EXHIBIT 10.1
 
EQUITY LINE AGREEMENT

THIS AGREEMENT dated as of the 20th day of March 2008 (the “Agreement”) between
MAGELLAN GLOBAL FUND, L.P., a Delaware limited partnership (the “Investor”), and
CHINA SHOE HOLDINGS, a corporation organized and existing under the laws of the
State of Nevada (the “Company”).
 
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor, from time to
time as provided herein, and the Investor shall purchase from the Company up to
Two Million Dollars ($2,000,000) of the Company’s common stock, par value $ .001
per share (the “Common Stock”); and
 
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the “Securities Act”), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
 
WHEREAS, the Company has engaged GLB Trading Inc. (the “Placement Agent”), to
act as the Company’s exclusive placement agent in connection with the sale of
the Company’s Common Stock to the Investor hereunder pursuant to the Placement
Agent Agreement dated the date hereof by and among the Company, the Placement
Agent and the Investor (the “Placement Agent Agreement”).
 
NOW, THEREFORE, the parties hereto agree as follows:
 
ARTICLE I.
Certain Definitions
 
Section 1.1
 
                  “Advance” shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
 
Section 1.2
 
                  “Advance Date” shall mean the first (1st) Trading Day after
expiration of the applicable Pricing Period for each Advance.
 
Section 1.3
 
                  “Advance Notice” shall mean a written notice in the form of
Exhibit A attached hereto to the Investor executed by an officer of the Company
and setting forth the Advance amount that the Company requests from the
Investor.
 
Section 1.4
 
                  “Advance Notice Date” shall mean each date the Company
delivers (in accordance with Section 2.2(b) of this Agreement) to the Investor
an Advance Notice requiring the Investor to advance funds to the Company,
subject to the terms of this Agreement.  No Advance Notice Date shall be less
than Ten (10) Trading Days after the prior Advance Notice Date.
 

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Section 1.5
 
                  “Bid Price” shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
 
Section 1.6
 
                  “Closing” shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
 
Section 1.7
 
                  “Commitment Amount” shall mean the aggregate amount of up to
Two Million Dollars ($2,000,000) which the Investor has agreed to provide to the
Company in order to purchase the Company’s Common Stock pursuant to the terms
and conditions of this Agreement.
 
Section 1.8
 
                  “Commitment Period” shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of the Commitment
Amount, (y) the date this Agreement is terminated pursuant to Section 10.2 or
(z) the date occurring twenty-four (24) months after the Effective Date.
 
Section 1.9
 
                  “Common Stock” shall mean the Company’s common stock, par
value $.001 per share.
 
Section 1.10
 
                  “Condition Satisfaction Date” shall have the meaning set forth
in Section 7.2.
 
Section 1.11
 
                  “Damages” shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorney’s fees and
disbursements and costs and expenses of expert witnesses and investigation).
 
Section 1.12
 
                  “Effective Date” shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
 

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Section 1.13
 
                  “Exchange Act” shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
 
Section 1.14
 
                  “Material Adverse Effect” shall mean any condition,
circumstance, or situation that may result in, or reasonably be expected to
result in (i) a material adverse effect on the legality, validity or
enforceability of the Agreement, (ii) a material adverse effect on the results
of operations, assets, business or condition (financial or otherwise) of the
Company, taken as a whole, or (iii) a material adverse effect on the Company’s
ability to perform in any material respect on a timely basis its obligations
under the Agreement.
 
Section 1.15
 
                  “Market Price” shall mean the average of the three (3) lowest
closing bid prices of the Common Stock during the Pricing Period
 
Section 1.16
 
                  “Maximum Advance Amount” with respect to each Advance Notice
shall mean an amount at the discretion of the Company up to Sixty Thousand
Dollars ($60,000) Put restriction amounts can be waived at the option of the
Investor.
 
Section 1.17
 
                  “Minimum Acceptable Price” with respect to any Put shall mean
the price at which the Company has the right, but not the obligation, to
withdraw that portion of the Put.
 
Section 1.18
 
                  “NASD” shall mean the National Association of Securities
Dealers, Inc.
 
