Unassociated Document


    SECURITY
      AGREEMENT

     

    1. Identification.

    


    This
      Security Agreement (the "Agreement"), dated as of August 2, 2007, is entered
      into by and between Ever-Glory
      International Group, Inc.,
      a
      Florida corporation ("Parent" or “Debtor”), and Eliezer Drew, as collateral
      agent acting in the manner and to the extent described in the Collateral Agent
      Agreement defined below (the "Collateral Agent"), for the benefit of the parties
      identified on Schedule
      A
      hereto
      (collectively, the "Lenders").

    


    2. Recitals.

    


    2.1 The
      Lenders have made, are making and will be making loans to Parent (the "Loans").
      

    


    2.2 The
      Loans
      are and will be evidenced by certain promissory notes (each a “Note”) issued by
      Parent on or about the date of and after the date of this Agreement pursuant
      to
      subscription agreements (each a “Subscription Agreement”) to which Parent and
      Lenders are parties. The Notes are further identified on Schedule A hereto
      and
      were and will be executed by Parent as “Borrower” or “Debtor” for the benefit of
      each Lender as the “Holder” or “Lender” thereof.

    


    2.3 In
      consideration of the Loans made and to be made by Lenders to Parent and for
      other good and valuable consideration, and as security for the performance
      by
      Parent of its obligations under the Notes and as security for the repayment
      of
      the Loans and all other sums due from Debtor to Lenders arising under the Notes
      and Subscription Agreement (collectively, the "Obligations"), Debtor, for good
      and valuable consideration, receipt of which is acknowledged, has agreed to
      grant to the Collateral Agent, for the benefit of the Lenders, a security
      interest in the Collateral (as such term is hereinafter defined), on the terms
      and conditions hereinafter set forth. Obligations include any future advances
      or
      loans made by Lenders to Debtor.

    


    2.4 The
      Lenders have appointed the Collateral Agent pursuant to that certain Collateral
      Agent Agreement dated at or about the date of this Agreement (“Collateral Agent
      Agreement”), among the Lenders and Collateral Agent.

    


    2.5 The
      following defined terms which are defined in the Uniform Commercial Code in
      effect in the State of New York on the date hereof are used herein as so
      defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
      Instruments, Inventory and Proceeds. Other capitalized terms employed herein
      shall have the meanings attributed to them in the Subscription
      Agreement.

    


    3. Grant
      of General Security Interest in Collateral.

    


    3.1 As
      security for the Obligations of Debtor, Debtor hereby grants the Collateral
      Agent, for the benefit of the Lenders, a security interest in the
      Collateral.

    


    3.2 “Collateral”
      shall mean all of the following property of Debtor:

    


    (A) All
      now
      owned and hereafter acquired right, title and interest of Debtor in, to and
      in
      respect of all Accounts, Goods, real or personal property, all present and
      future books and records relating to the foregoing and all products and Proceeds
      of the foregoing, and as set forth below:

     

    
      
        
        

      

      
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    (i) All
      now
      owned and hereafter acquired right, title and interest of Debtor in, to and
      in
      respect of all: Accounts, interests in goods represented by Accounts, returned,
      reclaimed or repossessed goods with respect thereto and rights as an unpaid
      vendor; contract rights; Chattel Paper; investment property; General Intangibles
      (including but not limited to, tax and duty claims and refunds, registered
      and
      unregistered patents (including but not limited to the patents, patents pending
      and applications set forth on Schedule B hereto), trademarks, service marks,
      certificates, copyrights, trade names, applications for the foregoing, trade
      secrets, goodwill, processes, drawings, blueprints, customer lists, licenses,
      whether as licensor or licensee, chooses in action and other claims, and
      existing and future leasehold interests in equipment, real estate and fixtures);
      Documents; Instruments; letters of credit, bankers’ acceptances or guaranties;
      cash moneys, deposits; securities, bank accounts, deposit accounts, credits
      and
      other property now or hereafter owned or held in any capacity by Debtor, as
      well
      as agreements or property securing or relating to any of the items referred
      to
      above;

    


    (ii) Goods:
      All now
      owned and hereafter acquired right, title and interest of Debtor in, to and
      in
      respect of goods, including, but not limited to:

    


