f8k013110ex10vii_covenant.htm


    Exhibit
10.7

    


    EQUITY
CREDIT AGREEMENT

     

    BY
AND BETWEEN

     

    COVENANT
GROUP OF CHINA, INC.

    


    AND

     

    SOUTHRIDGE
PARTNERS II, LP

     

    Dated

     

    January
31, 2010

     

    
 

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

    
 

    THIS EQUITY CREDIT AGREEMENT entered
into as of the 31st day of January, 2010 (this "AGREEMENT"), by and between
SOUTHRIDGE PARTNERS II,
LP, Delaware limited partnership ("INVESTOR"), and COVENANT GROUP OF CHINA,
INC., 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 Investor, from time to time as provided herein, and Investor
shall purchase, up to Twenty Million Dollars ($20,000,000) of its Common Stock
(as defined below); and

     

    WHEREAS, such investments will be made
in reliance upon the provisions of Section 4(2) ("SECTION 4(2)") of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), Regulation D, and the
rules and regulations promulgated thereunder, 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 in Common Stock to be made
hereunder.

    


    NOW, THEREFORE, the parties hereto
agree as follows:

    


    ARTICLE
I

    CERTAIN
DEFINITIONS

     

    Section 1.1 DEFINED TERMS as used in
this Agreement, the following terms shall have the following meanings specified
or indicated (such meanings to be equally applicable to both the singular and
plural forms of the terms defined)

    


    "AGREEMENT" shall have the meaning
specified in the preamble hereof.

     

    "BLACKOUT NOTICE" shall mean a written
notice from the Company to the Investor with respect to the existence of a
Potential Material Event.

    


    “BLACKOUT PERIOD" shall have the
meaning specified in Section 2.6.

    


    “BLACKOUT SHARES" shall have the
meaning specified in Section 2.6.

    


    "BY-LAWS" shall have the meaning
specified in Section 4.8.

    


    "CERTIFICATE" shall have the meaning
specified in Section 4.8.

    


    "CLAIM NOTICE" shall have the meaning
specified in Section 9.3(a).

    


    "CLOSING" shall mean one of the
closings of a purchase and sale of shares of Common Stock pursuant to Section
2.3.

    


    “CLOSING BID PRICE” shall mean the
closing bid price as reported by the Principal Market.

    


    "CLOSING CERTIFICATE " shall mean the
closing certificate of the Company in the form of Exhibit D hereto.

     

    "CLOSING DATE" shall mean, with respect
to a Closing, the sixth (6th) Trading Day following the Put Date related to such
Closing, or such earlier date as the Company and Investor shall agree, provided
all conditions to such Closing have been satisfied on or before such Trading
Day.

     

    
      
        
        

      

      
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    "COMMITMENT PERIOD" shall mean the
period commencing on the Effective Date, and ending on the earlier of (i) the
date on which Investor shall have purchased Put Shares pursuant to this
Agreement for an aggregate Purchase Price of the Maximum Commitment Amount, (ii)
the date this Agreement is terminated pursuant to Section 2.5, or (iii) the date
occurring twenty four (24) months from the date of commencement of the
Commitment Period.

     

    "COMMON STOCK" shall mean the Company's
common stock, $0.00001 par value per share, and any shares of any other class of
common stock whether now or hereafter authorized, having the right to
participate in the distribution of dividends (as and when declared) and assets
(upon liquidation of the Company).

     

    "COMMON STOCK EQUIVALENTS" shall mean
any securities that are convertible into or exchangeable for Common Stock or any
options or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.

     

    "COMPANY" shall have the meaning
specified in the preamble to this Agreement.

    


    "CONDITION SATISFACTION DATE" shall
have the meaning specified in Section 7.2.

    


    "DAMAGES" shall mean any loss, claim,
damage, liability, cost and expense (including, without limitation, reasonable
attorneys' fees and disbursements and costs and expenses of expert witnesses and
investigation).

    


    "DISPUTE PERIOD" shall have the meaning
specified in Section 9.3(a).

    


    “DOLLAR VOLUME” shall mean the product
of (a) the Closing Bid Price times (b) the volume on the Principal Market on a
Trading Day.

    


    "DTC" shall have the meaning specified
in Section 2.3.

    


    "DWAC" shall have the meaning specified
in Section 2.3.

     

    "EFFECTIVE DATE" shall mean the date on
which the SEC first declares effective a Registration Statement, or any
amendment or supplement thereto, registering the Registrable Securities as set
forth in Section 7.2(a).

    


    "EXCHANGE ACT" shall mean the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder.

    


    "FAST" shall have the meaning specified
in Section 2.3.

    


    "FINRA" shall mean the Financial
Industry Regulatory Authority, Inc.

    


    "INDEMNIFIED PARTY" shall have the
meaning specified in Section 9.3(a).

    


    "INDEMNIFYING PARTY" shall have the
meaning specified in Section 9.3(a).

    


    "INDEMNITY NOTICE" shall have the
meaning specified in Section 9.3(b).

     

    "INVESTMENT AMOUNT" shall mean the
dollar amount (within the range specified in Section 2.2) to be invested by
Investor to purchase Put Shares with respect to any Put as notified by the
Company to Investor in accordance with Section 2.2.

    


    "INVESTOR" shall have the meaning
specified in the preamble to this Agreement.

     

    
      
        
        

      

      
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    "LEGEND" shall have the meaning
specified in Section 8.1.

    


    "MARKET PRICE" shall mean the average
of the lowest two (2) Closing Bid Prices during the Valuation
Period.

     

    "MATERIAL ADVERSE EFFECT" shall mean
any effect on the business, operations, properties, or financial condition of
the Company that is material and adverse to the Company and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform its obligations under
any of (a) this Agreement and (b) the Registration Rights
Agreement.

    


    "MAXIMUM COMMITMENT AMOUNT" shall mean
Twenty Million Dollars ($20,000,000).

     

    “MAXIMUM PUT AMOUNT” shall mean, with
respect to any Put, the lesser of (a) One Million Dollars ($1,000,000), or (b)
Three Hundred (300%) percent of the average of the Dollar Volume for the twenty
(20) Trading Days immediately preceding the Put Date.