Section 1.19
 
                  “Person” shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
 
Section 1.20
 
                  “Placement Agent” shall mean GLB Trading Inc. a registered
broker-dealer.
 
Section 1.21
 
                  “Pricing Period” shall mean the Five (5) consecutive Trading
Days after the Advance Notice Date.
 
Section 1.22
 
                  “Principal Market” shall mean the Nasdaq Global Select Market,
the Nasdaq Global Market, the Nasdaq Capital Market, the American Stock
Exchange, the OTC Bulletin Board or the New York Stock Exchange, whichever is at
the time the principal trading exchange or market for the Common Stock.
 

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Section 1.23
 
                  “Purchase Price” shall be set at ninety two percent (92%) of
the Market Price during the Pricing Period.
 
Section 1.24
 
                  “Registrable Securities” shall mean the shares of Common Stock
to be issued hereunder (i) in respect of which the Registration Statement has
not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act (“Rule 144”) or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.
 
Section 1.25
 
                  “Registration Rights Agreement” shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
 
Section 1.26
 
                  “Registration Statement” shall mean a registration statement
on Form S-1, Form S-3 or SB-2 (if use of such form is then available to the
Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate, and which form shall be available for
the resale of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement and the Registration Rights
Agreement, and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
 
Section 1.27
 
                  “Regulation D” shall have the meaning set forth in the
recitals of this Agreement.
 
Section 1.28
 
                  “SEC” shall mean the United States Securities and Exchange
Commission.
 
Section 1.29
 
                  “Securities Act” shall have the meaning set forth in the
recitals of this Agreement.
 
Section 1.30
 
                  “SEC Documents” shall mean Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements
of the Company as supplemented to the date hereof, filed by the Company for a
period of at least twelve (12) months immediately preceding the date hereof or
the Advance Date, as the case may be, until such time as the Company no longer
has an obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
 

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Section 1.31
 
                  “Trading Day” shall mean any day during which the New York
Stock Exchange shall be open for business.
 
ARTICLE II.
Advances
 
Section 2.1
 
                  Advances.
 
                  Subject to the terms and conditions of this Agreement
(including, without limitation, the provisions of Article VII hereof), the
Company, at its sole and exclusive option, may issue and sell to the Investor,
and the Investor shall purchase from the Company, shares of the Company’s Common
Stock by the delivery, in the Company’s sole discretion, of Advance Notices.
 The number of shares of Common Stock that the Investor shall purchase pursuant
to each Advance shall be determined by dividing the amount of the Advance by the
Purchase Price.  No fractional shares shall be issued. Fractional shares shall
be rounded to the next higher whole number of shares.  The aggregate maximum
amount of all Advances that the Investor shall be obligated to make under this
Agreement shall not exceed the Commitment Amount.
 
Section 2.2
 
                  Mechanics.
 
                  (a)    Advance Notice.  At any time during the Commitment
Period, the Company may require the Investor to purchase shares of Common Stock
by delivering an Advance Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice shall not be more
than the Maximum Advance Amount and the aggregate amount of the Advances
pursuant to this Agreement shall not exceed the Commitment Amount.  The Company
acknowledges that the Investor may sell shares of the Company’s Common Stock
corresponding with a particular Advance Notice after the Advance Notice is
received by the Investor.  There shall be a minimum of Ten (10) Trading Days
between each Advance Notice Date.
                 
                  (b)    Date of Delivery of Advance Notice.  An Advance Notice
shall be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 5:00 pm Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day.  No Advance Notice may be deemed
delivered on a day that is not a Trading Day.
 

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Section 2.3
 
                  Closings.  On each Advance Date (i) the Company shall deliver
to the Investor such number of shares of the Common Stock registered in the name
of the Investor as shall equal (x) the amount of the Advance specified in such
Advance Notice pursuant to Section 2.1 herein, divided by (y) the Purchase Price
and (ii) upon receipt of such shares, the Investor shall deliver to the Company
the amount of the Advance specified in the Advance Notice by wire transfer of
immediately available funds.  In addition, on or prior to the Advance Date, each
of the Company and the Investor shall deliver to the other all documents,
instruments and writings required to be delivered by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein.  To the extent the Company has not paid the fees, expenses, and
disbursements of the Investor in accordance with Section 12.4, the amount of
such fees, expenses, and disbursements may be deducted by the Investor (and
shall be paid to the relevant party) directly out of the proceeds of the Advance
with no reduction in the amount of shares of the Company’s Common Stock to be
delivered on such Advance Date.  
 
