under
development; and any and all documentation, back-up tapes and archival tapes
relating to the foregoing.

    

    (9)
“Public Software” means
software which creates, or purports to create, obligations for the user or
grants, or purports to grant, to any third party any rights or immunities under
the user’s intellectual property or proprietary rights in its software
(including, without limitation, open source software and any other software that
requires as a condition of use, modification and/or distribution of the software
that other software incorporated into, derived from or distributed with that
software be (1) disclosed or distributed in source code form, (2) licensed for
the purpose of making derivative works, or (3) redistributable at no charge),
shareware, “copyleft” software, or similar software.

    

    (10)
“Registered” means
issued, registered, renewed or the subject of a pending
application.

     

    (y) Environmental
Laws.  The Company and its Subsidiaries (i) are in compliance
with any and all applicable Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect.  The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

     

    
      
        
        

      

      
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    (z) Subsidiary
Rights.  The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

     

    (aa)
Tax
Status.  The Company and each of its Subsidiaries (i) has made
or filed all federal, foreign and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.

     

    (bb)
Internal Accounting
and Disclosure Controls.  Except as set forth in the SEC
Documents, the Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference.  Except as set forth in the SEC Documents,
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure.  Except as set forth in the SEC Documents, during the
twelve months prior to the date hereof, neither the Company nor any of its
Subsidiaries has received any notice or correspondence from any accountant
relating to any potential material weakness in any part of the system of
internal accounting controls of the Company or any of its
Subsidiaries.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (cc)
Form F-1
Eligibility.  The Company is eligible to register the
Conversion Shares for resale by the Buyers using Form F-1 promulgated under the
1933 Act.

     

    (dd)
Stock Option
Plans.  Each stock option granted by the Company under the
Company’s stock option plan, if any, was granted (i) in accordance with the
terms of the Company’s stock option plan and (ii) with an exercise price at
least equal to the fair market value of the Ordinary Shares on the date such
stock option would be considered granted under United States generally accepted
accounting principles consistently applied and applicable law.  No
stock option granted under the Company’s stock option plan has been
backdated.  The Company has not knowingly granted, and there is no and
has been no Company policy or practice to knowingly grant, stock options prior
to, or otherwise knowingly coordinate the grant of stock options with, the
release or other public announcement of material information regarding the
Company or its Subsidiaries or their financial results or
prospects.

     

    (ee)
Off Balance Sheet
Arrangements.  There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

     

    (ff)
Ranking of
Notes.  Except as set forth in the SEC Documents, no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

     

    (gg)
Manipulation of
Price.  The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or
(iii) other than the Placement Agent, paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.

     

    (hh)
Transfer
Taxes.  On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.

     

    (ii)
Investment Company
Status.  The Company is not, and upon consummation of the sale
of the Securities, and for so long any Buyer holds any Securities, will not be,
an “investment company,” a company controlled by an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company” as such terms are defined in the Investment Company Act of
1940, as amended.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (jj)
No Disagreements with
Accountants and Lawyers.  Except as disclosed in the SEC
Documents, there are no material disagreements of any kind presently existing,
or reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and the
Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under
any of the Transaction Documents.

     

    (kk)
U.S. Real Property
Holding Corporation.  The Company is not, has never been, and
so long as any Securities remain outstanding, shall not become, a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any
Buyer’s request.

     

    (ll)
Bank Holding Company
Act.  Neither the Company nor any of its Subsidiaries or
affiliates is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”).  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.  Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

     

    (mm)
Shell Company
Status. The Company is not, and has not been at any time during the 12
months preceding the date hereof, an issuer identified in Rule
144(i)(1).

     

    (nn)
No Additional
Agreements.  The Company does not have any agreement or
understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction
Documents.

     

    (oo)
Judgments.  There
are no judgments outstanding against the Company that have been properly accrued
on the Company’s balance sheet in accordance with GAAP.

     

    (pp)
Disclosure.  The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their respective agents or counsel with any
information that constitutes or could reasonably be expected to constitute
material, nonpublic information.  The Company understands and confirms
that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company.  All disclosure provided to
the Buyers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.  Each press release issued by the Company or any
of its Subsidiaries during the twelve (12) months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  No event or
circumstance has occurred or information exists with respect to the Company or
any Subsidiary or either of its or their respective business, properties,
prospects, operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company’s reports filed under the 1934 Act, as amended, are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).  The Company acknowledges and agrees that no Buyer
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 2.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (qq)
Office of Foreign
Assets Control.  Neither the Company nor, to the Company’s
knowledge, any director, officer, agent, employee or affiliate of the Company is
currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“OFAC”), and the Company will
not intentionally directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any Subsidiary,
joint venture partner or other person or entity, for the purpose of financing
the activities of any person currently subject to any U.S. sanctions
administered by OFAC.

     

    (rr)
PFIC.  Neither
the Company nor any of its Subsidiaries is or intends to become a “passive
foreign investment company” (a “PFIC”) within the meaning of
Section 1297 of the Code.

     

    (ss)   Money
Laundering.  The operations of the Company are and have been
conducted at all times in compliance with applicable financial record-keeping
and reporting requirements of the Currency and Foreign Transactions Reporting
Act of 1970, as amended, applicable money laundering statutes and applicable
rules and regulations thereunder (collectively, the “Money Laundering Laws”), and
no action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company with respect to the
Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.

     

    
      	
               
      

            	
              4.
      COVENANTS.

            

    

     

    (a) Best
Efforts.  Each party shall use its best efforts timely to
satisfy each of the covenants and the conditions to be satisfied by it as
provided in Sections 4, 5, 6 and 7 of this Agreement.

     

    (b) Form D and Blue
Sky.  The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing.  The Company, on or before the
Closing Date, shall take such action as the Company shall reasonably determine
is necessary in order to obtain an exemption for or to qualify the Securities
for sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Buyers on or prior to the Closing
Date.  The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing
Date.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (c) Reporting
Status.  Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares and
none of the Notes is outstanding (the “Reporting Period”), the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.

     

    (d) Use of
Proceeds.  The Company will use the proceeds from the sale of
the Securities for the acquisition of Lanxi Tianquianfang Linen Co., Ltd. and
not for (i) the repayment of any outstanding Indebtedness of the Company or any
of its Subsidiaries or (ii) the redemption or repurchase of any of its or its
Subsidiaries’ equity securities.

     

    (e) Financial
Information.  The Company agrees to send the following to each
Investor during the Reporting Period, unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system, (i)
within two (2) Business Days after the filing thereof with the SEC, a copy of
its Annual Reports on Form 20-F, any Current Reports on Form 6-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or
electronic copies of all press releases issued by the Company or any of its
Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.  As used herein, “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

     

    (f) Listing.  The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Ordinary Shares
are then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents.  The Company shall maintain the Ordinary
Shares’ authorization for listing on the Principal Market.  Neither
the Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Ordinary
Shares on the Principal Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).

     

    (g) Fees.  The
Company shall reimburse CNH or its designee(s) (in addition to any other amounts
paid to any Buyer prior to the date of this Agreement) for all reasonable costs
and expenses incurred, up to $40,000 (of which $20,000 was previously paid to
CNH), in connection with the transactions contemplated by the Transaction
Documents (including reasonable legal fees and disbursements in connection
therewith, documentation and implementation of the transactions contemplated by
the Transaction Documents and due diligence in connection therewith), which
amount may be withheld by such Buyer from its Purchase Price at the
Closing.  The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other
than for Persons engaged by or on behalf of any Buyer) relating to or arising
out of the transactions contemplated hereby, including, without limitation, any
fees or commissions payable to the Placement Agent.  The Company shall
pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney’s fees and out-of-pocket
expenses) arising in connection with any claim relating to any such
payment.  The Company shall pay all stamp, transaction, and other
taxes, fees or duties, if any, to which this Agreement and the Transaction
Documents may be subject.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (h) Pledge of
Securities.  The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities.  The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) of this Agreement; provided that an Investor and its pledgee shall
be required to comply with the provisions of Section 2(f) of this Agreement in
order to effect a sale, transfer or assignment of Securities to such
pledgee.  The Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an
Investor.