    


    "NEW BID PRICE" shall have the meaning
specified in Section 2.6.

    


    "OLD BID PRICE" shall have the meaning
specified in Section 2.6.

    


    "OTCBB" shall mean the OTC Bulletin
Board.

     

    "OUTSTANDING" shall mean, with respect
to the Common Stock, at any date as of which the number of shares of Common
Stock is to be determined, all issued and outstanding shares of Common Stock,
including all shares of Common Stock issuable in respect of outstanding
convertible securities, scrip or any certificates representing fractional
interests in shares of Common Stock; provided, however, that Outstanding shall
not include any shares of Common Stock then directly or indirectly owned or held
by or for the account of the Company.

    


    "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.

     

    "POTENTIAL MATERIAL EVENT" shall mean
any of the following: (a) the possession by the Company of material information
not ripe for disclosure in a Registration Statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the Registration Statement would be
detrimental to the business and affairs of the Company, or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a Registration Statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the Registration Statement would be materially misleading absent
the inclusion of such information.

    


    "PRINCIPAL MARKET" shall mean the
OTCBB, or other principal exchange which is at the time the principal trading
exchange or market for the Common Stock.

     

    "PURCHASE PRICE" shall mean, with
respect to any Put, 94% of the Market Price on such date on which the Purchase
Price is calculated in accordance with the terms and conditions of this
Agreement.

     

    "PUT" shall mean the right of the
Company to require the Investor to purchase shares of Common Stock, subject to
the terms and conditions of this Agreement.

    


    "PUT DATE" shall mean any Trading Day
during the Commitment Period that a Put Notice is deemed delivered pursuant to
Section 2.2(b).

     

    
      
        
        

      

      
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    "PUT NOTICE" shall mean a written
notice, substantially in the form of Exhibit B hereto, to Investor setting forth
the Investment Amount with respect to which the Company intends to require
Investor to purchase shares of Common Stock pursuant to the terms of this
Agreement.

     

    "PUT SHARES" shall mean all shares of
Common Stock issued or issuable pursuant to a Put that has been exercised or may
be exercised in accordance with the terms and conditions of this
Agreement.

     

    "REGISTRABLE SECURITIES" shall mean the
(a) Put Shares, (b) the Blackout Shares, (c) the Warrant Shares and (d) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a Registration
Statement has been declared effective by the SEC and such Registrable Securities
have been disposed of pursuant to a Registration Statement, (ii) such
Registrable Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 are met, (iii) such time as such Registrable
Securities have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, or (iv) in the opinion of counsel
to the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities Act
or the need for an exemption from any such registration requirements and without
any time, volume or manner limitations pursuant to Rule 144(b)(i) (or any
similar provision then in effect) under the Securities Act.

    


    "REGISTRATION RIGHTS AGREEMENT" shall
mean the registration rights agreement in the form of Exhibit A
hereto.

     

    "REGISTRATION STATEMENT" shall mean a
registration statement on such 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 Investor
of the Registrable Securities under the Securities Act.

    


    "REGULATION D" shall mean Regulation D
promulgated under the Securities Act.

    


    "REMAINING PUT SHARES" shall have the
meaning specified in Section 2.6.

    


    "RULE 144" shall mean Rule 144 under
the Securities Act or any similar provision then in force under the Securities
Act.

    


    "SEC" shall mean the Securities and
Exchange Commission.

    


    "SECTION 4(2) " shall have the meaning
specified in the recitals of this Agreement.

    


    "SECURITIES ACT" shall have the meaning
specified in the recitals of this Agreement.

     

    "SEC DOCUMENTS" shall mean, as of a
particular date, all reports and other documents file by the Company pursuant to
Section 13(a) or 15(d) of the Exchange Act since the beginning of the Company's
then most recently completed fiscal year as of the time in question (provided
that if the date in question is within ninety days of the beginning of the
Company's fiscal year, the term shall include all documents filed since the
beginning of the second preceding fiscal year).

     

    “SHORT SALES” shall mean all “short
sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but
shall not be deemed to include the location and/or reservation of borrowable
shares of Common Stock).

     

    
      
        
        

      

      
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    "SUBSCRIPTION DATE" shall mean the date
on which this Agreement is executed and delivered by the Company and
Investor.

     

    "THIRD PARTY CLAIM" shall have the
meaning specified in Section 9.3(a).

     

    “TRADING DAY” shall mean a day on which
the Principal Market shall be open for business.

     

    “TRANSACTION DOCUMENTS” shall mean this
Equity Credit Agreement, the Registration Rights Agreement, Closing Certificate,
and the Transfer Agent Instructions.

     

    "TRANSFER AGENT" shall mean the
transfer agent for the Common Stock (and to any substitute or replacement
transfer agent for the Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent).

     

    "UNDERWRITER" shall mean any
underwriter participating in any disposition of the Registrable Securities on
behalf of Investor pursuant to a Registration Statement.

     

    "VALUATION EVENT" shall mean an event
in which the Company at any time during a Valuation Period takes any of the
following actions:

     

    (a) subdivides or combines the Common
Stock;

     

    (b) pays a dividend in shares of
Common Stock or makes any other distribution of shares of Common Stock, except
for dividends paid with respect to any series of preferred stock authorized by
the Company, whether existing now or in the future;

     

    (c) issues any options or other rights
to subscribe for or purchase shares of Common Stock other than pursuant to this
Agreement and the price per share for which shares of Common Stock may at any
time thereafter be issuable pursuant to such options or other rights shall be
less than the Closing Bid Price in effect immediately prior to such
issuance;

     

    (d) issues any securities convertible
into or exchangeable for shares of Common Stock and the consideration per share
for which shares of Common Stock may at any time thereafter be issuable pursuant
to the terms of such convertible or exchangeable securities shall be less than
the Closing Bid Price in effect immediately prior to such issuance;

     

    (e) issues shares of Common Stock
otherwise than as provided in the foregoing subsections (a) through (d), at a
price per share less, or for other consideration lower, than the Closing Bid
Price in effect immediately prior to such issuance, or without consideration;
or

     

    (f) makes a distribution of its assets
or evidences of indebtedness to the holders of Common Stock as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the circumstances
provided for in the foregoing subsections (a) through (e).