    (a) All
      Inventory, wherever located, whether now owned or hereafter acquired, of
      whatever kind, nature or description, including all raw materials,
      work-in-process, finished goods, and materials to be used or consumed in
      Debtor’s business; finished goods, timber cut or to be cut, oil, gas,
      hydrocarbons, and minerals extracted or to be extracted, and all names or marks
      affixed to or to be affixed thereto for purposes of selling same by the seller,
      manufacturer, lessor or licensor thereof and all Inventory which may be returned
      to Debtor by its customers or repossessed by Debtor and all of Debtor’s right,
      title and interest in and to the foregoing (including all of a Debtor’s rights
      as a seller of goods);

    


    (b) All
      Equipment and fixtures, wherever located, whether now owned or hereafter
      acquired, including, without limitation, all machinery, furniture and fixtures,
      and any and all additions, substitutions, replacements (including spare parts),
      and accessions thereof and thereto (including, but not limited to Debtor’s
      rights to acquire any of the foregoing, whether by exercise of a purchase option
      or otherwise);

    


    (iii) Property:
      All now
      owned and hereafter acquired right, title and interests of Debtor in, to and
      in
      respect of any other personal property in or upon which a Debtor has or may
      hereafter have a security interest, lien or right of setoff; 

    


    (iv) Books
      and Records:
      All
      present and future books and records relating to any of the above including,
      without limitation, all computer programs, printed output and computer readable
      data in the possession or control of the Debtor, any computer service bureau
      or
      other third party; and

    


    (v) Products
      and Proceeds:
      All
      products and Proceeds of the foregoing in whatever form and wherever located,
      including, without limitation, all insurance proceeds and all claims against
      third parties for loss or destruction of or damage to any of the
      foregoing.

    


    (B) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of the following:

    


    (i) all
      security entitlements of Debtors in, and all Proceeds of any and all of the
      foregoing in each case, whether now owned or hereafter acquired by a Debtor
      and
      howsoever its interest therein may arise or appear (whether by ownership,
      security interest, lien, claim or otherwise).

     

    
      
        
        

      

      
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    3.3 The
      stock
      representing ownership of Perfect Dream Limited, a British Virgin Islands
      corporation, Goldenway Nanjing Garments Company Limited, a People’s Republic of
      China corporation, Nanjing New-Tailum Garments Company Limited, a People’s
      Republic of China corporation, is excluded from the definition of Collateral.
      

    


    3.4 The
      Collateral Agent is hereby specifically authorized, after the Maturity Date
      (defined in the Notes) accelerated or otherwise, or after the occurrence of
      an
      Event of Default (as defined herein) that is uncured after expiration of any
      applicable cure period, to transfer any Collateral into the name of the
      Collateral Agent and to take any and all action deemed advisable to the
      Collateral Agent to remove any transfer restrictions affecting the
      Collateral.

    


    4. Perfection
      of Security Interest.

    


    4.1 Debtor
      shall prepare, execute and deliver to the Collateral Agent UCC-1 Financing
      Statements. The Collateral Agent is instructed to prepare and file at Debtor’s
      cost and expense, financing statements in such jurisdictions deemed advisable
      to
      the Collateral Agent, including but not limited to the State of Florida. The
      Financing Statements are deemed to have been filed for the benefit of the
      Collateral Agent and Lenders identified on Schedule
      A
      hereto.

    


    4.2 All
      other
      certificates and instruments constituting Collateral from time to time required
      to be pledged to Collateral Agent pursuant to the terms hereof (the "Additional
      Collateral") shall be delivered to Collateral Agent promptly upon receipt
      thereof by or on behalf of Debtors. All such certificates and instruments shall
      be held by or on behalf of Collateral Agent pursuant hereto and shall be
      delivered in suitable form for transfer by delivery, or shall be accompanied
      by
      duly executed instruments of transfer or assignment or undated stock powers
      executed in blank, all in form and substance satisfactory to Collateral Agent.
      If any Collateral consists of uncertificated securities, unless the immediately
      following sentence is applicable thereto, Debtors shall cause Collateral Agent
      (or its custodian, nominee or other designee) to become the registered holder
      thereof, or cause each issuer of such securities to agree that it will comply
      with instructions originated by Collateral Agent with respect to such securities
      without further consent by Debtors. If any Collateral consists of security
      entitlements, Debtors shall transfer such security entitlements to Collateral
      Agent (or its custodian, nominee or other designee) or cause the applicable
      securities intermediary to agree that it will comply with entitlement orders
      by
      Collateral Agent without further consent by Debtors. 

