CHINA AGRI-BUSINESS, INC. FORM OF 3% CONVERTIBLE NOTE
THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE
AND
THE SHARES OF COMMON STOCK 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
SATISFACTORY TO CHINA AGRI-BUSINESS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
No.
_____
Issue
Date: _____, 2008
FORM
OF 3% CONVERTIBLE NOTE
FOR
VALUE
RECEIVED, CHINA AGRI-BUSINESS, INC., a Maryland corporation (the “Company”),
hereby promises to pay to the order of _______________________, or its assigns
(the “Holder”),
without demand, the sum of Twenty Five Thousand Dollars ($25,000), with simple
interest accruing at the rate described below.
This
Note
has been entered into pursuant to the terms of a Private Placement Memorandum
among the Company and the initial holders of the Company Notes (as defined
below), dated September 8,
2008
(the “PPM”),
and
shall be governed by the terms of such PPM. Unless otherwise separately defined
herein, all capitalized terms used in this Note shall have the same meaning
as
is set forth in the PPM.
ARTICLE
I
GENERAL
PROVISIONS
1.1 Payments.
Interest payable on this Note shall accrue from the Issue Date indicated above
at a rate per annum (the “Interest
Rate”)
equal
to three percent (3%), subject to adjustment pursuant to Section 1.2 (the
“Interest”).
Interest shall be compounded annually, and shall be payable on each anniversary
of the Issue Date. Interest shall be computed for actual days elapsed on the
basis of a 360 day year consisting of twelve 30-day months. The principal of
this Note (the “Principal”) and accrued but unpaid Interest thereon shall unless
earlier converted be payable in full on the date that shall be twenty-four
(24)
months after the Closing Date (the “Maturity
Date”).
The
Company shall have the right, in lieu of cash payment, to pay Interest in shares
of Common Stock (as defined below), or any shares of capital stock of the
Company into which such Common Stock shall hereafter be changed or reclassified,
at the conversion price as defined in Section 2.1(b) hereof, subject to approval
by the Holder.
Upon
any
conversion in part by the Holder in accordance with Article II, the Holder
and
the Company shall in good faith recalculate the outstanding principal balance
and the Interest payable with respect to the converted portion. Upon any full
conversion by the Holder in accordance with Article II, all of the payments
of
Principal due hereunder shall terminate and no further Interest shall accrue.
All payments in respect of the Principal shall be made in cash in U.S. dollars
and in immediately available funds, and payments shall be applied first to
Principal and then to charges and expenses owing under or in connection with
this Note.
1.2 Default
Interest.
Any
amount of Interest on this Note which is not paid when due shall bear interest
at the rate of fifteen percent (15%) per annum from the due date thereof until
the same is paid. Any amount of Principal on this Note which is not paid when
due shall bear interest at the rate of eight percent (8%) per annum from the
due
date thereof until the same is paid. Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.
1.3
Conversion
Rights.
The
conversion rights set forth in Article II 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 (as defined below). The Note shall
be
payable in full on the Maturity Date, except to the extent previously converted
into common stock of the Company (the “Common
Stock”)
in
accordance with Article II hereof.
1.4 Prepayment
Option.
The
Company may prepay in cash all or any portion of the outstanding principal
amount of this Note upon thirty (30) days prior written notice to the Holder
at
a price equal to one hundred ten percent (110%) of the outstanding principal
amount of this Note. The Holder shall have the right to convert any outstanding
principal in accordance with Article II hereof during such thirty day notice
period.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the Principal and accrued and unpaid
Interest due under this Note into shares of the Company’s Common Stock, as set
forth below.
2.1
Conversion
into the Company’s Common Stock.
(a) The
Holder shall have the right from and after the 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 (the date of such conversion being
a
“Conversion
Date”)
into
fully paid and non-assessable shares of Common Stock as such stock exists on
the
date of issuance of this Note (the “Conversion
Shares”),
or
any shares of capital stock of the Company 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 Company of a completed
Notice of Conversion, a form of which is annexed hereto, the Company shall
issue
and deliver to the Holder that number of shares of Common Stock for the portion
of the Note and related Interest 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 and
accrued Interest to be converted, by the Conversion Price. Each conversion
hereof shall constitute the re-affirmation by the Holder that the
representations and warranties contained in the Subscription Agreement are
true
and correct in all material respects with respect to the Holder as of the time
of such conversion. 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 Company to the Holder for the remaining Principal balance
of
this Note and Interest which shall not have been paid.
(b) Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
share shall be $0.50.
(c) The
Conversion Price and number and kind of shares of Common Stock or other
securities to be issued upon conversion as determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening
of
certain events while this Note remains outstanding, as follows:
(i) Reorganization,
Consolidation, Merger, etc.; Reclassification.