     

    "VALUATION PERIOD" shall mean the
period of five (5) Trading Days immediately following the date on which the
applicable Put Notice is deemed to be delivered and during which the Purchase
Price of the Common Stock is valued; provided, however, that if a Valuation
Event occurs during any Valuation Period, a new Valuation Period shall begin on
the Trading Day immediately after the occurrence of such Valuation Event and end
on the fifth (5th)
Trading Day thereafter.

     

    
      
        
        

      

      
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    “WARRANT” shall mean the Common Stock
Purchase Warrant delivered to Investor upon filing, after the Subscription Date,
of the Registration Statement, or an applicable supplement or amendment thereto,
in accordance with Section 2.1(b) hereof, which Warrant shall be exercisable
immediately and have a term of exercise equal to 5 years, in the form of Exhibit E attached
hereto.

     

    “WARRANT SHARES” shall mean the shares
of Common Stock issuable upon exercise of the Warrant.

     

    ARTICLE
II

    PURCHASE
AND SALE OF COMMON STOCK

     

    Section 2.1 INVESTMENTS.

     

    (a) PUTS. Upon the terms and conditions
set forth herein (including, without limitation, the provisions of Article VII),
on any Put Date the Company may exercise a Put by the delivery of a Put Notice.
The number of Put Shares that Investor shall purchase pursuant to such Put shall
be determined by dividing the Investment Amount specified in the Put Notice by
the Purchase Price with respect to such Put Notice.

     

    (b) WARRANT. As a condition for the
execution of this Agreement by the Investor, the Company shall grant the
Investor a transferable, divisible Warrant to purchase 300,000 shares of Common
Stock, at an exercise price equal to $2.00, with a five year term, and cashless
exercise rights in the form annexed hereto as Exhibit E. The Warrant and the
Warrant Shares shall be included in the Registration Statement, and any
amendment or supplement thereto. The Warrant shall be delivered to the Investor
upon filing, after the Subscription Date, of the Registration Statement, or an
applicable supplement or amendment thereto.

     

    Section 2.2 MECHANICS.

     

    (a) PUT NOTICE. At any time and from
time to time during the Commitment Period, the Company may deliver a Put Notice
to Investor, subject to the conditions set forth in Section 7.2; provided,
however, that the Investment Amount identified in the applicable Put Notice
shall not be greater than the Maximum Put Amount and, when taken together with
any prior Put Notices, shall not exceed the Maximum Commitment.

     

    (b) DATE OF DELIVERY OF PUT NOTICE. A
Put Notice shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by Investor if such notice is received on or prior to
12:00 noon New York time, or (ii) the immediately succeeding Trading Day if it
is received by facsimile or otherwise after 12:00 noon New York time on a
Trading Day or at anytime on a day which is not a Trading Day.

     

    Section 2.3 CLOSINGS. On or prior to
each Closing Date for any Put, (a) the Company shall deliver to the Investor one
or more certificates, at Investor's option, representing the Put Shares
purchased by Investor pursuant to Section 2.1 herein, registered in the name of
Investor and (b) Investor shall deliver the Investment Amount specified in the
Put Notice by wire transfer of immediately available funds to an account
designated by the Company within twenty four (24) hours of receipt of the Put
Shares. In lieu of delivering physical certificates representing the Common
Stock issuable in accordance with clause (a) of this Section 2.3, and provided
that the Transfer Agent then is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of
Investor, but subject to the applicable provisions of Article VIII hereof, the
Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit, prior to the applicable Closing Date, the
applicable Put Shares by crediting the account of the Investor's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, and
provide proof satisfactory to the Investor of such delivery. In addition, on or
prior to such Closing Date, each of the Company and Investor shall deliver to
each other all documents, instruments and writings required to be delivered or
reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein.

     

    
      
        
        

      

      
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    Section 2.4 [INTENTIONALLY
OMITTED]

     

    Section 2.5 [INTENTIONALLY
OMITTED]

     

    Section 2.6 BLACKOUT
SHARES.

     

    (a) If at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
delivers a Blackout Notice to the Investor, the Investor shall not offer or sell
any Put Shares, Warrant Shares, or Blackout Shares (as defined below), or engage
in any other transaction involving or relating the such shares, from the time of
the Blackout Notice until Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event (such period, a "Blackout
Period").

     

    (b) In the event that, (i) within
fifteen (15) Trading Days following any Closing Date, the Company delivers a
Blackout Notice to Investor, and (ii) the Closing Bid Price on the Trading Day
immediately preceding the applicable Blackout Period ("OLD BID PRICE") is
greater than the Closing Bid Price on the first Trading Day following such
Blackout Period that Investor may sell its Registrable Securities pursuant to an
effective Registration Statement ("NEW BID PRICE"), then the Company shall issue
to Investor the number of additional shares of Registrable Securities (the
"BLACKOUT SHARES") equal to the excess of (x) the product of the number of Put
Shares held by Investor immediately prior to the Blackout Period that were
issued on the most recent Closing Date (the "REMAINING PUT SHARES") multiplied
by the Old Bid Price, divided by the New Bid Price, over (y) the Remaining Put
Shares.

     

    Section 2.7 [INTENTIONALLY
OMITTED]

     

    Section
2.8 LIQUIDATED DAMAGES. Each of the Company and Investor acknowledge and agree
that the requirement to issue Blackout Shares under Section 2.6 shall give rise
to liquidated damages and not penalties. Each of the Company and Investor
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amount specified in
such Section bears a reasonable proportion and is not plainly or grossly
disproportionate to the probable loss likely to be incurred by Investor in
connection with a Blackout Period, and (c) each of the Company and Investor are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's
length.

     

    ARTICLE
III

    REPRESENTATIONS
AND WARRANTIES OF INVESTOR

     

    Investor represents and warrants to the
Company that:

     

    Section 3.1 INTENT. Investor is
entering into this Agreement for its own account and Investor has no present
arrangement (whether or not legally binding) at any time to sell the Common
Stock to or through any person or entity; provided, however, that Investor
reserves the right to dispose of the Common Stock at any time in accordance with
federal and state securities laws applicable to such disposition.