     

    4.3 Within
      five (5) days after the receipt by a Debtor of any Additional Collateral, a
      Pledge Amendment, duly executed by such Debtor, in substantially the form of
      Annex I hereto (a "Pledge Amendment"), shall be delivered to Collateral Agent
      in
      respect of the Additional Collateral to be pledged pursuant to this Agreement.
      Each Debtor hereby authorizes Collateral Agent to attach each Pledge Amendment
      to this Agreement and agrees that all certificates or instruments listed on
      any
      Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder
      constitute Collateral.

     

    4.4 If
      Debtor
      shall receive, by virtue of Debtor being or having been an owner of any
      Collateral, any (i) stock certificate (including, without limitation, any
      certificate representing a stock dividend or distribution in connection with
      any
      increase or reduction of capital, reclassification, merger, consolidation,
      sale
      of assets, combination of shares, stock split, spin-off or split-off),
      promissory note or other instrument, (ii) option or right, whether as an
      addition to, substitution for, or in exchange for, any Collateral, or otherwise,
      (iii) dividends payable in cash (except such dividends permitted to be retained
      by Debtor pursuant to Section 5.2 hereof) or in securities or other property
      or
      (iv) dividends or other distributions in connection with a partial or total
      liquidation or dissolution or in connection with a reduction of capital, capital
      surplus or paid-in surplus, Debtor shall receive such stock certificate,
      promissory note, instrument, option, right, payment or distribution in trust
      for
      the benefit of Collateral Agent, shall segregate it from Debtor's other property
      and shall deliver it forthwith to Collateral Agent, in the exact form received,
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

     

    
      
        
        

      

      
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    5. Distribution.

    


    5.1 So
      long
      as an Event of Default does not exist, Debtor shall be entitled to exercise
      all
      voting power pertaining to any of the Collateral, provided such exercise is
      not
      contrary to the interests of the Lenders and does not impair the
      Collateral.

    


    5.2. At
      any
      time an Event of Default exists or has occurred, all rights of Debtor, upon
      notice given by Collateral Agent, to exercise the voting power and receive
      payments, which it would otherwise be entitled to pursuant to Section 5.1,
      shall
      cease and all such rights shall thereupon become vested in Collateral Agent,
      which shall thereupon have the sole right to exercise such voting power and
      receive such payments.

    


    5.3 All
      dividends, distributions, interest and other payments which are received by
      Debtor contrary to the provisions of Section 5.2 shall be received in trust
      for
      the benefit of Collateral Agent as security and Collateral for payment of the
      Obligations shall be segregated from other funds of Debtor
      and
      shall be forthwith paid over to Collateral Agent as Collateral in the exact
      form
      received with any necessary endorsement and/or appropriate stock powers duly
      executed in blank, to be held by Collateral Agent as Collateral and as further
      collateral security for the Obligations.

    


    6. Further
      Action By Debtor; Covenants and Warranties.

    


    6.1 Except
      for as disclosed on Schedule
      6.1
      hereto,
      Collateral Agent at all times shall have a perfected security interest in the
      Collateral. Each Debtor represents that it has and will continue to have full
      title to the Collateral free from any liens, leases, encumbrances, judgments
      or
      other claims. The Collateral Agent's security interest in the Collateral
      constitutes and will continue to constitute a first, prior and indefeasible
      security interest, except as disclosed on Schedule
      6.1,
      in
      favor of Collateral Agent. Each Debtor will do all acts and things, and will
      execute and file all instruments (including, but not limited to, security
      agreements, financing statements, continuation statements, etc.) reasonably
      requested by Collateral Agent to establish, maintain and continue the perfected
      security interest of Collateral Agent in the perfected Collateral, promptly
      on
      demand, pay all costs and expenses of filing and recording and will pay all
      claims and charges that, in the opinion of Collateral Agent, exercised in good
      faith, are reasonably likely to materially prejudice, imperil or otherwise
      affect the Collateral or Collateral Agent’s or Lenders’ security interests
      therein.

    


    6.2 Except
      in
      connection with sales of Collateral in the ordinary course of business for
      fair
      value and except for Collateral which is substituted by assets of identical
      or
      greater value (with the consent of the Collateral Agent) or which is
      inconsequential in value, Debtor will not sell, transfer, assign or pledge
      those
      items of Collateral (or allow any such items to be sold, transferred, assigned
      or pledged), without the prior written consent of Collateral Agent, and provided
      the Collateral remains subject to the security interest herein described.
      Although Proceeds of Collateral are covered by this Agreement, this shall not
      be
      construed to mean that Collateral Agent consents to any sale of the Collateral,
      except as provided herein. Sales of Collateral in the ordinary course of
      business shall be free of the security interest of Lenders and Collateral Agent
      and Lenders and Collateral Agent shall promptly execute such documents
      (including without limitation releases and termination statements) as may be
      required by Debtor to evidence or effectuate the same.