                  (a)    Company’s Obligations Upon Closing.
 
                                    (i)    The Company shall deliver to the
Investor the shares of Common Stock applicable to the Advance in accordance with
Section 2.3.  The certificates evidencing such shares shall be free of
restrictive legends.
 
                                    (ii)    the Company shall maintain the
effectiveness of the Registration Statement with respect to the resale of the
shares of Common Stock delivered in connection with the Advance;
 
                                    (iii)   the Company shall obtain all
material permits and qualifications required by any applicable state for the
offer and sale of the Registrable Securities, or have the availability of
exemptions there from.  The sale and issuance of the Registrable Securities
shall be legally permitted by all laws and regulations to which the Company is
subject;
 
                                    (iv)   the Company shall file with the SEC
in a timely manner all reports, notices and other documents required of a
“reporting company” under the Exchange Act and applicable Commission
regulations;
 
                                    (v)    the Company shall pay all any unpaid
fees set forth in Section 12.4 below or withhold such amounts as provided in
Section 2.3; and
 
 
 

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                  (b)    Investor’s Obligations Upon Closing.  Upon receipt of
the shares referenced in Section 2.3(a)(i) above and provided the Company is in
compliance with its obligations in Section 2.3, the Investor shall deliver to
the Company the amount of the Advance specified in the Advance Notice by wire
transfer of immediately available funds.  
 
ARTICLE III.
Representations and Warranties of Investor
 
Investor hereby represents and warrants to, and agrees with, the Company that
the following are true and correct as of the date hereof and as of each Advance
Date:
 
Section 3.1
 
                  Organization and Authorization.  The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder.  The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor.  The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor.  This Agreement has been duly executed
and delivered by the Investor and, assuming the execution and delivery hereof
and acceptance thereof by the Company, will constitute the legal, valid and
binding obligations of the Investor, enforceable against the Investor in
accordance with its terms.
 
Section 3.2
 
                  Evaluation of Risks.  The Investor has such knowledge and
experience in financial, tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction.  It recognizes that its investment in the Company involves a
high degree of risk.
 
Section 3.3
 
                  No Legal Advice From the Company.  The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors.  The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
 
 
 

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Section 3.4
 
                  Investment Purpose. The securities are being purchased by the
Investor for its own account, and for investment purposes.  The Investor agrees
not to assign or in any way transfer the Investor’s rights to the securities or
any interest therein and acknowledges that the Company will not recognize any
purported assignment or transfer except in accordance with applicable Federal
and state securities laws.  No other person has or will have a direct or
indirect beneficial interest in the securities.  The Investor agrees not to
sell, hypothecate or otherwise transfer the Investor’s securities unless the
securities are registered under Federal and applicable state securities laws or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.
 
Section 3.5
 
                  Accredited Investor.  The Investor is an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
 
Section 3.6
 
                  Information.  The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision.  The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management.  Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement.  The Investor
understands that its investment involves a high degree of risk.  The Investor is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment.  The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
 
Section 3.7
 
                  Receipt of Documents. The Investor and its counsel have
received and read in their entirety:  (i) this Agreement and the Exhibits
annexed hereto; (ii) all due diligence and other information necessary to verify
the accuracy and completeness of such representations, warranties and covenants
which would not, taken as a whole have a materially adverse effect on the
Company and its properties, earnings or operations; (iii) the Company’s Form
10-KSB for the year ended December 31, 2006 and Form 10-QSB for the period ended
September 30, 2007; and (iv) answers to all questions the Investor submitted to
the Company regarding an investment in the Company; and the Investor has relied
on the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.  
 
