Business Advisory Agreement between China Agri-Business, Inc. and Legend Merchant Group, Inc.

Issuer

China Agri-Business, Inc. (the “Company”)

Finance Plaza, 9th Floor

Hi-Tech Road No. 42

Hi-Tech Industrial Development Zone

Xi’An, Shaanxi, China

 

Investors

______ (collectively, the “Investors”).

 

Securities offered

An aggregate of $4,000,000 of units (the “Units”), each unit consisting of (i) a convertible promissory note (the “Note”) in the principal amount of $25,000, and (ii) ____ shares of Common Stock to be calculated on a pre-offering valuation of US$10,000,000, par value $0.001 per share (the “Common Shares”).” The Notes and the Shares may hereinafter be referred to collectively as the “Securities.”

 

Purchase Price

$25,000 per Unit (the “Unit Purchase Price”)

 

Closing Date

On one or more dates on or prior to January __, 2007.

 

Notes

(i) Conversion: Each Note shall be convertible into shares of the Company's Common Stock at any time, and from time to time, at the Conversion Price at the election of a holder thereof in respect to its holdings.

 

(ii)  Conversion Price (per share): $___ per share to be calculated on a pre-offering valuation of US $16,000,000,  subject to adjustment.

 

(iv)  Maturity: The entire principal amount of the Notes and all accrued and unpaid interest thereon shall be due and payable on two (2) year anniversary of the relevant Closing Date (the “Maturity Date”).

 

(iv)  Prepayment: Subject to the effectiveness of the Registration Statement (as defined herein), the Company shall have the option to pre-pay the Notes at 110% of the principal amount then outstanding upon sixty (60) days prior written notice. During such notice period the holder of the Notes shall have the right to convert any portion thereof.

 

 (v)  Interest: 1% per annum payable annually, in cash upon each anniversary date of the Closing Date; late fee of 15% per annum.

 

Anything to the contrary notwithstanding, in the event the principal amount of the Notes are not paid in full prior to the Maturity Date the Investors shall be entitled to interest of 8% per annum from the Closing Date.

 

(vi)  Ownership Limitation: Each Note will include a provision that limits each Investor's ownership of the Company's Common Stock at any time to no more than 4.9% of the Company's issued and outstanding Common Stock.

 

(vii)  Anti-dilution Provisions: Anti-dilution protection for stock splits, combinations and dividends.

 

Registration rights

Within thirty (30) business days of the Closing Date (the “Filing Date”), the Company will file a registration statement with the SEC (the “Registration Statement”) covering the resale of (i) the Common Shares, and (ii) the Common Stock underlying the Notes (collectively (i) and (ii), the “Registrable Securities”). The Company will use its best efforts to cause the Registration Statement to be declared effective within ninety (90) calendar days from the Filing Date, or, if reviewed by the SEC, within one hundred twenty (120) calendar days after the Filing Date.  The Company will use its best efforts to keep the Registration Statement continuously effective until two (2) years after the first Closing Date, subject to normal and customary blackout periods.

 

The Company will be required to pay liquidated damages (payable in cash in arrears at the end of each month during which a registration default occurs and is continuing) to the holders of the Common Shares, the Notes or the Common Stock issued upon conversion of the Notes if (i) the Company fails to file the Registration Statement within thirty (30) business days from the Closing Date, (ii) the SEC does not declare the Registration Statement effective within ninety (90) days of the Filing Date (or one twenty eighty (120) days in the event of a review by the SEC) (the “Effectiveness Date”), (iii) the Company fails to request acceleration of effectiveness within five (5) business days of a notice of no further review from the SEC, (iv) the Company fails to respond to the SEC within ten (10) business days of receipt by the Company of any comments on the Registration Statement, or (v) after it has been declared effective, the Registration Statement ceases to be effective or available or if the Company suspends the use of the prospectus forming a part of the Registration Statement (A) for more than thirty (30) days in any period of 365 consecutive days if the Company suspends in reliance on its ability to do so due to the existence of a development that, in the good faith discretion of its board of directors, makes it appropriate to so suspend or which renders the Company unable to comply with SEC requirements, or (B) for more than sixty (60) days in any period of 365 consecutive days for any reason.  The liquidated damages will accumulate at the rate of one and one-half percent (1.5%) of the purchase price paid by the Investors for the Securities offered for each thirty (30) day period during which a registration default is continuing.

 

The Company will not permit any other securities to be included in the Registration Statement; provided, however, that, subject to the terms and conditions hereof, any shares underlying warrants issued to placement agents engaged in connection herewith shall be eligible to be included therein.

 

Notwithstanding anything to the contrary stated herein, the Company shall be entitled to limit the Registrable Securities to the extent necessary to avoid any issues arising from the recent interpretations by the SEC of Rule 415 of the Securities Act of 1933, as amended.

 

Placement Agent Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

Placement Agent commissions of eight percent (8%) of the amount of the Private Placement in cash and eight percent (8%) in Warrant coverage, to be determined based on the number of shares issuable by dividing the gross proceeds of the Private Placement by the purchase price of the Units offered in the Private Placement (the “Placement Agent’s Warrants”).  The Placement Agent’s Warrants shall have the same term and shall have an exercise price of one hundred percent (100%) of the Exercise Price, subject to anti-dilution adjustment.

 

Closing Conditions

The Closing shall be conditioned upon:

 

(i)   The absence of any material adverse change in the business, condition, assets, operations or prospects of the Company;

 

(ii)   Receipt by both parties of all required consents to consummate the Offering;

 

(iii)  The satisfactory completion of all documents by the Investor prior to the Closing Date;

 

(iv)  Satisfactory due diligence review by both parties;

 

(v)   Other standard and customary closing conditions for transactions of this type.

 

Use of Proceeds

The net proceeds from this Offering will be used for expenses incurred in connection with Offering and the Registration Statement and for general working capital purposes.

 

Confidentiality

Except as to the extent required by law, each of the parties agrees that it will not disclose, and will not include in any public announcement, the name of the other party, unless expressly agreed to by the other party or unless and until such disclosure is required by law or applicable regulation, and then only to the extent agreed to or required.

 

Exclusivity

 

Prior to the earlier of: (i) the closing of the transaction contemplated by this term sheet, and (ii) 30 days, the Company shall not solicit, discuss or enter into any proposal, agreement, commitment or obligation relating to a financing with any person or entity.

 

Governing Law and Jurisdiction

CHINA AGRI-BUSINESS, INC.

 

 

By: ____________________

[Name]

[Title]

 

Date:__________________

[____________________]

 

 

 

By: ______________________

[Name]

[Title]

 

Date: _________________