     

    (i) Disclosure of Transactions
and Other Material Information.  The Company shall, on or
before 8:30 a.m., New York City time, on the fourth Business Day after this
Agreement is executed, issue a press release reasonably acceptable to the Buyers
disclosing all material terms of the transactions contemplated hereby and file a
Current Report on Form 6-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act, and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of the Notes, the form
of Registration Rights Agreement, and the form of Lock-Up Agreements) as
exhibits to such filing (including all attachments, the “6-K Filing”).  From
and after the 6-K Filing, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of its respective officers, directors, employees or agents, that is not
disclosed in the 6-K Filing.  The Company shall not, and shall cause
each of its Subsidiaries and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after the
6-K Filing without the express written consent of such Buyer.  In the
event of a breach of the foregoing covenant by the Company, any Subsidiary, or
its each of respective officers, directors, employees and agents, in the event
that the Company has not made such material, non-public information public, in
the form of a press release, public advertisement or otherwise within three (3)
Business Days after notice of such disclosure was received by the Company from
any Buyer, in addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the form
of a press release, public advertisement or otherwise, of such material,
nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents.  No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents for any such disclosure.  Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 6-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations, including the applicable rules and
regulations of the Principal Market (provided that in the case of clause (i)
each Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release).  Without the
prior written consent of any applicable Buyer, neither the Company nor any of
its Subsidiaries or affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise except where such disclosure is
required by applicable law and regulations (including the rules and regulations
of the Principal Market), provided the Company agrees that unless otherwise
required by such law or regulations, it shall disclose any such names only
through a Transaction Document that is filed as an exhibit to a report or other
filing made with the SEC; provided further, that such Buyer shall be consulted
by the Company in connection with any such filing, announcement, release or
other public disclosure prior to its release.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (j) Reserved.

     

    (k)  Corporate
Existence.  So long as any Buyer beneficially owns any Notes,
the Company shall maintain its corporate existence and shall not be party to any
Fundamental Transaction (as defined in the Notes) unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Notes.

     

    (l) Reservation of
Shares.  So long as any Buyer owns any Notes, the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance no less than 130% of the sum of the maximum number of shares
of Ordinary Shares issuable (the “Required Reserved Amount”)
upon conversion of the Notes (without taking into account any limitations on the
conversion of the Notes).  If at any time the number of shares of
Ordinary Shares authorized and reserved for issuance is not sufficient to meet
the Required Reserved Amount, the Company will promptly take all corporate
action necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling an extraordinary meeting of shareholders
to increase the Company’s authorized share capital in order to meet the
Company’s obligations under Section 3(c), obtaining shareholder approval of an
increase in such authorized share capital to ensure that the number of
authorized shares is sufficient to meet the Required Reserved Amount, and
soliciting the executive officers of the Company holding Ordinary Shares to vote
their shares in favor of such increase in authorized share capital.

     

    (m) Public
Information.  At any time during the period commencing from the
six (6) month anniversary of the Closing Date and ending at such time that all
of the Securities can be sold either pursuant to a registration statement, or if
a registration statement is not available for the resale of all of the
Securities, may be sold without the requirement for the Company to be in
compliance with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, if the Company shall fail for any reason to satisfy the
current public information requirement under Rule 144(c) (a “Public Information Failure”)
then, as partial relief for the damages to any holder of Securities by reason of
any such delay in or reduction of its ability to sell the Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each such holder an amount in cash equal to
one percent (1.0%) of the aggregate Purchase Price of the Securities held by
such holder on the day of a Public Information Failure and on every thirtieth
day (pro rated for periods totaling less than thirty days) thereafter until the
earlier of (i) the date such Public Information Failure is cured and (ii) such
time that such public information is no longer required pursuant to Rule
144(c).  The payments to which a holder shall be entitled pursuant to
this Section 4(m) are referred to herein as “Public Information Failure
Payments.”  Public Information Failure Payments shall be paid
on the earlier of (I) the last day of the calendar month during which such
Public Information Failure Payments are incurred
and (II) the third Business Day after the event or failure giving rise to the
Public Information Failure Payments is
cured.  In the event the Company fails to make Public Information
Failure Payments in
a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (n) Conduct of
Business.  For so long as any Buyers own Notes, the business of
the Company and its Subsidiaries shall not be conducted in violation of any law,
ordinance or regulation of any governmental entity, except where such violations
would not result, either individually or in the aggregate, in a Material Adverse
Effect.

     

    (o) Lock-Up.  The
Company shall not amend or waive any provision of any of the Lock-Up Agreements
except to extend the term of the lock-up period and shall enforce such Lock-Up
Agreements in accordance with their terms.

     

    (p) Closing
Documents.  On or prior to thirty (30) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Reed Smith LLP a complete closing set of the Transaction Documents,
Securities and any other document required to be delivered to any party pursuant
to Section 7 hereof or otherwise.

     

    (q) Buyer’s Trading
Activity.  Until the earlier of (i) the Maturity Date (as
defined in the Notes) and (ii) the date upon which such Buyer ceases to hold any
Notes, such Buyer or Buyer’s affiliate will not, directly or indirectly, engage
in any Short Sales with respect to the Company’s Ordinary Shares.

     

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

     

    (s)  Withholding.  All
payments to be made by the Company to the Buyers under this Agreement and the
Transaction Documents shall be made without withholding or deduction for or on
account of any present or future taxes, assessments, imposts, duties or other
governmental charge whatsoever (“Taxes”) unless the Company is
compelled by law to deduct or withhold such taxes, assessments, imposts, duties
or charges.  To the extent any such Taxes are required to be deducted
or withheld, the Company shall pay to the Buyers such additional amounts (“Additional Amounts”) as may be
necessary in order that the net amounts received by such Buyer after such
withholding or deduction (including any withholding or deduction in respect of
such Additional Amounts) shall equal the amounts that would have been received
if no withholding or deduction had been made.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              5.
      REGISTER;
      TRANSFER AGENT INSTRUCTIONS.

            

    

     

    (a) Register.  The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes, in which the Company shall record the
name and address of the Person in whose name the Notes have been issued
(including the name and address of each transferee), the principal amount of
Notes held by such Person and the number of Conversion Shares issuable upon
conversion of the Notes.  The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its
legal representatives.

     

    (b) Transfer Agent
Instructions.  The Company shall issue irrevocable instructions
to its transfer agent, and any subsequent transfer agent, to (i) update the
Company’s Register of Members and (ii) issue certificates or credit shares to
the applicable balance accounts at DTC, or deliver a physical certificate
evidencing such Securities to the applicable street address in the event that
such Securities are not eligible to be delivered to DTC, registered in the name
of each Buyer or its respective nominee(s), for the Conversion Shares issuable
upon conversion of the Notes in such amounts as specified from time to time by
each Buyer to the Company upon conversion of the Notes in the form of Exhibit C attached
hereto (the “Irrevocable
Transfer Agent Instructions”).  The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5(b), and stop transfer instructions to give effect to Section
2(f) hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other
Transaction Documents.  If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to (1) update
the Company’s Register of Members and (2) issue one or more certificates or
credit shares to the applicable balance accounts at DTC, or deliver a physical
certificate evidencing such Securities to the applicable street address in the
event that such Securities are not eligible to be delivered to DTC, in such name
and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment.  In the event that such sale, assignment or
transfer involves Conversion Shares sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent
shall update the Company’s Register of Members and issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend.  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a
Buyer.  Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5(b) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to
all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being
required.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              6.
      CONDITIONS TO
      THE COMPANY’S OBLIGATION TO
SELL.

            

    

     

    The
obligation of the Company hereunder to issue and sell the Notes to each Buyer at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice
thereof:

     

    (i) Such
Buyer shall have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.

     

    (ii) Such
Buyer shall have delivered to the Company the Purchase Price (less, in the case
of CNH, the amounts withheld pursuant to Section 4(g)), as evidenced by a
schedule setting forth such expenditures in a form reasonably acceptable to the
Company, for the Notes being purchased by such Buyer and each other Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

     

    (iii) The
representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date which shall be true and correct as of such specified date), and
such Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the Closing
Date.

     

    
      	
               
      

            	
              7.
      CONDITIONS TO
      EACH BUYER’S OBLIGATION TO
PURCHASE.

            

    

     

    The
obligation of each Buyer hereunder to purchase the Notes at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

     

    (i) The
Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Notes (in such principal amounts as such
Buyer shall request), being purchased by such Buyer at the Closing pursuant to
this Agreement.