Section 3.8
 
                  Registration Rights Agreement.  The parties have entered into
the Registration Rights Agreement dated the date hereof.
 
 
 

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Section 3.9
 
                  No General Solicitation.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has officially engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Securities Act) in connection with the offer or sale
of the shares of Common Stock offered hereby.
 
Section 3.10
 
                  Not an Affiliate.  The Investor is not an officer, director or
a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
“Affiliate” of the Company (as that term is defined in Rule 405 of the
Securities Act).
 
Section 3.11
 
                  Trading Activities.  The Investor’s trading activities with
respect to the Company’s Common Stock shall be in compliance with all applicable
federal and state securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company’s Common Stock is
listed or traded. Neither the Investor nor its affiliates has an open short
position in the Common Stock of the Company, the Investor agrees that it shall
not, and that it will cause its affiliates not to, engage in any short sales of
or hedging transactions with respect to the Common Stock during the term of this
Agreement and for a period of ninety (90) days following the termination of this
Agreement, provided that the Company acknowledges and agrees that upon receipt
of an Advance Notice the Investor has the right to sell the shares to be issued
to the Investor pursuant to the Advance Notice during the applicable Pricing
Period.
 
ARTICLE IV.
Representations and Warranties of the Company
 
Except as stated below, on the disclosure schedules attached hereto or in the
SEC Documents (as defined herein), the Company hereby represents and warrants
to, and covenants with, the Investor that the following are true and correct as
of the date hereof:
 
Section 4.1
 
                  Organization and Qualification.  The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite corporate power to own its
properties and to carry on its business as now being conducted.  Each of the
Company and its subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which 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 on the Company and its subsidiaries taken as a whole.
 
Section 4.2
 
                  Authorization, Enforcement, Compliance with Other Instruments.
 (i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, the Placement
Agent Agreement and any related agreements, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement, the Placement Agent Agreement and any related agreements by
the Company and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by the Company’s Board of Directors and
no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Registration Rights
Agreement, the Placement Agent Agreement and any related agreements have been
duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, the Placement Agent Agreement and assuming the
execution and delivery thereof and acceptance by the Investor and any related
agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their 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 creditors’ rights and
remedies.
 
 
 

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Section 4.3
 
                  Capitalization.  The capitalization of the Company as of
January 1, 2008 is as set forth on Schedule 4.3.  Except for shares included in
Schedule 4.3, the Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees, advisors or consultants as
compensation for the provision of services or pursuant to the Company’s employee
stock purchase/option plans and pursuant to the conversion or exercise of Common
Stock Equivalents outstanding as of the date of the most recently filed periodic
report under the Exchange Act.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the this Agreement.  Except as a result of the
purchase and sale of the Common Stock hereunder and except as disclosed in
Schedule 4.3, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock.  The issuance and sale of the Common
Stock hereunder will not obligate the Company to issue shares of Common Stock or
other securities to any Person and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities.  No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the shares of Common Stock
hereunder.  There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.  The Company has furnished to the Investor true and
correct copies of the Company’s Certificate of Incorporation, as amended and as
in effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
 
 
 

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Section 4.4
 
                  No Conflict.  The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws 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
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect.  Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its Articles of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries.  The business
of the Company and its subsidiaries is not being conducted in violation of any
material law, ordinance, regulation of any governmental entity.  Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement 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 date hereof.  The
Company and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.
 
Section 4.5
 
                  SEC Documents; Financial Statements.  The Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC under the Exchange Act since June 6, 2007.  The Company
has delivered to the Investor or its representatives, or made available through
the SEC’s website at http://www.sec.gov, true and complete copies of the SEC
Documents.  As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the “Financial Statements”) 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 Investor which is not included in the SEC Documents 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 circumstances under
which they were made, not misleading.
 
 
 

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Section 4.6
 
                  10b-5.  The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
 
Section 4.7
 
                  No Default.  Except as disclosed in the SEC Documents, the
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its property is bound and neither the execution,
nor the delivery by the Company, nor the performance by the Company of its
obligations under this Agreement or any of the exhibits or attachments hereto
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under its
Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of
trust or other material agreement applicable to the Company or instrument to
which the Company is a party or by which it is bound, or any statute, or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on
the Company’s business or financial condition.
 