     

    
      
        
        

      

      
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    6.3 Debtor
      will, at all reasonable times during regular business hours and upon reasonable
      notice, allow Collateral Agent or its representatives free and complete access
      to the Collateral and all of such Debtor's records which in any way relate
      to
      the Collateral, for such inspection and examination as Collateral Agent
      reasonably deems necessary.

    


    6.4 Debtor,
      at its sole cost and expense, will protect and defend this Security Agreement,
      all of the rights of Collateral Agent and Lenders hereunder, and the Collateral
      against the claims and demands of all other persons.

    


    6.5 Debtor
      will promptly notify Collateral Agent of any levy, distraint or other seizure
      by
      legal process or otherwise of any part of the Collateral, and of any threatened
      or filed claims or proceedings that are reasonably likely to affect or impair
      the Collateral or the security interests of the Lenders and Collateral Agent
      under this Security Agreement in any material respect.

    


    6.6 Debtor,
      at its own expense, will obtain and maintain in force insurance policies
      covering losses or damage to those items of Collateral which constitute physical
      personal property, which insurance shall be of the types customarily insured
      against by companies in the same or similar business, similarly situated, in
      such amounts (with such deductible amounts) as is customary for such companies
      under the same or similar circumstances, similarly situated. Debtor shall make
      the Collateral Agent a loss payee thereon to the extent of its interest in
      the
      Collateral. Collateral Agent is hereby irrevocably (until the Obligations are
      paid in full) appointed Debtor’s attorney-in-fact to endorse any check or draft
      that may be payable to such Debtor so that Collateral Agent may collect the
      proceeds payable for any loss under such insurance as necessary to exercise
      the
      Collateral Agent’s rights hereunder. The proceeds of such insurance, less any
      costs and expenses incurred or paid by Collateral Agent in the collection
      thereof, shall be applied either toward the cost of the repair or replacement
      of
      the items damaged or destroyed, or on account of any sums secured hereby,
      whether or not then due or payable.

    


    6.7 Collateral
      Agent, at its option and, to the extent practicable, upon prior written notice
      to the Debtor, may but without any obligation to do so, pay, perform and
      discharge any and all amounts, costs, expenses and liabilities herein agreed
      to
      be paid or performed by Debtor upon
      Debtor’s
      failure
      to do
      so. All
      amounts expended by Collateral Agent in so doing shall become part of the
      Obligations secured hereby, and shall be immediately due and payable by Debtor
      to Collateral Agent upon demand
      and
      shall
      bear interest at the lesser of 12% per annum or the highest legal amount from
      the dates of such expenditures until paid.

    


    6.8 Upon
      the
      request of Collateral Agent, Debtor will furnish to Collateral Agent within
      five
      (5) business days thereafter, or to any proposed assignee of this Security
      Agreement, a written statement in form reasonably satisfactory to Collateral
      Agent, duly acknowledged, certifying the amount of the principal and interest
      and any other sum then owing under the Obligations, whether to its knowledge
      any
      claims, offsets or defenses exist against the Obligations or against this
      Security Agreement, or any of the terms and provisions of any other agreement
      of
      Debtor securing the Obligations. In connection with any assignment by Collateral
      Agent of this Security Agreement, Debtor hereby agrees to cause the insurance
      policies required hereby to be carried by Debtor, if any, to be endorsed in
      form
      reasonably satisfactory to Collateral Agent or to such assignee, with loss
      payable clauses in favor of such assignee, and to cause such endorsements to
      be
      delivered to Collateral Agent within ten (10) calendar days after request
      therefor by Collateral Agent.

    


    6.9 Debtor
      will, at its own expense, make, execute, endorse, acknowledge, file and/or
      deliver to the Collateral Agent from time to time such vouchers, invoices,
      schedules, confirmatory assignments, conveyances, financing statements, transfer
      endorsements, powers of attorney, certificates, reports and other reasonable
      assurances or instruments and take further steps relating to the Collateral
      and
      other property or rights covered by the security interest hereby granted, as
      the
      Collateral Agent may reasonably require to perfect its security interest
      hereunder.

     

    
      
        
        

      

      
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    6.10 Debtor
      represents and warrants that it is the true and lawful exclusive owner of the
      Collateral, free and clear of any liens and encumbrances.