     

    (ii) Such
Buyer shall have received the opinions from Company counsel, dated as of the
Closing Date, in substantially the form of: Exhibit D(i) with
respect to certain matters under the laws of the United States, Exhibit D(ii) with
respect to certain matters under the laws of the Cayman Islands, and Exhibit D(iii) with
respect to certain matters under the laws of the People’s Republic of China,
each as attached hereto.

     

    (iii)
Except for Heilongjiang Lanxi Sunrise Linen Textile Industry Co. Ltd., the
Company’s subsidiary organized under the laws of the People’s Republic of China
(as to which there is no certificate of formation and good standing, or the
equivalent thereof, available in the People’s Republic of China), the Company
shall have delivered to such Buyer a certificate evidencing the formation and
good standing of the Company and each of its operating Subsidiaries in such
corporation’s country or state of incorporation issued by the Secretary of State
(or comparable officer) of such state of incorporation as of a date within 10
days of the Closing Date.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (iv) The
Company shall have delivered to such Buyer a certificate evidencing the
Company’s qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business and is required to so qualify, as of a date within ten
(10) days of the Closing Date. The Company warrants that there are no such
qualifications or certificates required to be delivered to such Buyer pursuant
to this Section 7(iv).

     

    (v) The
Ordinary Shares (I) shall be listed on the Principal Market and (II) shall not
have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Closing Date, either (A) in
writing by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.

     

    (vi) The
Company shall have delivered to such Buyer a notarized and apostilled copy of
the Articles of Association within 10 days of the Closing Date.

     

    (vii) The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s Board of
Directors in a form reasonably acceptable to such Buyer, and (ii) the Articles
of Association, each as in effect at the Closing, in the form attached hereto as
Exhibit
E.

     

    (viii)
The representations and warranties of the Company shall be true and correct as
of the date when made and shall be true and correct in all material respects as
of the Closing Date (except, that any representation or warranty that is
qualified by materiality or Material Adverse Effect shall be true and correct in
all respects as of the Closing Date) as though made at that time (except for
representations and warranties that speak as of a specific date which shall be
true and correct as of such specified date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing
Date.  Such Buyer shall have received a certificate, executed by two
duly authorized officers of the Company, including the Chief Executive Officer
of the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit
F.

     

    (ix) The
Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Ordinary Shares outstanding as of a
date within five days of the Closing Date.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (x)
Except as disclosed in Schedule 7(x), the
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.

     

    (xi) All
officers and directors of the Company set forth on Schedule 7(xi) shall
have entered into a lock-up agreement with the Company in the form attached
hereto as Exhibit
G (the “Lock-Up
Agreements”).

     

    8. TERMINATION.  In
the event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party’s failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(g) above.

     

    
      	
               
      

            	
              9.
      MISCELLANEOUS.

            

    

     

    (a) Governing Law; Jurisdiction;
Jury Trial; Service of Process.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
Transaction Documents 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.  The choice of law in the State of New York as the law
governing this Agreement and the Transaction Documents is legal, valid and
binding under the laws of the Cayman Islands.  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.  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 WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. The Company has
appointed Corporation Service Company, 1180 Avenue of the Americas, Suite 210,
New York, NY 10036 as the Company’s
authorized agent (the “Authorized Agent”) upon whom
process may be served in any action arising out of or based on this Agreement,
the Transaction Documents, or the transactions contemplated hereby expressly
consents to the jurisdiction of any such court in respect of any such action,
and waives any other requirements of or objections to personal jurisdiction with
respect thereto. Such appointment shall be irrevocable. The Company represents
and warrants that the Authorized Agent has agreed to act as such agent for
service of process and agrees to take any and all action, including the filing
of any and all documents and instruments, that may be necessary to continue such
appointment in full force and effect as aforesaid. Service of process upon the
Authorized Agent shall be deemed, in every respect, effective service of process
upon the Company. A copy of any process served upon the Authorized Agent shall
be sent to the Company; provided, however, that failure
to send such copy shall have no bearing on whether effective service of process
upon the Company has been made.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (b) Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

     

    (c) Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

     

    (d) Severability.  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).

     

    (e) Entire Agreement;
Amendments.  This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters.  No provision of this
Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least fifty percent (50%) of the aggregate
amount of Registrable Securities issued and issuable hereunder and under the
Notes, and any amendment or waiver to this Agreement made in conformity with the
provisions of this Section 9(e) shall be binding on all Buyers and holders of
Securities.  No such amendment shall be effective to the extent that
it applies to less than all of the holders of the applicable Securities then
outstanding.  No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to the
Transaction Documents and holders of Notes as the case may be.  The
Company has not, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction
Documents.  Without limiting the foregoing, the Company confirms that,
except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company or
otherwise.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    (f) Notices.  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 or electronic mail (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) two Business Days after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same.  The addresses, facsimile numbers and electronic
mail addresses for such communications shall be:

     

     

    If to the
Company:

     

    China
Linen Textile Industry, Ltd.

    Chengdong
Street

    Lanxi
County, Heilongjiang Province 151500

    China

    Telephone:
+86 (455) 563-5885

    Facsimile:
+86 (451) 8230-9971

    E-mail:  gaoren@chinalinen.cc

    jodiewehner@chinalinen.cc

    Attention:
Gao Ren, Chief Executive Officer

     

     With
a copy (for informational purposes only) to:

     

    Loeb
& Loeb LLP

    345 Park
Avenue

    New York,
NY 10154

    Telephone:
(212) 407-4159

    Facsimile:
(212) 504-3013

    E-mail:  mnussbaum@loeb.com

    Attention:  Mitchell
Nussbaum, Esq.

    

    If to the
Transfer Agent:

    

    Island
Stock Transfer

    100
Second Avenue South, Suite 705S

    Saint
Petersburg, FL 33701

    Telephone:
(727) 289-0010 Ext. 266

    Facsimile:
(727) 483-5436

    E-mail:  oksana@islandstocktransfer.com

    Attention:
Oksana Savchenko

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    

    If to a
Buyer, to its address and facsimile number or electronic mail address set forth
on the Schedule of Buyers, with copies to such Buyer’s representatives as set
forth on the Schedule of Buyers,

     

    with a
copy (for informational purposes only) to:

     

    Reed
Smith

    599
Lexington Avenue

    New York,
New York  10022

    Telephone:
(212) 521-5400

    Facsimile:
(212) 521-5450

    E-mail:  ladillon@reedsmith.com

    Attention:
Lee Ann Dillon, Esq.

    

    or to
such other address and/or facsimile number and/or electronic mail address 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
or computer containing the time, date, recipient facsimile number or electronic
mail address and an image of the first page of such transmission or (C) provided
by an overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or electronic mail or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

     

    (g) Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Notes.  The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the
Notes).  A Buyer may assign some or all of its rights hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.

     

    (h) No Third Party
Beneficiaries.  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.

     

    (i) Survival.  Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4, 5 and 9 shall survive the Closing and the
delivery and exercise of Securities, as applicable.  Each Buyer shall
be responsible only for its own representations, warranties, agreements and
covenants hereunder.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

     

    (j) Further
Assurances.  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) Indemnification.  In
consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents.  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.  Except as otherwise set forth herein, the mechanics
and procedures with respect to the rights and obligations under this Section
9(k) shall be the same as those set forth in Section 6 of the Registration
Rights Agreement.  Notwithstanding anything in this Agreement or in
clause (iv) of Section 6(a) of the Registration Rights Agreement to the
contrary, if the Company shall have any indemnification obligations with respect
to any Indemnified Liabilities that resulted primarily from the willful
misconduct or gross negligence of one or more Indemnitees, then the Company
shall not be obligated to indemnify such Indemnitee for such Indemnified
Liabilities.

     

    (l) No Strict
Construction.  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.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (m) Remedies.  Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law.  Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.  Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge any
or all of its obligations under the Transaction Documents, any remedy at law may
prove to be inadequate relief to the Buyers.  The Company therefore
agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.

     

    (n) Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Buyer exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

     

    (o) Payment Set
Aside.  To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (p) Independent Nature of
Buyers’ Obligations and Rights.  The obligations of each Buyer
under any Transaction Document are several and not joint with the obligations of
any other Buyer, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under any Transaction
Document.  Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company shall not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  The Company
acknowledges and each Buyer confirms that it has independently participated in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors.  Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        	 	
                COMPANY:

                 
China Linen Textile Industry, LTD.	 
	 	 	 	 