In case
at any time or from time to time, the Company shall effect any merger,
reorganization, restructuring, reverse stock split, consolidation, sale of
all
or substantially all of the Company’s assets or any similar transaction or
related transactions (each such transaction, a “Fundamental
Change”),
then,
in each such case, as a condition to the consummation of such a transaction,
proper and adequate provision shall be made by the Company whereby the Holder
of
this Note, on the conversion hereof, at any time after the consummation of
such
Fundamental Change, shall receive, in lieu of the Conversion Shares issuable
on
such conversion prior to such consummation or such effective date, the stock
and
other securities and property (including cash) to which such Holder would have
been entitled upon such consummation of a Fundamental Change if such Holder
had
so converted this Note, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 2.1(c)(iv).
If
the
Company 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
that may be issued or outstanding, this Note, as to the unpaid principal portion
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
Common Stock immediately prior to such reclassification or other
change.
(ii) Dissolution.
In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock
and
other securities and property (including cash, where applicable) receivable
by
the Holder of this Note after the effective date of such dissolution pursuant
to
this Article to a bank or trust company (a “Trustee”)
as
trustee for the Holder of this Note.
(iii) Continuation
of Terms.
Upon
any Fundamental Change or transfer (and any dissolution following any transfer)
referred to in this Article, this Note shall continue in full force and effect
and the terms hereof shall be applicable to any other securities and property
receivable on the conversion of this Note after the consummation of such
Fundamental Change or transfer or the effective date of dissolution following
any such transfer, as the case may be, and shall be binding upon the issuer
of
any other securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the Company,
whether or not such person shall have expressly assumed the terms of this Note
as provided in Section 2.1(c)(iv). In the event this Note does not continue
in
full force and effect after the consummation of the transaction described in
this Article II, then only in such event will the Company’s securities and
property (including cash, where applicable) receivable by the Holder of the
Notes be delivered to the Trustee as contemplated by Section
2.1(c)(ii).
(iv) Extraordinary
Events Regarding Common Stock.
In the
event that the Company shall (a) issue additional shares of Common Stock as
a
dividend or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of
the
Common Stock into a smaller number of shares of the Common Stock, then, in
each
such event, the Conversion Price shall, simultaneously with the happening of
such event, be adjusted by multiplying the then Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Conversion Price then in effect.
The
Conversion Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described in this Section
2.1(c)(iv). The number of Conversion Shares that the Holder of this Note shall
thereafter, on the conversion hereof as provided in Article II, be entitled
to
receive shall be adjusted to a number determined by multiplying the number
of
Conversion Shares that would otherwise (but for the provisions of this Section
2.1(c)(iv)) be issuable on such conversion by a fraction of which (a) the
numerator is the Conversion Price that would otherwise (but for the provisions
of this Section 2.1(c)(iv)) be in effect, and (b) the denominator is the
Conversion Price in effect on the date of such conversion.
(v) Subsequent
Offerings.
If the
Company shall, at any time prior to the Maturity Date, issue any shares of
its
Common Stock at a price per share less than the Conversion Price (the
“Subsequent Offering Price”), the Conversion Price shall be lowered to the
Subsequent Offering Price. Notwithstanding the foregoing, no adjustment in
the
Conversion Price shall be made for shares of Common Stock issued, or warrants
or
options to purchase shares Common Stock granted, in connection with any of
the
following: (a) any stock option plan or other benefit plan for directors,
officers, employees, advisors or consultants of the Company, (b) payment of
interest on any outstanding notes, (c) full or partial consideration in
connection with a strategic merger, consolidation or purchase of substantially
all of the securities or assets of a corporation or other entity, or (d) full
or
partial consideration in connection with strategic licensing agreements or
other
partnering arrangements.
(vi) Effectiveness
of Adjustment.
An
adjustment to the Conversion Price shall become effective immediately after
the
payment date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an
adjustment.
(vii) Notice
of Adjustment.
Upon
the happening of any event requiring an adjustment of the Conversion Price,
the
Company shall promptly give written notice thereof to the Holder at the address
appearing in the records of the Company, stating the adjustments resulting
from
such event and setting forth in reasonable detail the method of calculation
and
the facts upon which such calculation is based. Failure to give such notice
to
the Holder or any defect therein shall not affect the legality or validity
of
the subject adjustment.
2.2 Reservation.
During
the period the conversion right exists, the Company shall reserve and keep
available out of its authorized but unissued shares of common stock, solely
for
the purpose of providing for the conversion of the Company Notes, such number
of
Conversion Shares as shall from time to time equal the number of shares
sufficient to permit the conversion of the Company Notes in accordance with
their respective terms. The Company agrees that all Conversion Shares issued
upon due conversion of the Company Notes shall be, at the time of delivery
of
the certificates for such Conversion Shares, duly authorized, validly issued,
fully paid and non-assessable shares of common stock of the Company.
2.3 Ownership
Limitation.
Notwithstanding anything to the contrary set forth herein, at no time may the
Holder convert all or a portion of this Note if the number of Conversion Shares
to be issued pursuant to such conversion would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act
and
the rules thereunder) more than 9.99% of all of the Common Stock outstanding
at
such time. Notwithstanding anything to the contrary contained herein, the
limitation on conversion of this Note may be waived by written agreement between
the Holder and the Company; provided,
however,
such
waiver may not be effective less than sixty-one (61) days from the date
thereof.