Section 4.8
 
                  Absence of Events of Default.  Except for matters described in
the SEC Documents and/or this Agreement, no Event of Default, as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company’s business, properties, prospects,
financial condition or results of operations.
 
Section 4.9
 
                  Intellectual Property Rights.  The Company and its
subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. The Company and its subsidiaries do not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company, there
is no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.  
 
 
 

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Section 4.10
 
                  Employee Relations.  Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened.  None of the
Company’s or its subsidiaries’ employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
 
Section 4.11
 
                  Environmental Laws.  The Company and its subsidiaries are (i)
in compliance with any and all applicable material foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants (“Environmental Laws”), (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.
 
Section 4.12
 
                  Title.  Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company.  Any real property and facilities held under lease by the Company and
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.
 
Section 4.13
 
                  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.  Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such 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 materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
 
Section 4.14
 
                  Regulatory Permits.  The Company and its subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, 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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Section 4.15
 
                  Internal Accounting Controls.  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
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
 
Section 4.16
 
                  No Material Adverse Breaches, etc.  Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company’s officers has or is
expected in the future to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.  Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.
 
Section 4.17
 
                  Absence of Litigation.  Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
 
Section 4.18
 
                  Tax Status.  Except as disclosed in the SEC Documents, the
Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) 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 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.
 
 
 

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Section 4.19
 
                  Certain Transactions.  Except as set forth in the SEC
Documents none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and 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 officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
 
Section 4.20
 
                  Fees and Rights of First Refusal.  The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents or other
third parties.
 
Section 4.21
 
                  Use of Proceeds.  The Company shall use the net proceeds from
this offering for general corporate purposes.
 
Section 4.22

                  Further Representation and Warranties of the Company.  For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market.

Section 4.23
 
                  Opinion of Counsel.  The Company will obtain for the Investor,
at the Company’s expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
 
Section 4.24
 
                  Dilution.  The Company is aware and acknowledges that issuance
of shares of the Company’s Common Stock could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.  
 
Section 4.25.
 
                  The Company is aware and acknowledges that it may not be able
to request Advances under this Agreement if it can not obtain an effective
Registration Statement or if any issuances of Common Stock pursuant to any
Advances would violate any rules of the Principal Market.  The Company further
is aware and acknowledges that any fees paid pursuant to Section 12.4(a)(i) and
12.4(b) hereunder or shares issued pursuant to Section 12.4(c)(ii) hereunder
shall be earned on the date hereof and not refundable or returnable under any
circumstances.  
 
 
 

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ARTICLE V.
Indemnification
 
The Investor and the Company represent to the other the following with respect
to itself:
 
Section 5.1
 
                  Indemnification.
 
                  (a)    In consideration of the Investor’s execution and
delivery of this Agreement, and in addition to all of the Company’s other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless the Investor, and all of its officers, directors, partners,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Investor 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 Investor
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 the Investor Indemnitees or any of them
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 this Agreement
or the Registration Rights Agreement 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 this Agreement or the
Registration Rights Agreement 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 Investor Indemnitee not arising out of any action
or inaction of an Investor Indemnitee, and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Investor Indemnitees.  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.
 
                  (b)    In consideration of the Company’s execution and
delivery of this Agreement, and in addition to all of the Investor’s other
obligations under this Agreement, the Investor shall defend, protect, indemnify
and hold harmless the Company and all of its officers, directors, shareholders,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Company Indemnitees”) from and against any and all Indemnified Liabilities
incurred by the Company Indemnitees or any of them as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement,  the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on  misrepresentations or due to a
 breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees.  To the extent that the foregoing undertaking by the Investor may
be unenforceable for any reason, the Investor shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
 
 
 

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                  (c)    The obligations of the parties to indemnify or make
contribution under this Section 5.1 shall survive termination.
 