	
              	
                By:
      

              	       
      	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        	 	BUYERS:	 
	 	 	[_____]	 
	 	 	 	 
	
              	
                By:
      

              	         	 
	 	 	[_____]	 
	 	 	 	 
	 	 	 	 

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
OF BUYERS

     

    
      	
              (1)

            	 	
              (2)

            	 	
              (3)

            	 	
              (4)

            	 	
              (5)

            
	 	 	 	 	 	 	 	 	 
	
              
                 

                Buyer

              

            	 	
              
                Address,
      Facsimile Number

                and
      E-mail Address

              

            	 	
              
                Aggregate

                Principal

                Amount
      of

                 Notes

              

            	 	
              
                Purchase
      Price

              

            	 	
              
                Legal
      Representative’s

                Address,
      Facsimile Number and E-mail Address

              

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
              CNH
      Diversified Opportunities Master Account, L.P.

            	 	
              [Contact Information
      Redacted]

            	 	
              $300,000.00

            	 	
              $300,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            
	 	 	 	 	 	 	 	 	 
	
              AQR
      DELTA Sapphire Fund, L.P.

            	 	
              [Contact Information
      Redacted]

            	 	
              $300,000.00

            	 	
              $300,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            
	 	 	 	 	 	 	 	 	 
	
              AQR
      Funds – AQR Diversified Arbitrage Fund

            	 	
              [Contact Information
      Redacted]

            	 	
              $1,850,000.00

            	 	
              $1,850,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            
	 	 	 	 	 	 	 	 	 
	
              AQR
      Opportunistic Premium Offshore Fund, L.P.

            	 	
              [Contact Information
      Redacted]

            	 	
              $450,000.00

            	 	
              $450,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            
	 	 	 	 	 	 	 	 	 
	
              Advanced
      Series Trust – AST Academic Services Portfolio

            	 	
              [Contact Information
      Redacted]

            	 	
              $200,000.00

            	 	
              $200,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (1)

            	 	
              (2)

            	 	
              (3)

            	 	
              (4)

            	 	
              (5)

            
	 	 	 	 	 	 	 	 	 
	
              
                 

                Buyer

              

            	 	
              
                Address,
      Facsimile Number

                and
      E-mail Address

              

            	 	
              
                Aggregate

                Principal

                Amount
      of

                 Notes

              

            	 	
              
                Purchase
      Price

              

            	 	
              
                Legal
      Representative’s

                Address,
      Facsimile Number and E-mail
Address

              

            

    

    
      	
              AQR
      DELTA Master Account, L.P.

            	 	
              [Contact Information
      Redacted]

            	 	
              $1,800,000.00

            	 	
              $1,800,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            
	 	 	 	 	 	 	 	 	 
	
              AQR
      Absolute Return Master Account, L.P.

            	 	
              [Contact Information
      Redacted]

            	 	
              $100,000.00

            	 	
              $100,000.00

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            
	 	 	 	 	 	 	 	 	 
	
              Periscope
      Partners LP

            	 	
              [Contact Information
      Redacted]

            	 	
              $125,000.00

            	 	
              $125,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Stinson
      Management Company

            	 	
              [Contact Information
      Redacted]

            	 	
              $300,000.00

            	 	
              $300,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Nextview
      Capital, LP

            	 	
              [Contact Information
      Redacted]

            	 	
              $650,000.00

            	 	
              $650,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Wei
      Li

            	 	
              [Contact Information
      Redacted]

            	 	
              $50,000.00

            	 	
              $50,000.00

            	 	 
      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (1)

            	 	
              (2)

            	 	
              (3)

            	 	
              (4)

            	 	
              (5)

            
	 	 	 	 	 	 	 	 	 
	
              
                 

                Buyer

              

            	 	
              
                Address,
      Facsimile Number

                and
      E-mail Address

              

            	 	
              
                Aggregate

                Principal

                Amount
      of

                 Notes

              

            	 	
              
                Purchase
      Price

              

            	 	
              
                Legal
      Representative’s

                Address,
      Facsimile Number and E-mail
Address

              

            

    

    
      	
              Cranshire
      Capital LP

            	 	
              [Contact Information
      Redacted]

            	 	
              $50,000.00

            	 	
              $50,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Gibralt
      US, Inc.

            	 	
              [Contact Information
      Redacted]

            	 	
              $250,000.00

            	 	
              $250,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Iroquois
      Master Fund Ltd.

            	 	
              [Contact Information
      Redacted]

            	 	
              $50,000.00

            	 	
              $50,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Pacific
      Capital Management LLC

            	 	
              [Contact Information
      Redacted]

            	 	
              $300,000.00

            	 	
              $300,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Warberg
      Opportunistic Trading Fund LP

            	 	
              [Contact Information
      Redacted]

            	 	
              $50,000.00

            	 	
              $50,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              RL
      Capital Partners, LP

            	 	
              [Contact Information
      Redacted]

            	 	
              $50,000.00

            	 	
              $50,000.00

            	 	 
      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (1)

            	 	
              (2)

            	 	
              (3)

            	 	
              (4)

            	 	
              (5)

            
	 	 	 	 	 	 	 	 	 
	
              
                 

                Buyer

              

            	 	
              
                Address,
      Facsimile Number

                and
      E-mail Address

              

            	 	
              
                Aggregate

                Principal

                Amount
      of

                 Notes

              

            	 	
              
                Purchase
      Price

              

            	 	
              
                Legal
      Representative’s

                Address,
      Facsimile Number and E-mail
Address

              

            

    

    
      	
              Ronald
      Lazar

            	 	
              [Contact Information
      Redacted]

            	 	
              $25,000.00

            	 	
              $25,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Anthony
      Polak

            	 	
              [Contact Information
      Redacted]

            	 	
              $50,000.00

            	 	
              $50,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Anthony
      Polak “S”

            	 	
              [Contact Information
      Redacted]

            	 	
              $25,000.00

            	 	
              $25,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Jamie
      Polak

            	 	
              [Contact Information
      Redacted]

            	 	
              $25,000.00

            	 	
              $25,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Domaco
      Venture Capital Fund

            	 	
              [Contact Information
      Redacted]

            	 	
              $25,000.00

            	 	
              $25,000.00

            	 	 
      
	 	 	 	 	 	 	 	 	 
	
              Maple
      Day Limited

            	 	
              [Contact Information
      Redacted]

            	 	
              $20,000.00

            	 	
              $20,000.00

            	 	 
      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    EXHIBITS

     

    Exhibit A
Form of Notes

    Exhibit B
Form of Registration Rights Agreement

    Exhibit C
Form of Irrevocable Transfer Agent Instructions

    Exhibit
D(i) Form of Company Counsel Opinion (United States)

    Exhibit
D(ii) Form of Company Counsel Opinion (Cayman Islands)

    Exhibit
D(iii) Form of Company Counsel Opinion (People’s Republic of China)

    Exhibit E
Form of Secretary’s Certificate

    Exhibit F
Form of Officer’s Certificate

    Exhibit G
Form of Lock-Up Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULES

    

    Schedule
3(d) – No Conflicts

    Schedule
3(e) - Consents

    Schedule
3(k) - SEC Documents

    Schedule
3(l) - Absence of Certain Changes

    Schedule
3(n) - Conduct of Business; Regulatory Permits

    Schedule
3(p) - Sarbanes-Oxley Act

    Schedule
3(r) - Equity Capitalization

    Schedule
3(s) - Indebtedness and Other Contracts

    Schedule
3(x)(i)(a) - Registered and Material Owned Intellectual Property and
Contracts

    Schedule
3(x)(ii) - Abandoned, Expired and Terminated Owned Intellectual
Property

    Schedule
7(x) – Governmental, Regulatory or Third-Party Consents and
Approvals

    Schedule
7(xi) - Parties to Lock-Up Agreements

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Schedules

    

    to

    

    Securities
Purchase Agreement

    

    by
and among

    

    China
Linen Textile Industry, Ltd. (the “Company”)

    

    and

    

    the
Investors Listed on the Schedule of Buyers thereto (the
“Investors”)