    


    6.11 Debtor
      hereby agrees not to divest itself of any right under the Collateral except
      as
      permitted herein absent prior written approval of the Collateral Agent, except
      to a subsidiary organized and located in the United States on prior notice
      to
      Collateral Agent provided the Collateral remains subject to the security
      interest herein described.

     

    7. Power
      of Attorney.

    


    At
      any
      time an Event of Default has occurred and continued beyond applicable cure
      periods, Debtor hereby irrevocably constitutes and appoints the Collateral
      Agent
      as the true and lawful attorney of such Debtor, with full power of substitution,
      in the place and stead of such Debtor and in the name of such Debtor or
      otherwise, at any time or times, in the discretion of the Collateral Agent,
      to
      take any action and to execute any instrument or document which the Collateral
      Agent may deem necessary or advisable to accomplish the purposes of this
      Agreement. This power of attorney is coupled with an interest and is irrevocable
      until the Obligations are satisfied.

    


    8. Performance
      By The Collateral Agent.

    


    If
      a
      Debtor fails to perform any material covenant, agreement, duty or obligation
      of
      such Debtor under this Agreement, the Collateral Agent may, after any applicable
      cure period, at any time or times in its discretion, take action to effect
      performance of such obligation. All reasonable expenses of the Collateral Agent
      incurred in connection with the foregoing authorization shall be payable by
      Debtor as provided in Paragraph 12.1 hereof. No discretionary right, remedy
      or
      power granted to the Collateral Agent under any part of this Agreement shall
      be
      deemed to impose any obligation whatsoever on the Collateral Agent with respect
      thereto, such rights, remedies and powers being solely for the protection of
      the
      Collateral Agent.

    


    9. Event
      of Default.

    


    An
      event
      of default ("Event of Default") shall be deemed to have occurred hereunder
      upon
      the occurrence of any event of default as defined and described in the Notes.
      Upon and after any Event of Default, after the applicable cure period, if any,
      any or all of the Obligations shall become immediately due and payable at the
      option of the Collateral Agent, for the benefit of the Lenders, and the
      Collateral Agent may dispose of Collateral as provided below. A default by
      Debtor of any of its material obligations pursuant to this Agreement and any
      of
      the Transaction Documents (as defined in the Subscription Agreement) shall
      be an
      Event of Default hereunder and an “Event of Default” as defined in the Notes,
      and Subscription Agreement. 

    


    10. Disposition
      of Collateral.

    


    Upon
      and
      after any Event of Default which is then continuing,

    


    10.1 The
      Collateral Agent may exercise its rights with respect to each and every
      component of the Collateral, without regard to the existence of any other
      security or source of payment for the Obligations. In addition to other rights
      and remedies provided for herein or otherwise available to it, the Collateral
      Agent shall have all of the rights and remedies of a lender on default under
      the
      Uniform Commercial Code then in effect in the State of New York.

     

    
      
        
        

      

      
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    10.2 If
      any
      notice to Debtor of the sale or other disposition of Collateral is required
      by
      then applicable law, ten (10) business days prior written notice (which Debtor
      agrees is reasonable notice within the meaning of Section 9.612(a) of the
      Uniform Commercial Code) shall be given to Debtor of the time and place of
      any
      sale of Collateral which Debtor hereby agree may be by private sale. The rights
      granted in this Section are in addition to any and all rights available to
      Collateral Agent under the Uniform Commercial Code.

    


    10.3 The
      Collateral Agent is authorized, at any such sale, if the Collateral Agent deems
      it advisable to do so, in order to comply with any applicable securities laws,
      to restrict the prospective bidders or purchasers to persons who will represent
      and agree, among other things, that they are purchasing the Collateral for
      their
      own account for investment, and not with a view to the distribution or resale
      thereof, or otherwise to restrict such sale in such other manner as the
      Collateral Agent deems advisable to ensure such compliance. Sales made subject
      to such restrictions shall be deemed to have been made in a commercially
      reasonable manner.