     

    Section 3.2 NO LEGAL ADVICE FROM THE
COMPANY. The Investor acknowledges that it has had the opportunity to review
this Agreement and the transactions contemplated by this Agreement with 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 3.3 SOPHISTICATED INVESTOR.
Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of
Regulation D) and an accredited investor (as defined in Rule 501 of Regulation
D), and Investor has such experience in business and financial matters that it
is capable of evaluating the merits and risks of an investment in the Common
Stock. Investor acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.

     

    Section 3.4 AUTHORITY. (a) Investor has
the requisite power and authority to enter into and perform its obligations
under this Agreement and the transactions contemplated hereby in accordance with
its terms; (b) the execution and delivery of this Agreement and the Registration
Rights Agreement, and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action and no
further consent or authorization of Investor or its partners is required; and
(c) each of this Agreement and the Registration Rights Agreement has been duly
authorized and validly executed and delivered by Investor and constitutes a
valid and binding obligation of Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.

     

    Section 3.5 NOT AN AFFILIATE. Investor
is not an officer, director or "affiliate" (as that term is defined in Rule 405
of the Securities Act) of the Company.

     

    Section 3.6 ORGANIZATION AND STANDING.
Investor is a limited partnership duly organized, validly existing and in good
standing under the laws of the Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Investor is duly qualified and in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those in which the failure so
to qualify would not have a material adverse effect on Investor.

     

    Section 3.7 ABSENCE OF CONFLICTS. The
execution and delivery of this Agreement and any other document or instrument
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, and compliance with the requirements hereof and thereof,
will not (a) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Investor, (b) violate any provision of
any indenture, instrument or agreement to which Investor is a party or is
subject, or by which Investor or any of its assets is bound, or conflict with or
constitute a material default thereunder, (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investor to
any third party, or (d) require the approval of any third-party (that has not
been obtained) pursuant to any material contract, instrument, agreement,
relationship or legal obligation to which Investor is subject or to which any of
its assets, operations or management may be subject.

     

    Section 3.8 DISCLOSURE; ACCESS TO
INFORMATION. Investor had an opportunity to review copies of the SEC Documents
filed on behalf of the Company and has had access to all publicly available
information with respect to the Company.

     

    Section 3.9 MANNER OF SALE. At no time
was Investor presented with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any other form of general
solicitation or advertising.

     

    Section 3.10 FINANCIAL CAPABILITY.
Investor presently has the financial capacity and the necessary capital to
perform its obligations hereunder.

     

    ARTICLE
IV

    REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

     

    The Company represents and warrants to
Investor that, except as disclosed in the SEC Documents:

     

    
      
        
        

      

      
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    Section 4.1 ORGANIZATION OF THE
COMPANY. The Company is a corporation duly organized and validly existing and in
good standing under the laws of the State of Nevada and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company 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 or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.

     

    Section 4.2 AUTHORITY. (a) The Company
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the Registration Rights Agreement and to
issue the Put Shares, Warrant Shares and Blackout Shares, if any; (b) the
execution and delivery of this Agreement and the Registration Rights Agreement
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required; and (c) each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.

     

    Section 4.3 CAPITALIZATION. As of the
date hereof, the authorized capital stock of the Company consists of (i)
100,000,000 shares of Common Stock, $0.00001 par value per share, of which
11,480,909 shares are outstanding as of the date hereof.

     

    Except as otherwise disclosed in the
SEC Documents, there are no outstanding securities which are convertible into
shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future.

     

    All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and non-assessable.

     

    Section 4.4 COMMON STOCK. The Company
has registered the Common Stock pursuant to Section 12(b) or 12(g) of the
Exchange Act and is in full compliance with all reporting requirements of the
Exchange Act, and the Company has maintained all requirements for the continued
listing or quotation of the Common Stock, and such Common Stock is currently
listed or quoted on the Principal Market. The Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the SEC is contemplating terminating
such registration. 

     

    Section 4.5 SEC DOCUMENTS. The Company
may make available to Investor true and complete copies of the SEC Documents
(including, without limitation, proxy information and solicitation materials).
To the Company’s knowledge, the Company has not provided to Investor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
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 light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include 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 operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).

     

    
      
        
        

      

      
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    Section 4.6 VALID ISSUANCES. When
issued and paid for as herein provided, the Put Shares, the Warrant Shares, and
the Blackout Shares, if any, shall be duly and validly issued, fully paid, and
non-assessable. Neither the sales of the Put Shares or the Blackout Shares, if
any, pursuant to, nor the Company's performance of its obligations under, this
Agreement or the Registration Rights Agreement shall (a) result in the creation
or imposition of any liens, charges, claims or other encumbrances upon the Put
Shares, Warrant Shares or Blackout Shares, if any, or any of the assets of the
Company, or (b) entitle the holders of outstanding shares of Common Stock to
preemptive or other rights to subscribe to or acquire the Common Stock or other
securities of the Company. The Put Shares, Warrant Shares and Blackout Shares,
if any, shall not subject Investor to personal liability, in excess of the
subscription price by reason of the ownership thereof.

     

    Section 4.7 [INTENTIONALLY
OMITTED]

     

    Section 4.8 [INTENTIONALLY
OMITTED]

     

    Section 4.9 NO CONFLICTS. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, including
without limitation the issuance of the Put Shares and the Blackout Shares, if
any, do not and will not (a) result in a violation of the Certificate or By-Laws
or (b) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (c) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any of
the foregoing. The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
possible violations that either singly or in the aggregate do not and will not
have a Material Adverse Effect. The Company is not required under federal, state
or local law, rule or regulation 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 this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, FINRA or state securities filings that may be required to
be made by the Company subsequent to any Closing, any registration statement
that may be filed pursuant hereto, and any shareholder approval required by the
rules applicable to companies whose common stock trades on the OTCBB); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of Investor herein.

     

    Section 4.10 NO MATERIAL ADVERSE
CHANGE. Since December 24, 2009 no event has occurred that would have a Material
Adverse Effect on the Company, except as disclosed in the SEC
Documents.

