Unassociated Document
THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Principal Amount: $________.00 |
|
Issue Date: July ___,
2007 |
CONVERTIBLE
NOTE
FOR
VALUE
RECEIVED, EVER-GLORY INTERNATIONAL GROUP, INC., a Florida corporation
(hereinafter called "Borrower"), hereby promises to pay to
____________________________ (the "Holder"), without demand, the sum of _______
Dollars ($_______), with simple and unpaid interest thereon, on July ___, 2009
(the "Maturity Date"), if not paid sooner.
This
Note
has been entered into pursuant to the terms of a Subscription Agreement between
the Borrower, the Holder and certain other subscribers of the Borrower’s
convertible notes, dated of even date herewith (the “Subscription Agreement”),
and shall be governed by the terms of such Subscription Agreement. Unless
otherwise separately defined herein, all capitalized terms used in this Note
shall have the same meaning as is set forth in the Subscription Agreement.
The
following terms shall apply to this Note:
ARTICLE
I
GENERAL
PROVISIONS
1.1 Payment
Grace Period.
The
Borrower shall have a twelve (12) business day grace period to pay any monetary
amounts due under this Note, after which grace period and during the pendency
of
an Event of Default (as defined in Article III) a default interest rate of
twelve percent (12%) per annum shall apply to the amounts owed
hereunder.
1.2. Interest
Rate.
Interest payable on this Note shall accrue at the annual rate of six percent
(6%). Accrued interest will be payable in arrears on September 28, 2007, on
the
last business day of each calendar quarter thereafter and on the Maturity Date,
whether by acceleration or otherwise. Interest will be payable in cash or
Provided an Event of Default or an event which with the passage of time or
giving of notice could become and Event of Default has not occurred, at the
election of the Borrower, by the Borrower’s delivery of registered shares of
Common Stock (“Interest Shares”) valued at 110% of the volume weighted average
price as reported by Bloomberg L.P. for the ten (10) trading days preceding
such
interest payment date.
1.3. Conversion
Privileges.
The
conversion rights of the Holder as set forth in Article II of this Note shall
remain in full force and effect immediately from the date hereof and until
the
Note is paid in full regardless of the occurrence of an Event of Default. The
principal amount of the Note and the remaining accrued but unpaid interest
shall
be payable in full on the Maturity Date, unless previously paid or converted
into Common Stock in accordance with Article II hereof.
1.4. Application
of Payments.
Payments received by Holder from Borrower shall be applied first to outstanding
liquidated and other damages, then to accrued but unpaid interest and then
to
principal.
1.5 Optional
Redemption by Borrower.
At
any
time after the date of issuance of this Note, the Borrower may deliver a notice
to the Holder (an “Optional Redemption Notice” and the date such notice is
deemed delivered hereunder, the “Optional Redemption Notice Date”) of its
irrevocable election to redeem, without penalty, all of the then outstanding
principal amount of this Note for cash in an amount equal to 125% of the then
outstanding principal and accrued unpaid interest hereunder (“Optional
Redemption Amount”), on the 30th
Trading
Day following the Optional Redemption Notice Date (such date, the “Optional
Redemption Date” and such redemption, the “Optional Redemption”). The Optional
Redemption Amount may not be paid prior to the Optional Redemption Date. The
Optional Redemption Amount shall payable in full on the Optional Redemption
Date. The Borrower covenants and agrees that it will honor all Notices of
Conversion tendered from the time of delivery of the Optional Redemption Notice
through the date all amounts owing thereon are due and paid in full. Should
the
Borrower elect to exercise it rights under the Optional Redemption, commencing
on the Optional Redemption Notice Date, the conversion limitations set forth
in
Section 2.4 of this Note shall increase so that the
Holder is permitted to be the beneficial owner of up to 9.99% of the
issued and outstanding shares of Common Stock of the Borrower.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the entire principal amount under this
Note and the accrued but unpaid interest thereon into shares of the Borrower's
Common Stock as set forth below.
2.1. Voluntary
Conversion into the Borrower's Common Stock.
(a) The
Holder shall have the right from and after the Issue Date of the issuance of
this Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note, at the election of the
Holder (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock as such stock
exists on the date of issuance of this Note, or any shares of capital stock
of
Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 2.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the
Borrower of a completed Notice of Conversion, a form of which is annexed hereto,
Borrower shall issue and deliver to the Holder within three (3) business days
after the Conversion Date (such third day being the “Delivery Date”) that number
of shares of Common Stock for the portion of the Note converted in accordance
with the foregoing. The number of shares of Common Stock to be issued upon
each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted, by the Conversion Price.