ARTICLE VI.
Covenants of the Company
 
Section 6.1
 
                  Registration Rights.  The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
 
Section 6.2
 
                  Listing of Common Stock.  The Company shall maintain the
Common Stock’s authorization for quotation on the Principal Market.  
 
Section 6.3
 
                  Exchange Act Registration.  The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Exchange Act.
 
Section 6.4
 
                  Transfer Agent Instructions.  Upon effectiveness of the
Registration Statement the Company shall deliver instructions to its transfer
agent to issue shares of Common Stock to the Investor free of restrictive
legends on or before each Advance Date pursuant to the blanket legal opinion to
be delivered in accordance with the terms of Section 3(k) of the Registration
Rights Agreement.
 
Section 6.5
 
                  Corporate Existence.  The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
 
 
 

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Section 6.6
 
                  Notice of Certain Events Affecting Registration; Suspension of
Right to Make an Advance.  The Company will immediately notify the Investor upon
its becoming aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other Federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other Federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any 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; and (v) the Company’s
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus.  The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
 
Section 6.7.
 
                  Consolidation; Merger.  The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a “Consolidation Event”) unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
 
Section 6.8.
 
                  Issuance of the Company’s Common Stock. The sale of the shares
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.
 
Section 6.9.
 
                  Review of Public Disclosures.  All SEC filings (including,
without limitation, all filings required under the Exchange Act, which include
Forms 10-Q and, 10-K and 8-K, etc) and other public disclosures made by the
Company, including, without limitation, all press releases, investor relations
materials, and scripts of analysts meetings and calls, shall be reviewed and
approved for release by the Company’s attorneys and, if containing financial
information, the Company’s independent certified public accountants.  
 
 
 

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Section 6.10.
 
                  Market Activities.The Company will not, directly or
indirectly, (i) take any action designed to cause or result in, or that
constitutes or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock or (ii) sell, bid for or purchase the Common
Stock, or pay anyone any compensation for soliciting purchases of the Common
Stock.
 
ARTICLE VII.
Conditions for Advance and Conditions to Closing
 
Section 7.1
 
                  Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
 
                  (a)    Accuracy of the Investor’s Representations and
Warranties.  The representations and warranties of the Investor shall be true
and correct in all material respects.
 
                  (b)    Performance by the Investor.  The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Investor at or prior to such
Closing.
 
Section 7.2
 
                  Conditions Precedent to the Right of the Company to Deliver an
Advance Notice.  The right of the Company to deliver an Advance Notice is
subject to the fulfillment by the Company, on such Advance Notice (a “Condition
Satisfaction Date”), of each of the following conditions:
 
                  (a)    Registration of the Common Stock with the SEC.  The
Company shall have filed with the SEC a Registration Statement with respect to
the resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement.  As set forth in the Registration Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC’s concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or related
prospectus shall exist.  The Registration Statement must have been declared
effective by the SEC prior to the first Advance Notice Date.
 
 
 

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                  (b)    Authority.  The Company shall have obtained all permits
and qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom.  The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
 
                  (c)    Fundamental Changes. There shall not exist any
fundamental changes to the information set forth in the Registration Statement
which would require the Company to file a post-effective amendment to the
Registration Statement.  
 
                  (d)    Performance by the Company.  The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
 
                  (e)    No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
 
                  (f)    No Suspension of Trading in or Delisting of Common
Stock.  The Common Stock is listed or traded on a Principal Market.  The
issuance of shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the Principal
Market.  The Company shall not have received any notice threatening the
continued listing of the Common Stock on the Principal Market (unless the
concerns of the Principal Market have been addressed and the Investor is
reasonably satisfied that the Principal Market is no longer is considering or
intends to take immediate action).  
 
                  (g)    Maximum Advance Amount.  The amount of an Advance
requested by the Company shall not exceed the Maximum Advance Amount.  In
addition, in no event shall the number of shares issuable to the Investor
pursuant to an Advance cause the aggregate number of shares of Common Stock
beneficially owned by the Investor and its affiliates to exceed 9.99% of the
then outstanding Common Stock of the Company.  For the purposes of this section
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.
 