    


    10.4 All
      proceeds received by the Collateral Agent for the benefit of the Lenders in
      respect of any sale, collection or other enforcement or disposition of
      Collateral, shall be applied (after deduction of any amounts payable to the
      Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations
      pro
      rata among the Lenders in proportion to their interests in the Obligations.
      Upon
      payment in full of all Obligations, Debtor shall be entitled to the return
      of
      all Collateral, including cash, which has not been used or applied toward the
      payment of Obligations or used or applied to any and all costs or expenses
      of
      the Collateral Agent incurred in connection with the liquidation of the
      Collateral (unless another person is legally entitled thereto). Any assignment
      of Collateral by the Collateral Agent to Debtor shall be without representation
      or warranty of any nature whatsoever and wholly without recourse. To the extent
      allowed by law, each Lender may purchase the Collateral and pay for such
      purchase by offsetting up to such Lender’s pro rata portion of the purchase
      price with sums owed to such Lender by Debtor arising under the Obligations
      or
      any other source.

    


    11. Waiver
      of Automatic Stay.
      Debtor
      acknowledges and agrees that should a proceeding under any bankruptcy or
      insolvency law be commenced by or against Debtor, or if any of the Collateral
      should become the subject of any bankruptcy or insolvency proceeding, then
      the
      Collateral Agent should be entitled to, among other relief to which the
      Collateral Agent or Lenders may be entitled under the Note, Subscription
      Agreement and any other agreement to which the Debtor, Lenders or Collateral
      Agent 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 Collateral Agent to exercise all of
      its
      rights and remedies pursuant to the Loan Documents and/or applicable law. Debtor
      EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
      362. FURTHERMORE, Debtor 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 COLLATERAL
      AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
      APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which
      may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding
      initiated by or against Debtor, and further agrees not to file any opposition
      to
      any motion for relief from stay filed by the Collateral Agent. Debtor
      represents, acknowledges and agrees that this provision is a specific and
      material aspect of this Agreement, and that the Collateral Agent would not
      agree
      to the terms of this Agreement if this waiver were not a part of this Agreement.
      Debtor further represents, acknowledges and agrees that this waiver is
      knowingly, intelligently and voluntarily made, that neither the Collateral
      Agent
      nor any person acting on behalf of the Collateral Agent has made any
      representations to induce this waiver, that Debtor has been represented (or
      has
      had the opportunity to be represented) in the signing of this Agreement and
      in
      the making of this waiver by independent legal counsel selected by Debtor and
      that Debtor has had the opportunity to discuss this waiver with counsel. Debtor
      further agrees that any bankruptcy or insolvency proceeding initiated by Debtor
      will only be brought in the Federal Court within the Southern District of New
      York.

     

    
      
        
        

      

      
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    12. Miscellaneous.

    


    12.1 Expenses.
      Debtor
      shall pay to the Collateral Agent, on demand, the amount of any and all
      reasonable expenses, including, without limitation, attorneys' fees, legal
      expenses and brokers' fees, which the Collateral Agent may incur in connection
      with (a) sale, collection or other enforcement or disposition of Collateral;
      (b)
      exercise or enforcement of any the rights, remedies or powers of the Collateral
      Agent hereunder or with respect to any or all of the Obligations upon breach;
      or
      (c) failure by Debtor to perform and observe any agreements of Debtor contained
      herein which are performed by the Collateral Agent.

    


    12.2 Waivers,
      Amendment and Remedies.
      No
      course of dealing by the Collateral Agent and no failure by the Collateral
      Agent
      to exercise, or delay by the Collateral Agent in exercising, any right, remedy
      or power hereunder shall operate as a waiver thereof, and no single or partial
      exercise thereof shall preclude any other or further exercise thereof or the
      exercise of any other right, remedy or power of the Collateral Agent. No
      amendment, modification or waiver of any provision of this Agreement and no
      consent to any departure by Debtor therefrom, shall, in any event, be effective
      unless contained in a writing signed by the Collateral Agent, and then such
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given. The rights, remedies and powers of the
      Collateral Agent, not only hereunder, but also under any instruments and
      agreements evidencing or securing the Obligations and under applicable law
      are
      cumulative, and may be exercised by the Collateral Agent from time to time
      in
      such order as the Collateral Agent may elect.

