EQUITY CREDIT AGREEMENT BY AND BETWEEN COVENANT GROUP OF CHINA, INC. AND SOUTHRIDGE PARTNERS II, LP Dated January 31, 2010
Exhibit
10.7
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").
NOW, THEREFORE, the parties hereto
agree as follows:
ARTICLE
I
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.
2
"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.
3
"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).
4
"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).
5
"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.
6
“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
(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.
7
Section 2.4 [INTENTIONALLY
OMITTED]
Section 2.5 [INTENTIONALLY
OMITTED]
(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]
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.
8
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
The Company represents and warrants to
Investor that, except as disclosed in the SEC Documents:
9
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.
10
Section 4.7 [INTENTIONALLY
OMITTED]
Section 4.8 [INTENTIONALLY
OMITTED]
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]
11
ARTICLE
V
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
12
13
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:
14
(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.
15
(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
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.
16
ARTICLE
IX
The
addresses for such communications shall be:
If to the Company:
Covenant Group of China,
Inc.
Xxx Xxxx Xxxxx, Xxxxx 000
Xxxx Xxxxxx, XX 00000
Attn: Xxxxxx Xxxx, Esq.
Tel: 000-000-0000
Fax: 000-000-0000
17
With a copy to:
Xxxxxxxx Ingersoll & Rooney
PC
Xxx Xxxxxxx Xxxxx, Xxxxx
0000
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx,
Esq.
Tel: 000-000-0000
Fax: 000-000-0000
If to Investor:
Southridge Partners II, LP
00 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxxx
00000
Tel: 000-000-0000
Fax: 000-000-0000
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.
(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.
18
(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.
19
(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
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.
20
Section 10.8 [INTENTIONALLY
OMITTED]
21
[SIGNATURES
ON FOLLOWING PAGE]
22
[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/ Xxxxxxx Xxxxx | |
Name: Xxxxxxx Xxxxx | |
Title:
Manager
|
|
COVENANT GROUP OF CHINA, INC. | |
By: /s/ Xxxxxxx Xxxx | |
Name: Xxxxxxx Xxxx | |
Title: Chief Executive Officer | |
23