Exhibit 10.2
THIS CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT OR ANY SUCH LAW.
 
First China Pharmaceutical Group, Inc.
 
CONVERTIBLE PROMISSORY NOTE
 
$500,000.00
December 22, 2010

 
 
FOR VALUE RECEIVED, the undersigned, First China Pharmaceutical Group, Inc., a
Nevada corporation (the “Company”) promises to pay to the order of Caledonia
Partners LLC, or permitted assigns (hereinafter, with any subsequent holder, the
“Holder”) the principal sum of five hundred thousand dollars ($500,000) (the
“Principal”), with interest on the unpaid principal from the date hereof at a
rate of five percent (5.000%) simple interest per annum. Interest shall be
calculated on the basis of the actual number of days elapsed over a 365-day
year, shall commence to accrue on the date hereof and shall continue on the
outstanding principal until paid in full.
 
1.           Interest Payments .  Unless converted or repaid as set forth
hereunder, accrued interest will be due and payable upon the Maturity Date.
 
2.           Application of Payments.  All payments of principal and interest
shall be in lawful money of the United States of America, except as set forth
below in connection with conversion of this Note. All payments on account of the
indebtedness evidenced by this Note shall be applied first to any and all costs,
expenses and other charges then owed the Holder by the Company, second, to
accrued and unpaid interest, and thereafter to the unpaid principal balance
hereof. All payments so received after demand or acceleration shall be applied
in such manner as the Holder may determine in its sole and absolute discretion.
 
3.           Maturity Date .  Unless converted pursuant to the terms of this
Note or unless earlier accelerated by the terms of this Note, the principal
amount hereof, together with all unpaid accrued interest hereon and all other
fees, costs and charges, if any, shall be due and payable on the date which is
five (5) years from the original date of this Note (the “Maturity Date”). No
payments of principal or interest are required hereunder until the Maturity
Date, except as otherwise provided herein.
 
4.           Conversion.  The outstanding Principal and accrued but unpaid
interest thereon (the “Debt”) shall be converted as follows:
 
4.1Upon a Qualified Financing . Unless earlier converted pursuant to Section 4.2
below,
if within twelve (12) months of the date hereof the Company completes a
financing yielding aggregate gross proceeds or borrowings to the Company of at
least one million dollars ($1,000,000) (excluding any proceeds or borrowings
associated with the exchange contemplated hereby) (the “Qualified Financing”),
the Holder agrees to exchange the Debt simultaneously with the initial closing
of such Qualified Financing as follows:
 
(a)          In the event of a debt Qualified Financing (“Qualified Debt
Financing”), the Holder may at its option exchange in whole or in part this Note
for a promissory note (or other evidence of indebtedness) in the same form and
with the same terms and conditions as those issued in such Qualified Debt
Financing and in a principal amount equal to the then outstanding Debt.
 
(b)          In the event of an equity Qualified Financing (“Qualified Equity
Financing”), the Holder may at its option convert the Debt into shares of
capital stock of the same class and series and with the same rights, preferences
and privileges as those issued in such Qualified Equity Financing, at a price
per share equal to the purchase price paid by investors in such Qualified Equity
Financing.
 

 
 

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To the extent the other participants in the Qualified Financing are required to
execute or deliver any other documents or meet any qualifications as a condition
to their investment, the Holder’s exchange shall be subject to the same
requirements and qualifications.
 
4.2Conversion by Mutual Agreement of Holder and the Company.  At any time, and
from time to time, as applicable, prior to the Maturity Date, the Company and
the Holder may mutually agree on a date (each, an “Agreed Conversion Date”) to
convert in whole or in part the Debt into shares of common stock of the Company
at a conversion price equal to the trailing Volume Weighted Average Price
(“VWAP”) (as calculated based upon the price and volume quotes reported by the
Wall Street Journal over the previous ten (10) trading days prior to the Agreed
Conversion Date) per share of the Company’s common stock. Notwithstanding the
foregoing, the amount of Debt which the Company and the Holder may elect to
convert shall be limited to the extent necessary to ensure that, following such
conversion, the total number of shares of Company common stock then beneficially
owned by the Holder and its affiliates and any other persons whose beneficial
ownership of Company common stock would be aggregated with the Holder’s for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the
total number of issued and outstanding shares of Company common stock (including
for such purpose the shares of Company common stock issuable upon such
conversion). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
thereunder. Notwithstanding the foregoing, the Holder may waive such limitation
on conversion contained in this Section 4.2 or increase or decrease such
limitation percentage to any other percentage as specified in a written notice
to the Company.
 
4.3           Upon a Reorganization, Consolidation, Merger.  In the event (a) of
any reorganization of the Company, (b) the Company consolidates with or merges
into another entity, (c) the Company sells all or substantially all of its
assets to another entity and then distributes the proceeds to its shareholders,
or (d) the Company issues or otherwise sells securities representing more than
50% of the voting power of the Company in a single or series of related
transactions immediately after giving effect to such transaction or series of
related transaction (each of such events shall be referred to herein as a
“Liquidation Event”), then, and in each such case, the Company, at its sole
discretion, may convert any outstanding Debt into securities or cash, as the
case may be, equal to the VWAP per share of common stock of the Company for the
previous ten (10) trading days prior to the Liquidation Event. In the event the
Company does not convert any outstanding Debt, then the Holder, upon the
conversion of this Note at any time after the consummation of any Liquidation
Event shall be entitled to receive, in lieu of the stock or other securities and
property receivable upon the conversion of this Note prior to such consummation,
the stock or other securities or property to which the Holder would have been
entitled upon the consummation of such Liquidation Event if the Holder had
converted this Note immediately prior thereto, all subject to further adjustment
as provided in this Note, and the successor or purchasing entity in a
Liquidation Event (if other than the Company) shall duly execute and deliver to
the Holder a supplement hereto acknowledging such entity’s obligations under
this Note.
 