     

    Section 4.11 NO UNDISCLOSED
LIABILITIES. The Company has no liabilities or obligations that are material,
individually or in the aggregate, and that are not disclosed in the SEC
Documents or otherwise publicly announced, other than those incurred in the
ordinary course of the Company's businesses since December 24, 2009 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.

     

    Section 4.12 NO UNDISCLOSED EVENTS OR
CIRCUMSTANCES. Since December 24, 2009, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the SEC
Documents.

     

    Section 4.13 [INTENTIONALLY
OMITTED]

     

    
      
        
        

      

      
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    Section 4.14 LITIGATION AND OTHER
PROCEEDINGS. Except as may be set forth in the SEC Documents, there are no
lawsuits or proceedings pending or to the knowledge of the Company threatened,
against the Company, nor has the Company received any written or oral notice of
any such action, suit, proceeding or investigation, which would have a Material
Adverse Effect. Except as set forth in the SEC Documents, no judgment, order,
writ, injunction or decree or award has been issued by or, so far as is known by
the Company, requested of any court, arbitrator or governmental agency which
would have a Material Adverse Effect.

     

    Section 4.15 MATERIAL NON-PUBLIC
INFORMATION. The Company is not in possession of, nor has the Company or its
agents disclosed to Investor, any material non-public information that (a) if
disclosed, would reasonably be expected to have a materially adverse effect on
the price of the Common Stock or (b) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.

     

    ARTICLE
V

    COVENANTS
OF INVESTOR

     

    Section 5.1 COMPLIANCE WITH LAW;
TRADING IN SECURITIES. Investor's trading activities with respect to shares of
the Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of FINRA
and the Principal Market on which the Common Stock is listed or
quoted.

     

    Section 5.2 SHORT SALES AND
CONFIDENTIALITY. Neither Investor nor any affiliate of the Investor acting on
its behalf or pursuant to any understanding with it will execute any Short Sales
during the period from the date hereof to the end of the Commitment Period. For
the purposes hereof, and in accordance with Regulation SHO, the sale after
delivery of a Put Notice of such number of shares of Common Stock reasonably
expected to be purchased under a Put Notice shall not be deemed a Short
Sale.

     

    Other than to other Persons party to
this Agreement, Investor has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).

     

    ARTICLE
VI

    COVENANTS
OF THE COMPANY

     

    Section 6.1 REGISTRATION RIGHTS. The
Company shall use its best efforts to cause the Registration Statement to remain
in full force and effect and the Company shall comply in all respects with the
terms thereof.

     

    Section 6.2 RESERVATION OF COMMON
STOCK. As of the date hereof, the Company has available and the Company shall
reserve and keep available at all times, free of preemptive rights, 300,000
shares of Common Stock for the purpose of enabling the Company to satisfy its
obligation to issue the Warrant Shares. The Company will, from time to time as
needed in advance of a Closing Date, reserve and keep available until the
consummation of such Closing, free of preemptive rights sufficient shares of
Common Stock for the purpose of enabling the Company to satisfy its obligation
to issue the Put Shares to be issued in connection therewith. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.

     

    Section 6.3 LISTING OF COMMON STOCK. If
the Company applies to have the Common Stock traded on any other Principal
Market, it shall include in such application the Put Shares, the Warrant Shares,
and the Blackout Shares, if any, and shall take such other action as is
necessary or desirable in the reasonable opinion of Investor to cause the Common
Stock to be listed on such other Principal Market as promptly as possible. The
Company shall use its commercially reasonable efforts to continue the listing
and trading of the Common Stock on the Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the FINRA and the Principal Market.

     

    
      
        
        

      

      
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    Section 6.4 EXCHANGE ACT REGISTRATION.
The Company shall take all commercially reasonable steps to cause the Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will use its commercially reasonable efforts to comply in all material
respects with its reporting and filing obligations under said act, and will not
take any action or file any document (whether or not permitted by said act or
the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under the Exchange Act. 

     

    Section 6.5 NOTICE OF CERTAIN EVENTS
AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall
promptly notify Investor upon the occurrence of any of the following events in
respect of a registration statement or related prospectus in respect of an
offering of Registrable Securities: (a) receipt of any request 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; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) 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; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or 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
a 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 (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.

     

    Section 6.6 CONSOLIDATION; MERGER. The
Company shall not at any time after the date hereof effect any merger or
consolidation of the Company unless the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver to
Investor such shares of Common Stock and/or securities as Investor is entitled
to receive pursuant to this Agreement.

     

    Section 6.7 REIMBURSEMENT. If (i)
Investor, other than by reason of its gross negligence or willful misconduct,
becomes involved in any capacity in any action, proceeding or investigation
brought by any shareholder of the Company, in connection with or as a result of
the consummation of the transactions contemplated by the Transaction Documents,
or if Investor is impleaded in any such action, proceeding or investigation by
any person, or (ii) Investor, other than by reason of its gross negligence or
willful misconduct or by reason of its trading of the Common Stock in a manner
that is illegal under the federal securities laws, becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC against
or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents, or
if Investor is impleaded in any such action, proceeding or investigation by any
person, then in any such case, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred.
The reimbursement obligations of the Company under this section shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliates of Investor that are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of Investor and any such affiliate, and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives of
the Company, Investor and any such affiliate and any such person.

     

    
      
        
        

      

      
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    Section 6.8 DILUTION. The number of
shares of Common Stock issuable as Put Shares may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Commitment Period. The
Company’s executive officers and directors have studied and fully understand the
nature of the transactions contemplated by this Agreement and recognize that
they have a potential dilutive effect. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in the
best interests of the Company. The Company specifically acknowledges that its
obligation to issue the Put Shares is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.

     

    Section 6.9 CERTAIN AGREEMENTS. The
Company covenants and agrees that it will not, without the prior written consent
of the Investor, enter into any other equity line of credit agreement with a
third party during the Commitment Period having terms and conditions
substantially comparable to this Agreement. For the avoidance of doubt, nothing
contained in the Transaction Documents shall restrict, or require the Investor's
consent for, any agreement providing for the issuance or distribution of (or the
issuance or distribution of) any equity securities pursuant to any agreement or
arrangement that is not commonly understood to be an "equity line of
credit."