    

    dated
November 3, 2010

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Each
capitalized term used herein and not otherwise defined shall have the meaning
set forth in that certain Securities Purchase Agreement, dated November 3, 2010,
by and among the Company and the Investors.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(d) – No Conflicts

    

    As
disclosed in the “Risk Factors” section of the SEC Documents, it is unclear
whether the approval of the China Securities Regulatory Commission and Ministry
of Commerce is necessary or required in connection with the offering of any
securities or other transaction of the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(e) – Consents

    

    The
Company must timely file its Annual Report on Form 20-F for the year ended
December 31, 2010 to avoid a third late filing in a 24-month period under FINRA
Rule 6530, which would result in the Company’s Ordinary Shares being removed
from the OTC Bulletin Board.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(k) – SEC Documents

    

    1.  The
Company’s Annual Report on Form 20-F for the year ended December 31, 2008 and
the Company’s Shell Company Report on Form 20-F, as amended, filed with the
Securities and Exchange Commission (“SEC”) on July 14, 2009, which additional
filings and related correspondence were made as indicated in the following
table:

    

    
      	
              Date
      of Receipt of Comment Letter from SEC

            	 	
              Date
      of Filing Response Letter with SEC (See SEC Filings)

            	 	
              Date
      of Filing Form 20-F/A (See SEC Filings)

            
	
              September
      1, 2009

            	 	
              January
      28, 2010

            	 	
              -

            
	
              January
      14, 2010

            	 	
              -

            	 	
              -

            
	
              February
      19, 2010

            	 	
              March
      17, 2010 and April 26, 2010

            	 	
              April
      27, 2010

            
	
              March
      25, 2010

            	 	
              April
      14, 2010

            	 	
              April
      14, 2010

            
	
              May
      4, 2010

            	 	
              July
      9, 2010

            	 	
              June
      9, 2010 and June 25, 2010

            
	
              July
      1, 2010

            	 	
              July
      9, 2010

            	 	
              -

            
	
              July
      23, 2010

            	 	
              July
      26, 2010

            	 	
              -

            
	
              July
      30, 2010

            	 	
              -

            	 	
              -

            

    

    

    2.  The
Company’s Annual Report on Form 20-F for the year ended December 31, 2009 was
not timely filed upon its filing on August 18, 2010.

    

    3.  Mr.
Gao Boming is the holder of 1,000,000 Ordinary Shares and is the son of Mr. Gao
Ren, the Company’s chief executive officer.  Mr. Gao Jun is the holder
of 564,024 Ordinary Shares and is the brother of Mr. Gao Ren.  These
relationships and share ownership have not been previously disclosed in the SEC
Documents.

    

    4.  On
February 24, 2010, the Company entered into a Loan Agreement with Lanxi Branch,
Agricultural Bank of China in the aggregate principal amount of approximately
$2.2 million, which loan is due and payable on February 23, 2011 (“Loan
Agreement”).  The Loan Agreement has not been filed with the
SEC.  In the Company’s Current Report on Form 6-K filed with the SEC
on August 26, 2010, the Loan Agreement was correctly described in Note 7 to the
financial statements to have a loan  period of 2/24/2010 –
2/23/2011.  In the Company’s Current Report on Form 6-K filed with the
SEC on August 30, 2010, the Loan Agreement was incorrectly described in Note 7
to the financial statements to have a loan period of 2/22/2010-3/29/2011, and
should instead have stated the loan period of 2/24/2010 –
2/23/2011.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(l) - Absence of Certain Changes

    

    In the
third quarter of 2010, the Company had capital expenditure of approximately
$200,000 in connection with the development of a yarn-dying
project.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(n) – Conduct of Business; Regulatory Permits

    

    1.  The
Company is not yet in compliance with Section 62 of its Articles of Association
as it relates to at least two directors of the Company being neither an officer
nor an employee of the Company.

    

    2.  The
Company is not yet in compliance with Section 72 of its Articles of Association,
which states that the Company’s board of directors shall appoint an audit
committee that consists of a minimum of three directors, the majority of whom
shall not also be officers or employees of the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(p) – Sarbanes-Oxley Act

    

    As of
December 31, 2008, the Company had an outstanding loan balance of $319,326 due
from Mr. Gao Ren, its chief executive officer, to the Company, which loan was
repaid in full in September 2009.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Schedule
3(r) - Equity Capitalization

    

    1.  On
May 5, 2010, the Company entered into an Investor Relations Agreement (“Investor
Relations Agreement”) with Hayden Communications International, Inc. (“HCI”)
pursuant to which it agreed to issue 48,000 Ordinary Shares (“Initial Issuance”)
to HCI in connection with the execution of the agreement and up to an additional
32,000 Ordinary Shares (“Performance Shares”) upon the achievement of five
performance targets by HCI.

    

    2.  On
October 13, 2010, the Company entered into an amendment to the Investor
Relations Agreement with HCI pursuant to which the Initial Issuance shall be
issued on or before November 1, 2010, and the number of Performance Shares
reserved for issuance has been reduced to 19,200 as a result of two performance
targets not being met by HCI.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(s) – Indebtedness and Other Contracts

    

    1.  On
March 22, 2010, Heilongjiang Lanxi Sunrise Linen Textile Industry Co. Ltd.
(“Lanxi Sunrise”) entered into a Loan Agreement with Lanxi Branch, Agricultural
Bank of China (“Bank of China”) in the principal amount of RMB9,000,000, and
with a maturity date of March 21, 2011.

    

    2.  On
February 24, 2010, Lanxi Sunrise entered into a Loan Agreement with Bank of
China in the principal amount of RMB15,000,000, and with a maturity date of
February 23, 2011.

    

    3.  Pursuant
to the Maximum Pledge Agreement by and between Lanxi Sunrise and Bank of China,
dated March 21, 2008, with respect to transactions up to a maximum of
RMB30,000,000 between Lanxi Sunrise and Bank of China entered into between March
21, 2008 and March 21, 2011, Lanxi Sunrise has pledged to Bank of China certain
of its real estate property and machinery that have an aggregate provisional
assessed value of RMB 48,287,900, and Lanxi Sunrise is a guarantor for such
transactions.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(x)(i)(a) - Registered and Material Owned Intellectual Property and
Contracts

    

    1.  The
Company has a registered trademark “Fairy Deer.”

    

    2.  The
Company has submitted patent application #201010267584.0.

    

    3.  The
Company has submitted patent application #201010267582.1.

    

    4.  The
Company has submitted patent application #201010267594.4.

    

    5.  The
Company has submitted patent application #201020511029.3.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
3(x)(ii) – Abandoned, Expired and Terminated Owned Intellectual
Property

    

    The
Company’s registered trademark “Fairy Deer” is renewed annually.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
7(x) – Governmental, Regulatory or Third-Party Consents and
Approvals

    

    As
disclosed in the “Risk Factors” section of the SEC Documents, it is unclear
whether the approval of the China Securities Regulatory Commission and Ministry
of Commerce is necessary or required in connection with the offering of any
securities or other transaction of the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
7(xi) - Parties to Lock-Up Agreements

    

    1.  Creation
International Development Investments Limited

    

    2.  Gao
Ren

    

    3.  Ma
Yongfeng

    

    4.  Teng
Yunhai

    

    5.  Li
Songyun

    

    6.  Zhao
Chunfu

    

    7.  Jodie
Zheng Wehner

    

    8.  Stephen
Monticelli

    

    9.  Gao
Boming

    

    10.  Gao
JunUnassociated Document

    
           EXECUTION
VERSION

     

    REGISTRATION
RIGHTS AGREEMENT

     

    REGISTRATION RIGHTS AGREEMENT
(this “Agreement”),
dated as of November 3, 2010, by and among China Linen Textile Industry, Ltd.,
with headquarters located at Chengdong Street, Lanxi County, Heilongjiang
Province 151500, China (the “Company”), and the investors
listed on the Schedule of Buyers attached hereto (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 of the Securities Purchase Agreement, to issue and sell to each Buyer
senior, unsecured convertible notes of the Company (the “Notes”), which will, among
other things, be convertible into the Company’s ordinary shares, par value
$0.002 per share (the “Ordinary
Shares”) (as converted, collectively, the “Conversion
Shares”).

     

    B.           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 Effective Date”
means the date the Additional Registration Statement is declared effective by
the SEC.