4.4           Partial Conversion or Exchange. All rights with respect to such
portion of the Debt converted or exchanged pursuant to Section 4.1, Section 4.2
or Section 4.3  shall terminate upon such conversion or exchange.
Notwithstanding the foregoing, the Holder agrees to surrender this Note to the
Company for cancellation as to that portion of the Note that the Holder elects
to convert or exchange as soon as possible following such conversion or
exchange, and the Company shall execute and deliver a new promissory note, upon
the same terms and conditions set forth herein, evidencing the right of the
Holder to the balance of the principal that was not converted or exchanged (and
accrued but unpaid interest thereon, as applicable).
 

5.           Mechanics of Conversion.  As promptly as practicable after the
conversion of this Note, this Note shall be cancelled, and the Company will
issue and deliver to the Holder a certificate or certificates (bearing such
legends as may be required by applicable state and federal securities laws in
the opinion of legal counsel for the Company) representing the full number of
securities issuable upon such conversion (and the issuance of such certificate
or certificates shall be made without charge to the Holder of the Note for any
issuance tax in respect thereof or other cost incurred by Company in connection
with such conversion and the related issuance of shares).
 
 
 
 

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6.          Default.  The Company will be in default if any of the following
occurs (each an “Event of Default”): (a) the Company fails to make payment of
the principal amount or an interest payment when due and fails to cure the
default within ten (10) days of the date of delivery of notice from Holder to
the Company of the default; (b) the Company fails in any material respect to
comply with or to perform when due any other material term, obligation,
covenant, or condition contained in this Note, and fails to cure the default
within ten (10) days of the date of delivery of notice from Holder to the
Company of the default; (c) 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; and/or (d) bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and shall not have been dismissed within
sixty (60) days of filing. Upon an Event of Default, Holder may declare the
entire unpaid principal and accrued interest amount immediately due and payable,
all without further demand, presentment or notice, or grace period, all of which
hereby are expressly waived.
 
7.          Prepayment.  At any time prior to the Maturity Date the Company may
prepay, in whole or in part, the Debt in full satisfaction and accord of the
Company’s obligations under this Note. Any prepayment shall be credited first to
accrued but unpaid interest and the balance to principal, and interest shall
cease to accrue on the amount of principal so paid.
 
8.          Miscellaneous.
 
(a)          Restrictions on Transfer.  This Note may only be transferred in
compliance with applicable state and federal laws. All rights and obligations of
the Company and the Holder will be binding upon and benefit the successors,
assigns, heirs, and administrators of the parties.
 
(b)          Assignment.  Holder may not transfer or assign all or any part of
this Note except upon prior written notice to the Company and with the Company’s
prior written consent.
 
(c)          Amendment or Waiver.  Any provision of this Note may be amended,
waived or modified only upon the written consent of the Company and the Holder.
 
(d)          Notices.  Any notice required or permitted under this Note shall be
given in writing and shall be deemed effectively given (i) at the time of
personal delivery, if delivery is in person; (ii) one (1) business day after
deposit with an express overnight courier for United States deliveries, or two
(2) business days after such deposit for deliveries outside of the United
States, with proof of delivery from the courier requested; (iii) three (3)
business days after deposit in the United States mail by certified mail (return
receipt requested) for United States deliveries when addressed to the party to
be notified; or (iv) one (1) business day after transmission by telecopier with
confirmation of successful transmission. Notices shall be delivered to the
Holder and the Company (Attn: CEO), to such address and contact information as
the respective parties have designated.
 
(e)          Severability.  In the event any one or more of the provisions
contained in this Note shall, for any reason, be held to be invalid, illegal, or
unenforceable in whole or in part or in any respect, or in the event any one or
more of the provisions of this Note operate or would prospectively operate to
invalidate this Note, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Note. In such instance, this Note shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein and the remaining provisions of this Note shall remain
operative and in full force and effect and in no way shall be affected,
prejudiced or disturbed thereby.
 
(f)          Governing Law.  This Note will be governed by the laws of the State
of Nevada applicable to contracts between Nevada residents wholly to be
performed in Nevada.
 
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
 
 
 
 

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IN WITNESS WHEREOF, the Company has caused this Convertible Promissory Note to
be signed in its name as of the date first above written.

 
First China Pharmaceutical Group, Inc
 
 
 
By:
/s/ Zhen Jiang Wang
 
Name:
Zhen Jiang Wang
 
Title:
Chairman & Chief Executive Officer
 
 
 
By:
 /s/ Yi Jia Li
 
Name:
Yi Jia Li
 
Title:
Chief Financial Officer
Agreed and Accepted:
 
   
HOLDER Caledonia Partners LLC
 
   
By: /s/ R. Smith
   
Name: R. Smith
   
Title: Secretary