(b) Subject
to adjustment as provided for in Section 2.1(c) hereof, the Conversion Price
per
share of Common Stock shall be $0.22 (“Conversion Price”).
(c)
The
Conversion Price and the number and kind of shares or other securities to be
issued upon conversion of this Note, shall be subject to adjustment from time
to
time upon the happening of certain events while this conversion right remains
outstanding, as follows:
A. Merger,
Sale of Assets, etc.
If the
Borrower at any time shall consolidate with or merge into or sell or convey
all
or substantially all its assets to any other corporation, this Note, as to
the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares
or
other securities and property as would have been issuable or distributable
on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision
shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of
such
successor or purchaser or surviving entity of the surviving corporation after
any such consolidation, merger, sale or conveyance.
B. Reclassification,
etc.
If the
Borrower at any time shall, by reclassification or otherwise, change the Common
Stock into the same or a different number of securities of any class or classes
of the Borrower’s capital stock that may be issued or outstanding, this Note, as
to the unpaid principal amount thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the shares of Common Stock subject to the
conversion of this Note immediately prior to such reclassification or other
change.
C. Stock
Splits, Combinations and Dividends.
If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall be proportionately reduced
in case of subdivision of shares or stock dividend or proportionately increased
in the case of combination of shares, in each such case by the ratio which
the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.
D. Share
Issuance.
So long
as this Note is outstanding, if the Borrower shall issue or agree to issue
any
shares of Common Stock other than with respect to any Excepted Issuances for
a
price per share less than the Conversion Price in effect at the time of such
issue, then, and thereafter successively upon each such issue, the Conversion
Price shall be reduced to such other lower issue price. For the purposes of
this
adjustment, the issuance of any security carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights
if
such issuance is at a price lower than the then applicable Conversion Price.
The
reduction of the Conversion Price described in this paragraph is in addition
to
other rights of the Holder described in this Note and the Subscription
Agreement.
(d) Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly provide notice to the Holder setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring
such
adjustment.
(e) The
Borrower will reserve from its authorized and unissued shares of Common Stock,
the number of shares of Common Stock during the time periods and in the amounts
described in the Subscription Agreement. The Borrower represents that upon
issuance, such shares of Common Stock will be duly and validly issued, fully
paid and non-assessable. The Borrower agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents
who
are charged with the duty of executing and issuing stock certificates to execute
and issue the necessary certificates for shares of the Borrower’s Common Stock
upon the conversion of this Note.
2.2 No
Fractional Shares.
No
fractional shares of Common Stock shall be issued upon conversion of this Note,
but an adjustment in cash will be made, in respect of any fraction of a share
(which will be valued based on the Conversion Price) which would otherwise
be
issuable upon the surrender of this Note for conversion and a check in the
amount of the value of such fractional share shall be delivered to the Holder.
2.3 Method
of Conversion.
This
Note may be converted by the Holder in whole or in part as described in Section
2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this
Note, a new Note containing the same date and provisions of this Note shall,
at
the request of the Holder, be issued by the Borrower to the Holder for the
principal balance of this Note and interest which shall not have been converted
or paid.
2.4 Maximum
Conversion.
The
Holder shall not be entitled to convert on a Conversion Date that amount of
the
Note in connection with that number of shares of Common Stock which would be
in
excess of the sum of (i) the number of shares of Common Stock beneficially
owned
by the Holder and its affiliates on a Conversion Date, and (ii) the number
of
shares of Common Stock issuable upon the conversion of the Note with respect
to
which the determination of this provision is being made on a Conversion Date,
which would result in beneficial ownership by the Holder and its affiliates
of
more than 4.99% of the issued and outstanding shares of Common Stock of the
Borrower on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
shall not be limited to aggregate conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%. The Holder shall have the authority
and obligation to determine whether the restriction contained in this Section
2.4 will limit any conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of the amount of the Note which is convertible shall be the
responsibility and obligation of the Holder. The
Holder may increase the permitted beneficial ownership amount up to 9.99% upon
and effective after 61 days prior written notice to the Borrower.
The
Holder may allocate which of the equity of the Borrower deemed beneficially
owned by the Holder shall be included in the 4.99% amount described above and
which shall be allocated to the excess above 4.99%.