     

    ARTICLE
VII

    CONDITIONS
TO DELIVERY OF

    PUT
NOTICES AND CONDITIONS TO CLOSING

     

    Section 7.1 CONDITIONS PRECEDENT TO THE
OBLIGATION OF THE COMPANY TO ISSUE AND SELL COMMON STOCK. The obligation
hereunder of the Company to issue and sell the Put Shares to Investor incident
to each Closing is subject to the satisfaction, at or before each such Closing,
of each of the conditions set forth below.

     

    (a) ACCURACY OF INVESTOR'S
REPRESENTATIONS AND WARRANTIES. The representations and warranties of Investor
shall be true and correct in all material respects as of the date of this
Agreement and as of the date of each such Closing as though made at each such
time, except for changes which have not had a Material Adverse
Effect.

     

    (b) PERFORMANCE BY INVESTOR. Investor
shall have performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by Investor at or prior to such Closing.

     

    (c) Principal Market
Regulation. The Company shall not issue any Put Shares, Warrant Shares or
Blackout Shares, if any, and the Investor shall not have the right to receive
any Put Shares, Warrant Shares or Blackout Shares, if the issuance of such
shares would exceed the aggregate number of shares of Common Stock which the
Company may issue without breaching the Company’s obligations under the rules or
regulations of the Principal Market (the “EXCHANGE CAP”), except that such
limitation shall not apply in the event that the Company obtains the approval of
its stockholders as required by the applicable rules of the Principal Market for
issuances of Common Stock in excess of such amount, which such approval the
Company will use its best efforts to obtain. Until such approval is obtained,
Investor shall not be issued under the Transaction Documents, shares of Common
Stock in an amount greater than the Exchange Cap.

     

    Section 7.2 CONDITIONS PRECEDENT TO THE
RIGHT OF THE COMPANY TO DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO
PURCHASE PUT SHARES. The right of the Company to deliver a Put Notice and the
obligation of Investor hereunder to acquire and pay for the Put Shares incident
to a Closing is subject to the satisfaction, on (i) the date of delivery of such
Put Notice and (ii) the applicable Closing Date (each a "CONDITION SATISFACTION
DATE"), of each of the following conditions:

     

    
      
        
        

      

      
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    (a) EFFECTIVE REGISTRATION STATEMENT.
As set forth in the Registration Rights Agreement, a Registration Statement, and
any amendment or supplement thereto, shall have previously become effective for
the resale by Investor of the Registrable Securities subject to such Put Notice,
and such Registration Statement shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor Investor shall have received
notice that the SEC has issued or intends to issue a stop order with respect to
such Registration Statement or that the SEC otherwise has suspended or withdrawn
the effectiveness of such Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and 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 such Registration Statement or
related prospectus shall exist.

     

    (b) ACCURACY OF THE COMPANY'S
REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company shall be true and correct in all material respects as of each Condition
Satisfaction Date as though made at each such time (except for representations
and warranties specifically made as of a particular date) with respect to all
periods, and as to all events and circumstances occurring or existing to and
including each Condition Satisfaction Date, except for any conditions which have
temporarily caused any representations or warranties herein to be incorrect and
which have been corrected with no continuing impairment to the Company or
Investor.

     

    (c) 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.

     

    (d) NO INJUNCTION. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or adopted by any court or governmental authority
of competent jurisdiction that prohibits or directly and materially 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
materially adversely affecting any of the transactions contemplated by this
Agreement.

     

    (e) ADVERSE CHANGES. Since the date of
filing of the Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has occurred.

     

    (f) NO SUSPENSION OF TRADING IN OR
DELISTING OF COMMON STOCK. The trading of the Common Stock shall not have been
suspended by the SEC, the Principal Market or the FINRA and the Common Stock
shall have been approved for listing or quotation on and shall not have been
delisted from the Principal Market.


    (g) LEGAL OPINION. The Company shall
have caused to be delivered to Investor, prior to the first Closing, an opinion
of the Company's legal counsel in the form of Exhibit C hereto, addressed to
Investor.

     

    (h) FIVE PERCENT LIMITATION. On each
Closing Date, the number of Put Shares then to be purchased by Investor shall
not exceed the number of such shares that, when aggregated with all other shares
of Registrable Securities then owned by Investor beneficially or deemed
beneficially owned by Investor, would result in Investor owning more than 4.99%
of all of such Common Stock as would be outstanding on such Closing Date, as
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section, in the event that the
amount of Common Stock outstanding as determined in accordance with Section 16
of the Exchange Act and the regulations promulgated thereunder is greater on a
Closing Date than on the date upon which the Put Notice associated with such
Closing Date is given, the amount of Common Stock outstanding on such Closing
Date shall govern for purposes of determining whether Investor, when aggregating
all purchases of Common Stock made pursuant to this Agreement and Blackout
Shares, if any, would own more than 4.99% of the Common Stock following such
Closing Date.

     

    
      
        
        

      

      
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    (i) Principal Market
Regulation. The Company shall not issue any Put Shares, Warrant Shares or
Blackout Shares, if any, and the Investor shall not have the right to receive
any Put Shares, Warrant Shares or Blackout Shares, if the issuance of such
shares would exceed the Exchange Cap, except that such limitation shall not
apply in the event that the Company obtains the approval of its stockholders as
required by the applicable rules of the Principal Market for issuances of Common
Stock in excess of such amount, which such approval the Company will use its
best efforts to obtain. Until such approval is obtained, Investor shall not be
issued under the Transaction Documents, shares of Common Stock in an amount
greater than the Exchange Cap.

     

    (j) NO KNOWLEDGE. The Company shall
have no knowledge of any event more likely than not to have the effect of
causing such Registration Statement to be suspended or otherwise ineffective
(which event is more likely than not to occur within the fifteen Trading Days
following the Trading Day on which such Notice is deemed
delivered).

     

    (k) SHAREHOLDER VOTE. 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.

     

    (l) NO VALUATION EVENT. No Valuation
Event shall have occurred since the Put Date.