     

    (b)           “Additional Effectiveness
Deadline” means (i) in the event that the Additional Registration
Statement is not subject to a full review by the SEC, the date which is one
hundred thirty five (135) calendar days after the earlier of the Additional
Filing Date and the Additional Filing Deadline or (ii) in the event that the
Additional Registration Statement is subject to a full review by the SEC, one
hundred sixty five (165) calendar days after the after the earlier of the
Additional Filing Date and the Additional Filing Deadline.

     

    (c)           “Additional Filing Date” means
the date on which the Additional Registration Statement is filed with the
SEC.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d)           “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.

     

    (e)           “Additional Registrable
Securities” means, (i) any Cutback Shares not previously included on a
Registration Statement and (ii) any capital stock of the Company issued or
issuable with respect to the Notes, the Conversion Shares, or the Cutback
Shares, as applicable, 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 Notes.

     

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

     

    (g)           “Additional Required Registration
Amount” means (I) any Cutback Shares not previously included on a
Registration Statement, all subject to adjustment as provided in Section 2(f) or
(II) such other amount as may be required by the staff of the SEC pursuant to
Rule 415, without regard to any limitations on conversion and/or redemption of
the Notes.

     

    (h)           “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.

     

    (i)           “Closing Date” shall have the
meaning set forth in the Securities Purchase Agreement.

     

    (j)           “Cutback Shares” means any of
the Initial Required Registration Amount or the Additional 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
Ordinary Shares of the Company permitted to be registered by the staff of the
SEC pursuant to Rule 415.  For the purpose of determining the Cutback
Shares, in order to determine any applicable Required Registration Amount, the
Conversion Shares shall be excluded on a pro rata basis until all of the
Conversion Shares have been excluded.

     

    (k)           “Effective Date” means the
Initial Effective Date and the Additional Effective Date, as
applicable.

     

    (l)           “Effectiveness Deadline” means
the Initial Effectiveness Deadline and the Additional Effectiveness Deadline, as
applicable.

     

    (m)           “Filing Date” means the date on
which the Initial Registration Statement and the Additional Registration
Statement, as applicable, is filed with the SEC.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (n)           “Filing Deadline” means the
Initial Filing Deadline and the Additional Filing Deadline, as
applicable.

     

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

     

    (p)           “Initial Effectiveness
Deadline” means the date which is (i) in the event that the Initial
Registration Statement is not subject to a full review by the SEC, ninety (90)
calendar days after the Closing Date or (ii) in the event that the Initial
Registration Statement is subject to a full review by the SEC, one hundred
ninety-five (195) calendar days after the Closing Date.

     

    (q)           “Initial Filing Deadline” means
the date which is sixty (60) calendar days after the Closing Date.

     

    (r)           “Initial Registrable
Securities” means (i) the Conversion Shares issued or issuable upon
conversion and/or redemption of the Notes, and (ii) any capital stock of the
Company issued or issuable with respect to the Notes or the Conversion 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 Notes.

     

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

     

    (t)           “Initial Required Registration
Amount” means 130% of the sum of (i) the number of Conversion Shares
issued and issuable pursuant to the Notes as of the Trading Day immediately
preceding the applicable date of determination and all subject to adjustment as
provided in Section 2(f), without regard to any limitations on conversion and/or
redemption of the Notes.

     

    (u)           “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.

     

    (v)           “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.

     

    (w)           “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.

     

    (x)           “Registrable Securities” means
the Initial Registrable Securities and the Additional Registrable
Securities.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (y)           “Registration Statement” means
the Initial Registration Statement and the Additional Registration Statement, as
applicable.

     

    (z)           “Required Holders” means the
holders of at least a majority of the Registrable Securities.

     

    (aa)           “Required Registration Amount”
means either the Initial Required Registration Amount or the Additional Required
Registration Amount, as applicable.

     

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

     

    (cc)           “SEC” means the United States
Securities and Exchange Commission.

     

    (dd)           “Trading Day” means any day on
which the Ordinary Shares are traded on the Principal Market, or, if the
Principal Market (as defined in the Securities Purchase Agreement) is not the
principal trading market for the Ordinary Shares, then on the principal
securities exchange or securities market on which the Ordinary Shares are then
traded; provided that “Trading Day” shall not include any day on which the
Ordinary Shares are scheduled to trade on such exchange or market for less than
4.5 hours or any day that the Ordinary Shares are suspended from trading during
the final hour of trading on such exchange or market (or if such exchange or
market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York
time).

     

    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 F-3 covering the resale of
all of the Initial Registrable Securities.  In the event that Form F-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 Ordinary Shares equal to the
Initial Required Registration Amount determined as of the date the Initial
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 2(f).  The Initial Registration Statement shall
contain (except if otherwise directed by the Required Holders) the “Plan of Distribution”
and “Selling
Shareholders” 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
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.

     

    
      
        
        

      

      
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    (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 F-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 F-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 Ordinary Shares equal to the
Additional Required Registration Amount determined as of the date such
Additional Registration Statement is initially filed with the SEC, subject
to adjustment as provided in Section 2(f).  Each Additional
Registration Statement shall contain (except if otherwise directed by the
Required Holders) the “Plan of Distribution”
and “Selling
Shareholders” 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 no event later than the Additional Effectiveness
Deadline.  By 9:30 a.m. New York time on the 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 or decrease 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 or decrease 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 Ordinary Shares 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 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 Reed Smith 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
F-3.  In the event that Form F-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 F-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 F-3 covering the Registrable Securities has been declared
effective by the SEC.

     

    
      
        
        

      

      
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    (f)           Sufficient Number of Shares
Registered.  In the event the number of shares available under
a Registration Statement filed pursuant to Section 2(a) or Section 2(b) 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(c), 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 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 Ordinary Shares 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 Notes and such calculation shall assume that the Notes are then convertible
in full into Ordinary Shares at the then prevailing Conversion Rate (as defined
in the Notes) are then exercisable in full into Ordinary Shares.

     

    (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 applicable Filing Deadline (a “Filing Failure”) or (B) not
declared effective by the SEC on or before the applicable Effectiveness
Deadline, (an “Effectiveness
Failure”) or
(ii) on any day after the applicable 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 the suspension of trading or any other limitation
imposed by an Eligible Market (as defined below), a failure to keep such
Registration Statement effective, a failure to disclose such information as is
necessary for sales to be made pursuant to such Registration Statement, a
failure to register a sufficient number of Ordinary Shares or a failure to
maintain the listing of the Ordinary Shares) (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 Ordinary Shares (which remedy
shall not be exclusive of any other remedies available at law or in equity,
including, without limitation, specific performance), the Company shall pay to
each holder of Registrable Securities relating to such Registration Statement an
amount in cash equal to one percent (1.0%) of the aggregate Purchase Price (as
such term is defined in the Securities Purchase Agreement) of the Registrable
Securities held by such Investor 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 the thirtieth day after the date of a
Filing Failure and every thirtieth day thereafter (pro rated for periods
totaling less than thirty days) until such Filing Failure is cured; (v) on the
thirtieth day after the date of an Effectiveness Failure and every thirtieth day
thereafter (pro rated for periods totaling less than thirty days) until such
Effectiveness Failure is cured; and (vi) on the thirtieth day after the date of
a Maintenance Failure and every thirtieth day thereafter (pro rated for periods
totaling less than thirty days) until such Maintenance Failure is cured;
provided, however, that for the purposes of this Section 2(g), no Filing
Failure, Effectiveness Failure or Maintenance Failure shall exist solely as a
result of the failure to register Cutback Shares on the Registration Statement
as a direct result of a specific comment from the SEC on the Registration
Statement disallowing the characterization of the sale of the Cutback Shares as
a secondary offering pursuant to Rule 415 if (A) the Company otherwise satisfies
its obligations under this Agreement and includes the maximum number of
Registrable Securities on the Registration Statement that may be included in
accordance with the SEC’s comment; and (B) at all times until any Registrable
Securities excluded from the Registration Statement are registered, there is
current public information, as defined in Rule 144(c), regarding the
Company.  The payments to which a holder shall be entitled pursuant to
this Section 2(g) 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 percent (1.5%) per month (prorated for
partial months) until paid in full.

     

    
      
        
        

      

      
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    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), 2(f) or 2(g), 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 which is one year after the conversion of all the Notes, or (ii) the
date which is two years from the Closing Date (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.