ARTICLE
III
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event of Default") shall,
at the option of the Holder hereof, make all sums of principal and accrued
interest then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable, upon demand, without presentment or grace period,
all of which hereby are expressly waived, except as set forth
below:
3.1 Failure
to Pay Principal or Interest.
The
Borrower fails to pay any installment of interest or other sum due under this
Note when due and such failure continues for a period of twelve (12) business
days after the due date. The twelve (12) day period described in this Section
3.1 is the same twelve (12) business day period described in Section 1.1
hereof.
3.2 Breach
of Covenant.
The
Borrower breaches any material covenant or other material term or condition
of
the Subscription Agreement or any other material term or condition of this
Note
in any material respect and such breach continues for a period of twelve (12)
business days
3.3 Breach
of Representations and Warranties.
Any
material representation or warranty of the Borrower made herein, in any
Transaction Document, or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith or therewith shall be false
or
misleading in any material respect as of the date made and as of the Closing
Date.
3.4 Receiver
or Trustee.
The
Borrower shall make an assignment for the benefit of creditors, or apply for
or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed without the consent of the Borrower if such receiver or trustee
is
not dismissed within forty-five (45) days of appointment.
3.5 Judgments.
Any
money judgment, writ or similar final process shall be entered or filed against
the Borrower or any of its property or other assets for more than $100,000,
and
shall remain unpaid, unvacated, unbonded or unstayed for a period of forty-five
(45) days.
3.6 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance
of
any notice in relation to such event, for the relief of debtors shall be
instituted by or against the Borrower and if instituted against Borrower are
not
dismissed within forty-five (45) days of initiation.
3.7 Delisting.
Failure
of the Borrower’s Common Stock to be listed for trading or quotation on a
Principal Market, and such failure continues for more than 10 consecutive
trading days.
3.8 Non-Payment.
A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $100,000 for more than thirty (30) days after
the
due date, unless the Borrower is contesting the validity of such obligation
in
good faith and has segregated cash funds equal to not less than one-half of
the
disputed amount.
3.9 Stop
Trade.
An SEC
or judicial stop trade order or Principal Market trading suspension with respect
to the Borrower’s Common Stock that lasts for ten (10) or more consecutive
trading days.
3.10 Failure
to Deliver Common Stock or Replacement Note.
The
Borrower's failure to deliver Common Stock to the Holder pursuant to and in
the
form required by this Note and Sections 7 and 11 of the Subscription Agreement,
or, if required, a replacement Convertible Note more than ten (10) business
days
after the required delivery date of such Common Stock or replacement Convertible
Note.
3.11 Non-Registration
Event.
The
occurrence of a Non-Registration Event as described in Section 11.4 of the
Subscription Agreement.
3.12 Reservation
Default.
The
failure by the Borrower to have reserved for issuance upon conversion of the
Note the number of shares of Common Stock as required in the Subscription
Agreement, which condition continues uncured for 10 business days.
ARTICLE
IV
SECURITY
INTEREST
4. Security
Interest/Waiver of Automatic Stay.
This
Note is secured by a security interest granted to the Holder pursuant to a
Security Agreement, as delivered by Borrower to Holder. The Borrower
acknowledges and agrees that should a proceeding under any bankruptcy or
insolvency law be commenced by or against the Borrower, or if any of the
Collateral (as defined in the Security Agreement) should become the subject
of
any bankruptcy or insolvency proceeding, then the Holder should be entitled
to,
among other relief to which the Holder may be entitled under the Transaction
Documents and any other agreement to which the Borrower and Holder are parties
(collectively, "Loan Documents") and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section
362 to permit the Holder to exercise all of its rights and remedies pursuant
to
the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE
BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE,
THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE
ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.
The
Borrower hereby consents to any motion for relief from stay that may be filed
by
the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion
for
relief from stay filed by the Holder. The Borrower represents, acknowledges
and
agrees that this provision is a specific and material aspect of the Loan
Documents, and that the Holder would not agree to the terms of the Loan
Documents if this waiver were not a part of this Note. The Borrower further
represents, acknowledges and agrees that this waiver is knowingly, intelligently
and voluntarily made, that neither the Holder nor any person acting on behalf
of
the Holder has made any representations to induce this waiver, that the Borrower
has been represented (or has had the opportunity to he represented) in the
signing of this Note and the Loan Documents and in the making of this waiver
by
independent legal counsel selected by the Borrower and that the Borrower has
discussed this waiver with counsel.