    (m) OTHER. On each Condition
Satisfaction Date, Investor shall have received a certificate in substantially
the form and substance of Exhibit D hereto, executed by an executive officer of
the Company and to the effect that all the conditions to such Closing shall have
been satisfied as at the date of each such certificate.

     

    ARTICLE
VIII

    LEGENDS

     

    Section 8.1 LEGENDS. Until such time as
the Registrable
Securities have been registered under the Securities Act, as contemplated
by the Registration Rights Agreement, and sold in accordance with an effective
Registration Statement or otherwise in accordance with another effective
registration statement, or until such Registrable Securities
can otherwise be sold without restriction, whichever is earlier, each
certificate representing Registrable Securities will bear the following legend
(the "LEGEND"):

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

     

    The Company warrants that it will give
the Transfer Agent no instructions inconsistent with the provisions hereof. It
is the intent and purpose of such instructions, as provided therein, to require
the Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing, free of the Legend; provided that (a) a
Registration Statement shall then be effective, (b) Investor confirms to the
Transfer Agent and the Company that it has sold or intends to sell such Common
Stock to a third party which is not an affiliate of Investor or the Company and
Investor agrees to redeliver the certificate representing such shares of Common
Stock to the Transfer Agent to add the Legend in the event the Common Stock is
not sold, and (c) Investor confirms to the transfer agent and the Company that
Investor has complied, or will comply with the prospectus delivery requirement
under the Securities Act.

     

    
      
        
        

      

      
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    Section 8.2 NO OTHER LEGEND OR STOCK
TRANSFER RESTRICTIONS. No legend other than the one specified in Section 8.1 has
been or shall be placed on the share certificates representing the Common
Stock.

     

    Section 8.3 COVER. If the Company fails
for any reason to take or cause to be taken all steps necessary on the part of
the Company to deliver the Put Shares on such Closing Date and the holder of the
Put Shares (a "Investor") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by such Investor (the "Sold Shares"),
which delivery such Investor anticipated to make using the Put Shares (a
"Buy-In"), then the Company shall pay to such Investor, in addition to all other
amounts contemplated in other provisions of the Transaction Documents, and not
in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess, if any, of (x) such
Investor’s total purchase price (including brokerage commissions, if any) for
the Covering Shares over (y) the net proceeds (after brokerage commissions, if
any) received by such Investor from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to such Investor in immediately available
funds immediately upon demand by such Investor. By way of illustration and not
in limitation of the foregoing, if such Investor purchases Covering Shares
having a total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock that it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount that the Company will be
required to pay to such Investor will be $1,000.

     

    Section 8.4 INVESTOR'S COMPLIANCE.
Nothing in this Article VIII shall affect in any way Investor's obligations
under any agreement to comply with all applicable securities laws upon resale of
the Common Stock.

     

    ARTICLE
IX

    NOTICES;
INDEMNIFICATION

     

    Section 9.1 NOTICES. All notices,
demands, requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise specified herein,
shall be (a) personally served, (b) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (c) delivered by reputable
air courier service with charges prepaid, or (d) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice given in
accordance herewith. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (i) upon hand delivery or delivery
by facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (ii) on the second business day following the date of mailing by express
courier service or on the fifth business day after deposited in the mail, in
each case, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur.

     

    The
addresses for such communications shall be:

     

    If to the Company: 

     

    Covenant Group of China,
Inc.

    Two Bala Plaza, Suite 300

    Bala Cynwyd, PA 19004

    Attn: Justin Csik, Esq.

    Tel: 609-923-3932

    Fax: 609-953-0289

     

    
      
        
        

      

      
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    With a copy to:

     

    Buchanan Ingersoll & Rooney
PC

    Two Liberty Place, Suite
3200

    Philadelphia, PA 19102

    Attn: William Uchimoto,
Esq.

    Tel: 215-665-3813

    Fax: 215-665-8760

     

    If to Investor:

     

    Southridge Partners II, LP

    90 Grove Street

    Ridgefield, Connecticut
06877

    Tel: 203-431-8300

    Fax: 203-431-8301

     

    Either
party hereto may from time to time change its address or facsimile number for
notices under this Section 9.1 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party
hereto.

     

    Section 9.2 INDEMNIFICATION. The
Company agrees to indemnify and hold harmless Investor and its officers,
directors, employees, and agents, and each Person or entity, if any, who
controls Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its
officer’s, director’s, employee’s, agent’s or Controlling Person’s negligence,
recklessness or bad faith in performing its obligations under this
Agreement.

     

    Section 9.3 METHOD OF ASSERTING
INDEMNIFICATION CLAIMS. All claims for indemnification by any Indemnified Party
(as defined below) under Section 9.2 shall be asserted and resolved as
follows:

     

    (a) In the event any claim or demand in
respect of which any person claiming indemnification under any provision of
Section 9.2 (an "INDEMNIFIED PARTY") might seek indemnity under Section 9.2 is
asserted against or sought to be collected from such Indemnified Party by a
person other than a party hereto or an affiliate thereof (a "THIRD PARTY
CLAIM"), the Indemnified Party shall deliver a written notification, enclosing a
copy of all papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim for indemnification
that is being asserted under any provision of Section 9.2 against any person
(the "INDEMNIFYING PARTY"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.2 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.

     

    
      
        
        

      

      
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    (i) If the Indemnifying Party notifies
the Indemnified Party within the Dispute Period that the Indemnifying Party
desires to defend the Indemnified Party with respect to the Third Party Claim
pursuant to this Section 9.3(a), then the Indemnifying Party shall have the
right to defend, with counsel reasonably satisfactory to the Indemnified Party,
at the sole cost and expense of the Indemnifying Party, such Third Party Claim
by all appropriate proceedings, which proceedings shall be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or will be
settled at the discretion of the Indemnifying Party (but only with the consent
of the Indemnified Party in the case of any settlement that provides for any
relief other than the payment of monetary damages or that provides for the
payment of monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have
full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may takeover
the control of the defense or settlement of a Third Party Claim at any time if
it irrevocably waives its right to indemnity under Section 9.2 with respect to
such Third Party Claim.