    


    12.3 Notices.
      All
      notices or other communications given or made hereunder shall be in writing
      and
      shall be personally delivered or deemed delivered the first business day after
      being faxed (provided that a copy is delivered by first class mail) to the
      party
      to receive the same at its address set forth below or to such other address
      as
      either party shall hereafter give to the other by notice duly made under this
      Section:

     

    
      
        	To Debtor:	
              	Ever-Glory International Group, Inc.,

                100
                  N. Barranca Ave # 810 

                West
                  Covina, CA 91791, 

                Attn:
                  Edward Kang 

                telecopier:
                  (626)839-9118

              


      

    

    
       

      
        
          	With a copy by fax
                  to:	
                	Edgar D. Park, Esq.
                  Richardson
                    & Patel LLP

                  10900
                    Wilshire Boulevard, Suite 500

                  Los
                    Angeles, CA 90024

                  Fax:
                    (310) 208-1154

                


        

      

      
         

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

        

         

        
          
            	To Lenders:	
                  	To the addresses and telecopier
                    numbers set
                    forth
                    on
                      Schedule A

                  


          

        

        
           

          
            
              	To the Collateral
                      Agent:	
                    	Eliezer Drew
                      551
                        Fifth Avenue, Suite 1601

                      New
                        York, New York 10176

                      Fax:
                        (212) 697-3575

                    


            

          

          
             

            
              
                	With a copy by
                        fax to:	
                      	Grushko & Mittman, P.C.
                        551
                          Fifth Avenue, Suite 1601

                        New
                          York, New York 10176

                        Fax:
                          (212)
                          697-3575

                      


              

            

          

        

      

    

    


    Any
      party
      may change its address by written notice in accordance with this
      paragraph.

    


    12.4 Term;
      Binding Effect.
      This
      Agreement shall (a) remain in full force and effect until payment and
      satisfaction in full of all of the Obligations; (b) be binding upon Debtor,
      and
      its successors and permitted assigns; and (c) inure to the benefit of the
      Collateral Agent, for the benefit of the Lenders and their respective successors
      and assigns. 

    


    12.5 Captions.
      The
      captions of Paragraphs, Articles and Sections in this Agreement have been
      included for convenience of reference only, and shall not define or limit the
      provisions hereof and have no legal or other significance
      whatsoever.

    


    12.6 Governing
      Law; Venue; Severability.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without
      regard to conflicts
      of laws principles
      that
      would result in the application of the substantive laws of another
      jurisdiction,
      except
      to the extent that the perfection of the security interest granted hereby in
      respect of any item of Collateral may be governed by the law of another
      jurisdiction. Any legal action or proceeding against a Debtor with respect
      to
      this Agreement may be brought in the courts in the State of New York or of
      the
      United
      States for the Southern District of New York, and, by execution and delivery
      of
      this Agreement, Debtor hereby irrevocably accepts for itself and in respect
      of
      its property, generally and unconditionally, the jurisdiction of the aforesaid
      courts. Each Debtor hereby irrevocably waives any objection which they may
      now
      or hereafter have to the laying of venue of any of the aforesaid actions or
      proceedings arising out of or in connection with this Agreement brought in
      the
      aforesaid courts and hereby further irrevocably waives and agrees not to plead
      or claim in any such court that any such action or proceeding brought in any
      such court has been brought in an inconvenient forum. If any provision of this
      Agreement, or the application thereof to any person or circumstance, is held
      invalid, such invalidity shall not affect any other provisions which can be
      given effect without the invalid provision or application, and to this end
      the
      provisions hereof shall be severable and the remaining, valid provisions shall
      remain of full force and effect.

    


    12.7 Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties and supersedes all other
      agreements and understandings, oral or written, with respect to the matters
      contained herein.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    12.8 Counterparts/Execution.
      This
      Agreement may be executed in any number of counterparts and by the different
      signatories hereto on separate counterparts, each of which, when so executed,
      shall be deemed an original, but all such counterparts shall constitute but
      one
      and the same instrument. This Agreement may be executed by facsimile signature
      and delivered by facsimile transmission.

    


    13. Intercreditor
      Terms.
      As
      between the Lenders, any distribution under paragraph 10.4 shall be made
      proportionately based upon the remaining principal amount (plus accrued and
      unpaid interest) to each as to the total amount then owed to the Lenders as
      a
      whole. The rights of each Lender hereunder are pari
      passu
      to the
      rights of the other Lenders hereunder. Any recovery hereunder shall be shared
      ratably among the Lenders according to the then remaining principal amount
      owed
      to each (plus accrued and unpaid interest) as to the total amount then owed
      to
      the Lenders as a whole. 

    


    14. Termination;
      Release.
      When
      the Obligations have been indefeasibly paid and performed in full or
      all
      outstanding Convertible Notes have been converted to common stock pursuant
      to
      the terms of the Convertible Notes and the Subscription Agreements,
      this
      Agreement and the security interests created hereunder shall be terminated,
      and
      the Collateral Agent, at the request and sole expense of the Debtor, will
      execute and deliver to the Debtor the proper instruments (including UCC
      termination statements) terminating the Security Agreement and such security
      interests, and duly assign, transfer and deliver to the Debtor, without
      recourse, representation or warranty of any kind whatsoever, the Collateral,
      including, without limitation, any Additional Collateral, as may be in the
      possession of the Collateral Agent.