     

    
      
        
        

      

      
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    (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 the earlier of (i) 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 Statement, and (ii) the end of the
Registration Period.  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 20-F 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 five (5) 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 20-F, Current Reports on Form 6-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, ten (10) copies 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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (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 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 Legal Counsel and
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 Legal Counsel and 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 ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request).  The Company
shall also promptly notify Legal Counsel and 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 Legal
Counsel and each Investor by (i) facsimile or electronic mail and (ii) by
overnight courier on the same day of such effectiveness), (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.  By 9:30 a.m. New York City time on the date following
the date any post-effective amendment has become effective, 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 Registration
Statement.

     

    
      
        
        

      

      
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    (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 Legal Counsel and 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 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) 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.

     

    
      
        
        

      

      
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    (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 (A) each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (B) the OTC
Bulletin Board, or (ii) secure the inclusion for quotation of all of the
Registrable Securities on The NASDAQ Global Market or (iii) if, despite the
Company’s best efforts, the Company is unsuccessful in satisfying the preceding
clauses (i) or (ii), to secure the inclusion for quotation on, The New York
Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Capital Market or
the NYSE Amex (the “Eligible
Markets” and, each, individually, an “Eligible 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. 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.

     

    
      
        
        

      

      
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    (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 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 twenty (20) consecutive days and during any
three hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of forty-five (45) 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 Ordinary Shares 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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (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, the Principal
Market (as defined in the Securities Purchase Agreement) or any 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.

     

    (t)           The
Company shall not file any other registration statements until, or grant
registration rights to any Person that can be exercised prior to the time that,
all Registrable Securities are registered pursuant to a Registration Statement
that is declared effective by the SEC, provided that this Section 3(t) shall not
prohibit the Company from filing amendments (pre-effective and post-effective)
to registration statements filed prior to the date of this Agreement; provided
that no such amendment shall increase the number of securities registered on a
registration statement. Neither the Company nor
any of its Subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its Subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities, that would have the
effect of impairing the rights granted to the Buyers in this Agreement or
otherwise conflicts with the provisions hereof.

     

    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 any registration pursuant to 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.

     

    (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 copies of the
supplemented or amended prospectus as 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 Ordinary Shares 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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (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 $15,000 for
each such registration, filing or qualification.

     

    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,
partners, members, 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, 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

        
          

        

      

      
        
        

      

    

     

    (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 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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (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 Indemnified Person or Indemnified Party, as applicable, 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 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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    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:

     

    (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.  It being
acknowledged and agreed that the filing and posting of such reports on the SEC’s
EDGAR system shall satisfy this obligation; 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.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    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 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 or electronic mail (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) two Business Days after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same.  The addresses, facsimile
numbers and electronic mail addresses for such communications shall
be:

     

    If to the
Company:

     

    
      China
Linen Textile Industry, Ltd.

      Chengdong
Street

      Lanxi
County, Heilongjiang Province 151500, China

    

    Telephone: +86
(455) 563-5885

    Facsimile:   +86
(451) 8230-9971

    E-mail:        gaoren@chinalinen.cc

    Attention: Gao
Ren, Chief Executive Officer

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    

     

    With a
copy (for informational purposes only) to:

    

    Loeb
& Loeb LLP

    345 Park
Avenue

    New York,
NY 10154

    Telephone: (212)
407-4159

    Facsimile:   (212)
504-3013

    E-mail:        mnussbaum@loeb.com

    Attention: Mitchell
Nussbaum, Esq.

    

    If to the
Transfer Agent:

    

    Island
Stock Transfer

    100
Second Avenue South, Suite 705S

    Saint
Petersburg, FL 33701

    Telephone: (727)
289-0010 Ext. 266

    Facsimile:   (727)
483-5436

    E-mail:        oksana@islandstocktransfer.com

    Attention: Oksana
Savchenko

     

    If to
Legal Counsel:

    

    Reed
Smith LLP

    599
Lexington Avenue

    New York,
New York  10022

    Telephone: (212)
521-5400

    Facsimile:   (212)
521-5450

    E-mail:        ladillon@reedsmith.com

    Attention: Lee
Ann Dillon, Esq.

     

    If to a
Buyer, to its address, facsimile number and electronic mail address 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 electronic mail address 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 or computer
containing the time, date, recipient facsimile number or electronic mail address
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 electronic mail 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.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (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.  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.

     

    (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.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (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 or electronic mail 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, determined as if all of the outstanding Notes then held
by the Investors have been converted for Registrable Securities without regard
to any limitations on conversion of the Notes.

     

    (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

        
          

        

      

      
        
        

      

    

     

    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
      Linen Textile Industry, LTD.

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Name: 	 
	 	 	Title: 	 

      

    

     

    
      
        
        

      

      
        
          [Signature
Page to Registration Rights Agreement]

        

        
          

        

      

      
        
        

      

    

     

    

     

     

    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:

              	 
	 	
              	 
	 	[_____]	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	
                [_____]

              	 

      

    

     

    
      
        
        

      

      
        
          [Signature
Page to Registration Rights Agreement]

        

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
OF BUYERS

     

    
      	
               

              Buyer

            	 	
              Buyer
      Address, Facsimile 
Number and E-mail
      Address

            	 	
              Buyer's
      Representative's Address,

              Facsimile Number and E-mail
      Address

            	 
	
              CNH
      DIVERSIFIED 
OPPORTUNITIES MASTER 
ACCOUNT, L.P.

            	 	[Contact Information Redacted]   	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            	 
	
              AQR
      DELTA SAPPHIRE 
FUND, L.P.

            	 	[Contact Information Redacted]	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            	 
	
              AQR
      FUNDS - AQR 
DIVERSIFIED ARBITRAGE 
FUND

            	 	[Contact Information Redacted]	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            	 
	
              AQR
      OPPORTUNISTIC 
PREMIUM OFFSHORE 
FUND, L.P.

               

            	 	
              [Contact Information
      Redacted]

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            	 
	
              ADVANCED
      SERIES TRUST – AST 
ACADEMIC SERVICES 
PORTFOLIO

               

            	 	
              [Contact Information
      Redacted]

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            	 
	
              AQR
      DELTA MASTER 
ACCOUNT, L.P.

               

            	 	
              [Contact Information
      Redacted]

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

               

            	 
	
              AQR
      ABSOLUTE RETURN 
MASTER ACCOUNT, L.P.

               

            	 	
              [Contact Information
      Redacted]

            	 	
              Reed
      Smith LLP

              599
      Lexington Avenue

              New
      York, New York  10022

              Attention:  Lee
      Ann Dillon, Esq.

              E-mail:
      ladillon@reedsmith.com

              Facsimile:
      (212) 521-5400

              Telephone:  (212)
      521-5450

            	 

    

     

    
      
        
        

      

      
        
          [Signature
Page to Registration Rights Agreement]

        

        
          

        

      

      
        
        

      

    

     

    
      	
               

              Buyer

            	 	
              Buyer
      Address, Facsimile 
Number and E-mail
      Address

            	 	
              Buyer's
      Representative's Address,

              Facsimile Number and E-mail
      Address

            	 

    

    
      	
              PERISCOPE
      PARTNERS LP

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              STINSON
      MANAGEMENT 
COMPANY

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              NEXTVIEW
      CAPITAL, LP

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              WEI
      LI

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              CRANSHIRE
      CAPITAL LP

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              GIBRALT
      US, INC.

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              IROQUOIS
      MASTER FUND LTD.

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              PACIFIC
      CAPITAL 
MANAGEMENT LLC

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               

              Buyer

            	 	
              Buyer
      Address, Facsimile 
Number and E-mail
      Address

            	 	
              Buyer's
      Representative's Address,

              Facsimile Number and E-mail
      Address

            	 

    

    
      	
              WARBERG
      OPPORTUNISTIC 
TRADING FUND LP

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              RL
      CAPITAL PARTNERS, LP

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              RONALD
      LAZAR

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              ANTHONY
      POLAK

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              ANTHONY
      POLAK “S”

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              JAMIE
      POLAK

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              DOMACO
      VENTURE CAPITAL 
FUND

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 
	
              MAPLE
      DAY LIMITED

            	 	
              [Contact Information
      Redacted]

            	 	 
      	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    EXHIBIT
A

     

    FORM
OF NOTICE OF EFFECTIVENESS

    OF
REGISTRATION STATEMENT

    

    [                                           ]

    [                                           ]

    [                                           ]

    

    Attention:  [                  ]

     

    Re:           China Linen
Textile Industry, Ltd.