     

    (ii) If the Indemnifying Party fails to
notify the Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Third Party Claim pursuant to Section 9.3(a), or if
the Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified
Party(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this clause (ii) or of
the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.

     

    
      
        
        

      

      
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    (iii) If the Indemnifying Party
notifies the Indemnified Party that it does not dispute its liability or the
amount of its liability to the Indemnified Party with respect to the Third Party
Claim under Section 9.2 or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with respect to such Third
Party Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.

     

    (b) In the event any Indemnified Party
should have a claim under Section 9.2 against the Indemnifying Party that does
not involve a Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under Section 9.2 specifying the nature of
and basis for such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such claim (an
"INDEMNITY NOTICE") with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity Notice or fails to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that if the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
entitled to institute such legal action as it deems appropriate.

     

    (c) The indemnity agreements contained
herein shall be in addition to (i) any cause of action or similar rights of the
Indemnified Party against the Indemnifying Party or others, and (ii) any
liabilities the Indemnifying Party may be subject to.

     

    ARTICLE
X

    MISCELLANEOUS

     

    Section 10.1 GOVERNING LAW;
JURISDICTION. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the principles of
conflicts of law. Each of the Company and Investor hereby submit to the
exclusive jurisdiction of the United States Federal and state courts located in
New York County, New York with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.

     

    Section 10.2 JURY TRIAL WAIVER. The
Company and the Investor hereby waive a trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the other in
respect of any matter arising out of or in connection with the Transaction
Documents.

     

    Section 10.3 ASSIGNMENT. This Agreement
shall be binding upon and inure to the benefit of the Company and Investor and
their respective successors and permitted assigns. Neither this Agreement nor
any rights of Investor or the Company hereunder may be assigned by either party
to any other person without the prior written consent of the other
party.

     

    Section 10.4 THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the Company and Investor and their
respective successors and permitted assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.

     

    
      
        
        

      

      
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    Section 10.5 TERMINATION. The Company
may terminate this Agreement at any time by written notice to the Investor.
Additionally, this Agreement shall terminate at the end of Commitment Period or
as otherwise provided herein (unless extended by the agreement of the Company
and Investor); provided, however, that the provisions of Articles V, VI, VIII,
and Sections 9.2, 9.3 10.1, 10.2 and 10.4 shall survive the termination of this
Agreement.

     

    Section 10.6 ENTIRE AGREEMENT,
AMENDMENT; NO WAIVER. This Agreement and the instruments referenced herein
contain the entire understanding of the Company and Investor with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor 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 10.7 FEES AND EXPENSES. Each of
the Company and Investor agrees to pay its own expenses in connection with the
preparation of this Agreement and performance of its obligations hereunder,
except that the Company shall pay Investor upon execution hereof, a single fee
of $7,500 to cover its expenses related to the consummation of this Agreement.
In addition, the Company shall pay all reasonable fees and expenses incurred by
the Investor in connection with any amendments, modifications or waivers of this
Agreement or the Registration Rights Agreement or incurred in connection with
the enforcement of this Agreement and the Registration Rights Agreement,
including, without limitation, all reasonable attorneys fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto.

     

    Section 10.8 [INTENTIONALLY
OMITTED]

     

    Section 10.9 COUNTERPARTS. This
Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the Company and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. This Agreement may be delivered to the other parties hereto by
facsimile transmission of a copy of this Agreement bearing the signature of the
parties so delivering this Agreement.

     

    Section 10.10 SURVIVAL; SEVERABILITY.
The representations, warranties, covenants and agreements of the Company hereto
shall survive each Closing hereunder for a period of one (1) year thereafter. In
the event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
such severability shall be ineffective if it materially changes the economic
benefit of this Agreement to any party.

     

    Section 10.11 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 the 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.

     

    Section 10.12 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.

     

    Section 10.13 EQUITABLE RELIEF. The
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under this Agreement, any remedy at law
may prove to be inadequate relief to Investor. The Company therefore agrees that
Investor shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.

     

    Section 10.14 TITLE AND SUBTITLES. The
titles and subtitles used in this Agreement are used for the convenience of
reference and are not to be considered in construing or interpreting this
Agreement.

     

    
      
        
        

      

      
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    Section 10.15 REPORTING ENTITY FOR THE
COMMON STOCK. The reporting entity relied upon for the determination of the
Closing Bid Price of the Common Stock on any given Trading Day for the purposes
of this Agreement shall be the Principal Market or any successor thereto. The
written mutual consent of Investor and the Company shall be required to employ
any other reporting entity.

     

    Section 10.16 PUBLICITY. The Company
and Investor shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and no party shall issue any such press release or otherwise make any
such public statement without the prior written consent of the other parties,
which consent shall not be unreasonably withheld or delayed, except that no
prior consent shall be required if such disclosure is required by law, in which
such case the disclosing party shall provide the other parties with prior notice
of such public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Investor without the prior written consent of such
Investor, except to the extent required by law. Investor acknowledges that this
Agreement and all or part of the Transaction Documents may be deemed to be
"material contracts" as that term is defined by Item 601(b)(10) of Regulation
S-K, and that the Company may therefore be required to file such documents as
exhibits to reports or registration statements filed under the Securities Act or
the Exchange Act. Investor further agrees that the status of such documents and
materials as material contracts shall be determined solely by the Company, in
consultation with its counsel.

    
 

    [SIGNATURES
ON FOLLOWING PAGE]

     

    
      
        
        

      

      
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    [SIGNATURE
PAGE]

    
 

    IN WITNESS WHEREOF, the
parties hereto have caused this Equity Credit Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth
above.

    
 

    
      	 	 SOUTHRIDGE PARTNERS II,
      LP
	 	 
	 	 BY Southridge
      Advisors LLC
	 	 
	 	 By:   
       /s/ Stephen
      Hicks
	 	    Name:
      Stephen Hicks
	 	
                  Title:
      Manager

            
	 	 
	 	 COVENANT
      GROUP OF CHINA, INC.
	 	 
	 	 
	 	 By:    
      /s/ Kenneth
      Wong
	 	    Name:
      Kenneth Wong
	 	    Title: Chief
      Executive Officer
	 	 


    

    
       

       

    

     

     

     

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