ARTICLE
III
EVENTS
OF DEFAULT
The
occurrence of any of the following events of default (each an “Event
of Default”),
if
not cured within a reasonable period of time after notice of such event is
received by the Company from the Holder shall, at the option of the Holder
hereof, make all sums of Principal and Interest then remaining unpaid hereon
and
all other amounts payable hereunder immediately due and payable, upon
demand:
3.1 Failure
to Pay Principal or Interest.
The
Company fails to pay any installment of Principal, Interest or other sum due
under this Note.
3.2 Receiver
or Trustee.
The
Company 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.
3.3 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 Company.
3.4 Delisting.
Delisting of the Common Stock from the OTC Bulletin Board or such other trading
market or exchange on which the Common Stock is listed or quoted for
trading.
3.5 Failure
to Deliver Conversion Shares.
The
Company’s failure to deliver Conversion Shares to the Holder pursuant to
conversion of this Note.
3.6 Reservation
Default.
Failure
by the Company to have reserved for issuance upon conversion of the Note and
accrued Interest the amount of Conversion Shares.
ARTICLE
IV
MISCELLANEOUS
4.1 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of 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.
4.2 Notices.
Unless
otherwise provided, any notice required or permitted under this Note shall
be
given in writing and shall be deemed effectively given as hereinafter described
(i) if given by personal delivery, then such notice shall be deemed given upon
such delivery, (ii) if given by telex or facsimile, then such notice shall
be
deemed given upon receipt of confirmation of complete transmittal, (iii) if
given by mail, then such notice shall be deemed given upon the earlier of (A)
receipt of such notice by the recipient or (B) three days after such notice
is
deposited in first class mail, postage prepaid, and (iv) if given by an
internationally recognized overnight air courier, then such notice shall be
deemed given one business day after delivery to such carrier. All notices shall
be addressed as follows: if to the Holder, at its address as set forth in the
subscription agreement pertaining to the PPM, if to the Company, at the address
as follows, or at such other address as the Holder or the Company may designate
by ten days’ advance written notice to the other: China Agri-Business, Inc.,
_______, Attn: _____, telecopier number: ____, with a copy by telecopier only
to: ▇▇▇▇▇▇▇ ▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., telecopier number: (▇▇▇)
▇▇▇-▇▇▇▇.
4.3 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. The Company may from time
to
time supplement or amend this Note without the approval of any holder of Notes
in order to cure any ambiguity or to be correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable
and
which shall not materially adversely affect the interest of the holder. This
Note is one of a series of Notes of like tenor issued by the Company pursuant
to
the PPM in an aggregate principal amount of up to $1,500,000 (collectively,
the
“Company Notes”). Any term of this Note may be amended or waived upon the
written consent of the Company and the holders of Company Notes representing
over 50% of the number of shares of Common Stock then subject to all outstanding
Company Notes (the “Majority Holders”); provided,
that
(x) any such amendment or waiver must apply to all Company Notes; and (y) the
number of Conversion Shares subject to this Note, the Conversion Price and
the
Maturity Date may not be amended, and the right to convert this Note may not
be
altered or waived in any manner adverse to the Holder, without the written
consent of the Holder.
4.4 Assignability.
This
Note shall be binding upon the Company and its successors and assigns, and
shall
inure to the benefit of the Holder and its successors and assigns.
4.5 Governing
Law, Consent to Jurisdiction.
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
this Note shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties 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.
4.6 No
Rights as Stockholder.
Prior
to the conversion of this Note, the Holder shall not have or exercise any rights
as a stockholder of the Company by virtue of its ownership of this
Note.
4.7 Compliance
with Securities Laws.
The
Holder of this Note, by acceptance hereof, acknowledges that this Note and
the
Conversion Shares to be issued upon conversion hereof are being acquired solely
for the Holder's own account and not as a nominee for any other party, and
for
investment, and that the Holder will not offer, sell or otherwise dispose this
Note or any Conversion Shares to be issued upon conversion hereof except
pursuant to an effective registration statement, or an exemption from
registration, under the Securities Act and any applicable state securities
laws.
4.8 Entire
Agreement.
This
Note, the PPM, the Warrants and any other transaction documents (including
all
schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There
are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Note and the PPM supersede all
prior agreements and understandings among the parties hereto with respect to
the
subject matter hereof and thereof.
4.9 Section
Headings.
The
section headings in this Note are for the convenience of the Company and the
Holder and in no way alter, modify, amend, limit or restrict the provisions
hereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
the
Company has caused this Note to be duly executed, as of the date first written
above.
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By:___________________________
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Name:
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Title:
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NOTICE
OF CONVERSION
(To
be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the Principal and accrued
Interest with respect to such Principal of the Note issued by CHINA
AGRI-BUSINESS, INC. on _________________, 20___ into shares of Common Stock
of
CHINA AGRI-BUSINESS, INC. according to the conditions set forth in such Note,
as
of the date written below.
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Date
of Conversion:
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______________________
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Conversion
Price:
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______________________
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Common
Stock To Be Delivered:
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______________________
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Signature:
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_________________________________
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Print
Name:
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_________________________________
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Address:
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_________________________________
_________________________________
_________________________________
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