ARTICLE
V
MISCELLANEOUS
5.1 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
5.2 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 a reputable overnight 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. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective 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),
(ii) on the first business day following the date deposited with an overnight
courier service with charges prepaid, or (iii) on the third business day
following the date of mailing pursuant to subpart (b) above, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
To Borrower: |
|
Ever-Glory International Group, Inc.,
|
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100 N. Barranca Ave # 810 |
|
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West Covina, CA 91791, |
|
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Attn: Edward Kang |
|
|
telecopier:
(626)839-9118, |
With a copy by fax to: |
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Edgar D. Park, Esq.
Richardson
& Patel LLP
10900
Wilshire Boulevard, Suite 500
Los
Angeles, CA 90024
Fax:
(310) 208-1154
|
To Holder: |
|
To the addresses and fax numbers set forth
on
the signature pages hereto
|
With a copy
by fax to: |
|
Grushko & Mittman, P.C.
551
Fifth Avenue, Suite 1601
New
York, New York 10176
Fax:
(212) 697-3575
|
5.3 Amendment
Provision.
The
term "Note" and all reference thereto, as used throughout this instrument,
shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
5.4 Assignability.
This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and assigns. This
Note shall not be divided by the Holder except in increments of not less than
$25,000 in principal amount and, in any event, the Holder shall immediately
provide the Borrower written notice of an assignment of any of the rights under
this Note.
5.5 Cost
of Collection.
If
default is made in the payment of this Note, Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys'
fees.
5.6 Governing
Law.
This
Note shall be governed by and construed in accordance with the laws of the
State
of New York. Any action brought by either party against the other concerning
the
transactions contemplated by this Agreement shall be brought only in the state
or Federal courts located in the State and County of New York. Both parties
and
the individual signing this Agreement on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled
to
recover from the other party its reasonable attorney's fees and costs.
In
the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note. Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit
or
taking other legal action against the Borrower in any other jurisdiction to
collect on the Borrower's obligations to Holder, to realize on any collateral
or
any other security for such obligations, or to enforce a judgment or other
decision in favor of the Holder. This
Note shall be deemed an unconditional obligation of Borrower for the payment
of
money and, without limitation to any other remedies of Holder, may be enforced
against Borrower by summary proceeding pursuant to New York Civil Procedure
Law
and Rules Section 3213 or any similar rule or statute in the jurisdiction where
enforcement is sought. For purposes of such rule or statute, any other document
or agreement to which Holder and Borrower are parties or which Borrower
delivered to Holder, which may be convenient or necessary to determine Holder’s
rights hereunder or Borrower’s obligations to Holder are deemed a part of this
Note, whether or not such other document or agreement was delivered together
herewith or was executed apart from this Note.
5.7 Maximum
Payments.
Nothing
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum rate permitted by
applicable law. In the event that the rate of interest required to be paid
or
other charges hereunder exceed the maximum rate permitted by applicable law,
any
payments in excess of such maximum rate shall be credited against amounts owed
by the Borrower to the Holder and thus refunded to the Borrower.
5.8 Shareholder
Status.
The
Holder shall not have rights as a shareholder of the Borrower with respect
to
unconverted portions of this Note. However, the Holder will have all the rights
of a shareholder of the Borrower with respect to the shares of Common Stock
to
be received by Holder after delivery by the Holder of a Conversion Notice to
the
Borrower.
[THIS
SPACE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
Borrower has caused this Note to be signed in its name by an authorized officer
as of the ____ day of July, 2007.
|
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|
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EVER-GLORY INTERNATIONAL GROUP,
INC. |
|
|
|
Date: |
By: |
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|
Name:
Title:
|
WITNESS:
______________________________________
EXHIBIT
A
NOTICE
OF CONVERSION
(To
be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert the principal amount of the Convertible
Note (the “Note”) issued by Every-Glory International Group, Inc. on June ___,
2007 and the accrued but unpaid interest thereon into shares of Common Stock
of
Every-Glory International Group, Inc. (the "Borrower") according to the
conditions set forth in such Note, as of the date written below.
Date
of
Conversion:____________________________________________________________________
Conversion
Price:______________________________________________________________________
Shares
To
Be
Delivered:_________________________________________________________________
Signature:____________________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_____________________________________________________________________________
____________________________________________________________________________