    


    15. Collateral
      Agent.

    


    15.1 Collateral
      Agent Powers.
      The
      powers conferred on the Collateral Agent hereunder are solely to protect its
      interest (on behalf of the Lenders) in the Collateral and shall not impose
      any
      duty on it to exercise any such powers.

    


    15.2 Reasonable
      Care.
      The
      Collateral Agent is required to exercise reasonable care in the custody and
      preservation of any Collateral in its possession; provided, however, that the
      Collateral Agent shall be deemed to have exercised reasonable care in the
      custody and preservation of any of the Collateral if it takes such action for
      that purposes as any owner thereof reasonably requests in writing at times
      other
      than upon the occurrence and during the continuance of any Event of Default,
      but
      failure of the Collateral Agent, to comply with any such request at any time
      shall not in itself be deemed a failure to exercise reasonable
      care.

     

     

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      undersigned have executed and delivered this Security Agreement, as of the
      date
      first written above.

     

    
      	
              "DEBTOR"

              EVER-GLORY INTERNATIONAL GROUP, INC.

              a Florida corporation

               

              _____________________________________

              
                Yi
                  Hua Kang

                Chief
                  Executive Officer

              

            	 	
              "THE COLLATERAL AGENT"

               

               

               

              _____________________________________

            


    

     

     

    APPROVED
      BY “LENDERS”:

    
       

      
        	
                CHESTNUT RIDGE PARTNERS L.P.

                 

                ____________________________

                By:

                Its:

              	 	
                ALPHA CAPITAL ANSTALT

                 

                ____________________________

                By:

                Its:

              


      

      
         

        
          	
                  WHALEHAVEN CAPITAL FUND LIMITED 

                   

                  ____________________________

                  By:

                  Its:

                	 	
                  RONALD C. PASTERNAK

                   

                  ____________________________

                  By:

                  Its:

                


        

        
          
             

            
              	
                      JONATHAN BLAUSTEIN

                       

                      ____________________________

                      By:

                      Its:

                    	 	
                      ELLIE KATZ

                       

                      ____________________________

                      By:

                      Its:

                    


            

             

          

        

      

    

    


    This
      Security Agreement may be signed by facsimile signature
      and

    delivered
      by confirmed facsimile transmission.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      A TO SECURITY AGREEMENT

     

    
      	
              Lender

            	 	
              Note
                Principle

            	
               

            	
              Warrants

            	 
	
              Chestnut
                Ridge Partners L.P.

              50
                Tice Blvd.

              Woodcliff
                Lake , N. J. 07677

              Attn:
                Kenneth Holz CFO

              Fax:
                (201) 802-9450

            	 	
              $

            	
              1,300,000

            	 	 	
              5,909,091

            	 
	
              Alpha
                Capital Anstalt

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

            	 	
              $

            	
              250,000

            	 	 	
              1,136,364

            	 
	
              Whalehaven
                Capital Fund Limited

              c/o
                FWS Capital Ltd.

              3rd
                Floor, 14 Par-Laville Road

              Hamilton,
                Bermuda HM08

              Fax:
                (441) 295-5262 

            	 	
              $

            	
              250,000

            	 	 	
              1,136,364

            	 
	
              Ronald
                C. Pasternak

              325
                Howard Ave.

              Fairlawn
                , New Jersey 07410 

              Fax:
                (201) 791-3848

            	 	
              $

            	
              100,000

            	 	 	
              454,545

            	 
	
              Jonathan
                Blaustein 

              544
                Asbury Street

              New
                Milford , NJ 07646

              Fax:
                (928) 438-4763

            	 	
              $

            	
              50,000

            	 	 	
              227,273

            	 
	
              Ellie
                Katz

              191
                Walnut St

              Englewood,
                NJ 07631

              Fax:
                (201)568-6234

            	 	
              $

            	
              50,000

            	 	 	
              227,273

            	 


    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      B TO SECURITY AGREEMENT

    


    PATENTS,
      PATENTS PENDING, APPLICATIONS

     

     

    None.
      

     

     

    SCHEDULE
      6.1 TO SECURITY AGREEMENT

     

     

    None.
      

     

    
      
        
        

      

      
        13