     

    Ladies
and Gentlemen:

     

    [We
are][I am] counsel to China Linen Textile Industry, Ltd., a Cayman Islands
limited company (the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of November 3, 2010 (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 senior, unsecured convertible
notes (the “Notes”)
convertible into shares of the Company’s ordinary shares, par value $0.002 per
share (the “Ordinary
Shares”).  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 resale of the Registrable Securities (as defined in the
Registration Rights Agreement), including the Ordinary Shares issuable upon
conversion of the Notes under the Securities Act of 1933, as amended (the “1933 Act”).  In
connection with the Company’s obligations under the Registration Rights
Agreement, on ____________ ___, 201_, the Company filed a Registration Statement
on Form F-3 (File No. 333-_____________) (the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”) relating to the resale
of the Registrable Securities which names each of the Holders as a selling
shareholder thereunder.

     

    In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us 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
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 Ordinary Shares
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 reissuance of Ordinary Shares to the Holders in
connection with a resale of such Ordinary Shares, as contemplated by the Plan of
Distribution set forth in the Registration Statement and the Company’s
Irrevocable Transfer Agent Instructions dated November 3,
2010.

    
    

     

    
      	 	
              Very
      truly yours,

            
	 	
               

            
	 	
              [ISSUER’S COUNSEL]

            

    

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    
      	 	
              By:
      _____________________

            
	 	 
	
              CC:           [LIST NAMES OF
      HOLDERS]

            	 

    

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

       

    

    EXHIBIT
B

    SELLING
SHAREHOLDERS

     

    The
ordinary shares being offered by the selling shareholders are those issuable to
the selling shareholders upon conversion of the convertible
notes.  For additional information regarding the issuance of those
convertible notes, see “Private Placement of Convertible Notes”
above.  We are registering the ordinary shares in order to permit the
selling shareholders to offer the shares for resale from time to
time.  Except for the ownership of the convertible notes issued
pursuant to the Securities Purchase Agreement, the selling shareholders have not
had any material relationship with us within the past three years.

     

    The table
below lists the selling shareholders and other information regarding the
beneficial ownership of the ordinary shares by each of the selling
shareholders.  The second column lists the number of ordinary shares
beneficially owned by each selling shareholder, based on its ownership of the
convertible notes, as of ________, 2010, assuming conversion of all convertible
notes held by the selling shareholders on that date, without regard to any
limitations on conversions.

     

    The third
column lists the ordinary shares being offered by this prospectus by the selling
shareholders.

     

    In
accordance with the terms of a registration rights agreement with the selling
shareholders, this prospectus generally covers the resale of at least 130% of
the sum of number of ordinary shares issuable upon conversion and/or of the
convertible notes 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 notes 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 shareholders pursuant to this
prospectus.

     

    Under the
terms of the convertible notes, a selling shareholder may not convert the
convertible notes to the extent such conversion would cause such selling
shareholder, together with its affiliates, to beneficially own a number of
ordinary shares which would exceed 4.99% of our then outstanding ordinary shares
following such conversion, excluding for purposes of such determination ordinary
shares issuable upon conversion of the convertible notes which have not been
converted.  The number of shares in the second column does not reflect
this limitation.  The selling shareholders may sell all, some or none
of their shares in this offering.  See “Plan of
Distribution.”

     

    
      
        
        

      

      
        Annex
I-1

        
          

        

      

      
        
        

      

    

     

    

     

    
      	
               

               

              Name of Selling Shareholder

            	 	
              Number of Ordinary Shares 
Owned Prior to
      Offering

            	 	 	
              Maximum Number of 
Ordinary Shares to be Sold
      
Pursuant to this Prospectus

            	 	 	
              Number of Ordinary 
Shares Owned After
      
Offering

            	 
	
              CNH
      Diversified Opportunities Master Account, L.P.

            	 	 	
            	 	 	 	 	 	 	 	
            	 
	
              AQR
      DELTA Sapphire Fund, L.P.

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              AQR
      Funds – AQR Diversified Arbitrage Fund

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              AQR
      Opportunistic Premium Offshore Fund, L.P.

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Advanced
      Series Trust – AST Academic Services Portfolio

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              AQR
      DELTA Master Account, L.P.

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              AQR
      Absolute Return Master Account, L.P.

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Periscope
      Partners LP

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Stinson
      Management Company

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Nextview
      Capital, LP

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Wei
      Li

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Cranshire
      Capital LP

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Gibralt
      US, Inc.

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Iroquois
      Master Fund Ltd.

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Pacific
      Capital Management LLC

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Warberg
      Opportunistic Trading Fund LP

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              RL
      Capital Partners, LP

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Ronald
      Lazar

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Anthony
      Polak

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Anthony
      Polak “S”

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Jamie
      Polak

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Domaco
      Venture Capital Fund

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Maple
      Day Limited

            	 	 	 	 	 	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        Annex
I-2

        
          

        

      

      
        
        

      

    

     

    PLAN
OF DISTRIBUTION

     

    We are
registering the ordinary shares issuable upon conversion of the convertible
notes to permit the resale of these ordinary shares by the holders of the
convertible notes from time to time after the date of this
prospectus.  We will not receive any of the proceeds from the sale by
the selling shareholders of the ordinary shares.  We will bear all
fees and expenses incident to our obligation to register the ordinary
shares.

     

    The
selling shareholders may sell all or a portion of the ordinary shares
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the
ordinary shares are sold through underwriters or broker-dealers, the selling
shareholders will be responsible for underwriting discounts or commissions or
agent’s commissions.  The ordinary shares 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;

            

    

     

    
      	
               
      

            	
              ·

            	
              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;

            

    

     

    
      	
               
      

            	
              ·

            	
              sales
      pursuant to Rule 144;

            

    

     

    
      	
               
      

            	
              ·

            	
              broker-dealers
      may agree with the selling shareholders 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.

            

    

     

    
      
        
        

      

      
        Annex
I-3

        
          

        

      

      
        
        

      

    

     

    If the
selling shareholders effect such transactions by selling ordinary shares 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 shareholders or commissions from
purchasers of the ordinary shares 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 ordinary shares or otherwise, the selling shareholders may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the ordinary shares in the course of hedging in positions they
assume.  The selling shareholders may also sell ordinary shares short
and deliver ordinary shares covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short
sales.  The selling shareholders may also loan or pledge ordinary
shares to broker-dealers that in turn may sell such shares.

     

    The
selling shareholders may pledge or grant a security interest in some or all of
the convertible notes or ordinary 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 ordinary shares 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 shareholders to include the pledgee, transferee
or other successors in interest as selling shareholders under this
prospectus.  The selling shareholders also may transfer and donate the
ordinary shares 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 shareholders and any broker-dealer participating in the distribution of
the ordinary shares 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 ordinary shares is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of ordinary shares 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 shareholders and any discounts,
commissions or concessions allowed or reallowed or paid to
broker-dealers.

     

    Under the
securities laws of some states, the ordinary shares may be sold in such states
only through registered or licensed brokers or dealers.  In addition,
in some states the ordinary shares 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 shareholder will sell any or all of the
ordinary shares registered pursuant to the registration statement, of which this
prospectus forms a part.

     

    The
selling shareholders 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 ordinary shares by the selling shareholders
and any other participating person.  Regulation M may also restrict
the ability of any person engaged in the distribution of the ordinary shares to
engage in market-making activities with respect to the ordinary
shares.  All of the foregoing may affect the marketability of the
ordinary shares and the ability of any person or entity to engage in
market-making activities with respect to the ordinary shares.

     

    
      
        
        

      

      
        Annex
I-4

        
          

        

      

      
        
        

      

    

     

    We will
pay all expenses of the registration of the ordinary shares 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 shareholder will pay all underwriting
discounts and selling commissions, if any.  We will indemnify the
selling shareholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling shareholders will be entitled to contribution.  We may be
indemnified by the selling shareholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling shareholder 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
ordinary shares will be freely tradable in the hands of persons other than our
affiliates.

     

    
      
        
        

      

      
        Annex
I-5

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