 
 

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                  (h)    Minimum Acceptable Price. COMPANY’S RIGHT TO WITHDRAW.
The Company shall reserve the right, but not the obligation, to withdrawn that
portion of the Put that is below the Minimum Acceptable Price of $0.07, by
submitting to the Investor, in writing, a notice to cancel that portion of the
Put. Any shares above the Minimum Acceptable Price due to the investor shall be
carried out by the Company under the terms of this Agreement.
 
                  (i)    No Knowledge.  The Company has no knowledge of any
event which would be more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective.
 
                  (j)    Executed Advance Notice.  The Investor shall have
received the Advance Notice executed by an officer of the Company and the
representations contained in such Advance Notice shall be true and correct as of
each Condition Satisfaction Date.
 
ARTICLE VIII.
Due Diligence Review; Non-Disclosure of Non-Public Information
 
Section 8.1.
 
                  Non-Disclosure of Non-Public Information.
 
                  (a)    The Company covenants and agrees that neither it nor
any other Person acting on its behalf will provide the Investor or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto the Company identifies such
information as being material non-public information and provides member of the
legal and compliance department of the Investor with the opportunity to accept
or refuse to accept such material non-public information for review.  The
Company acknowledges that only members of the legal and compliance department of
the Investor have the authority to accept the receipt of material non-public
information from the Company.  The Company acknowledges that any information
provided to the Investor without first being accepted by a member of the legal
and compliance department of the Investor will be deemed not to be material
non-public information and the Investor shall be under no duty to maintain the
confidentiality of such information.  The Company understands and confirms that
the Investor shall be relying on the foregoing representations in effecting
transactions in securities of the Company.  The Company shall be entitled to
rely on the representations of any member of the Investor as to whether such
person is a member of the legal and compliance department of the Investor.  
 
                  (b)    Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading.  Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
 
 
 

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ARTICLE IX.
Choice of Law/Jurisdiction
 
Section 9.1
 
                  Governing Law.  This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.  The parties further agree that
any action between them shall be heard in San Diego County, California, and
expressly consent to the jurisdiction and venue of the Superior Court of
California, sitting in San Diego County, California and the United States
District Court of California, sitting in Santa Ana, California for the
adjudication of any civil action asserted pursuant to this paragraph.
 
ARTICLE X.
Assignment; Termination
 
Section 10.1
 
                  Assignment.  Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.  
 
Section 10.2
 
                  Termination.  
 
                  (a)    The obligations of the Investor to make Advances under
Article II hereof shall terminate twenty-four (24) months after the Effective
Date.
 
                  (b)    The obligation of the Investor to make an Advance to
the Company pursuant to this Agreement shall terminate permanently (including
with respect to an Advance Date that has not yet occurred) in the event that (i)
there shall occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of fifty (50) Trading Days, other than
due to the acts of the Investor, during the Commitment Period, or (ii) the
Company shall at any time fail materially to comply with the requirements of
Article VI and such failure is not cured within thirty (30) days after receipt
of written notice from the Investor, provided, however, that this termination
provision shall not apply to any period commencing upon the filing of a
post-effective amendment to such Registration Statement and ending upon the date
on which such post effective amendment is declared effective by the SEC.
 
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ARTICLE XI.
Notices
 
Section 11.1
 
                  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,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same.  The addresses and facsimile numbers for such communications
shall be:
 
 
 
If to the Company, to:
China Shoe Holdings, Inc.
 
488 Wai Qingsong Road 
Waigang, Jiading District, Shanghai
People's Republic of China 201800
 
Attention: Gu Xianzhong
President and Chief Executive Officer
 
Telephone: 011-86-21-59587756 
 
Facsimile:
 
 
With a copy to:
Gary Joiner, Esq.
 
 
 
 
 
 
 
Telephone:     
Facsimile:      
 
 
 
 
If to the Investor:
MAGELLAN GLOBAL FUND , L.P.
 
4666 Mission Ave., Suite 1
 
San Diego, CA
 
Attention: Harry Orfanos
 
Portfolio Manager
 
Telephone: (619) 819-7595
 
Facsimile: (619) 839-3177
 
 
With a Copy to:
Nicholas Lahanas
 
3709 Bamboo Ct.
 
Concord, CA 94519
 
Telephone: (925) 948-3649
 
Facsimile: (619) 839-3177

Each party shall provide five (5) days’ prior written notice to the other party
of any change in address or facsimile number.
 
 
 

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ARTICLE XII.
Miscellaneous
                 
Section 12.1
 
                  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.  In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
 
Section 12.2
 
                  Entire Agreement; Amendments.  This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
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 the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
 
Section 12.3
 
                  Reporting Entity for the Common Stock.  The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto.  The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

Section 12.4
 
                  Fees and Expenses.  The Company hereby agrees to pay the
following fees:
 
                  (a)    Commitment Fees.
 
                                    (i)    Upon the execution of this Agreement
the Company shall issue to the Investor a restricted stock certificate of the
Company’s Common Stock in an amount equal to Forty Thousand Dollars ($40,000)
divided by the Closing Bid Price on the Closing Date.
 
                                    (ii)     In addition, upon effectiveness of
a registration statement pursuant to this agreement, the Company will issue an
additional Forty Thousand Dollars ($40,000) of Common Stock to the Investor
priced at the closing bid price of the day the registration statement is
declared Effective by the SEC.
 
                                    (iii)    Fully Earned.  The Investor’s
Shares shall be deemed fully earned as of the date hereof.
 
                                    (iv)    Registration Rights.  The Investor’s
Shares shall have “piggy back” registration rights.  
 
 
 

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Section 12.5
 
                  Brokerage.  Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party.  The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder’s fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
 
Section 12.6
 
                  Confidentiality.  If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party’s domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
 
IN WITNESS WHEREOF, the parties hereto have caused this Equity Line Agreement to
be executed by the undersigned, thereunto duly authorized, as of the date first
set forth above.
 
 

       
COMPANY:
China Shoe Holdings, Inc.
 
   
   
    By:   /s/ Gu Xianzhong  

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Name: Gu Xianzhong
 
Title: President and Chief Executive Officer

 

       
INVESTOR:
MAGELLAN GLOBAL FUND , L.P.
 
   
   
    By:   Orinda Advisors, LLC
 

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Its: Investment Manager

   
 
  By:   /s/ Harry Orfanos  

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Name: Harry Orfanos
 
Title: Managing Partner

 
 
 

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EXHIBIT A
 
ADVANCE NOTICE
 
China Shoe Holdings, Inc.
 
The undersigned, _______________________ hereby certifies, with respect to the
sale of shares of Common Stock of China Shoe Holdings, Inc. (the “Company”)
issuable in connection with this Advance Notice, delivered pursuant to the
Equity Line Agreement (the “Agreement”), as follows:
 
1. The undersigned is the duly elected ______________ of the Company.
 
2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
 
3.  The Company has performed in all material respects all covenants and
agreements to be performed by the Company and has complied in all material
respects with all obligations and conditions contained in the Agreement on or
prior to the Advance Notice Date, and shall continue to perform in all material
respects all covenants and agreements to be performed by the Company through the
applicable Advance Date.  All conditions to the delivery of this Advance Notice
are satisfied as of the date hereof.
 
4. The undersigned hereby represents, warrants and covenants that it has made
all filings (“SEC Filings”) required to be made by it pursuant to applicable
securities laws (including, without limitation, all filings required under the
Securities Exchange Act of 1934, which include Forms 10-Q, 10-K or 8-K, etc.).
 All SEC Filings and other public disclosures made by the Company, including,
without limitation, all press releases, analysts meetings and calls, etc.
(collectively, the “Public Disclosures”), have been reviewed and approved for
release by the Company’s attorneys and, if containing financial information, the
Company’s independent certified public accountants.  None of the Company’s
Public Disclosures contain any untrue statement of a material fact or omit to
state any 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.
 
5. The Advance requested is _____________________.
 
The undersigned has executed this Certificate this ____ day of
_________________.
 
 

        China Shoe Holdings, Inc.  
   
   
    By:      

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Name:   Title:

 
 
 

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