SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of October
____, 2003, by and among Eternal Technologies Group, Inc., a Nevada corporation
(the "Company"), and the subscribers identified on the signature page hereto
(each a "Subscriber" and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to $5,000,000 (the "Purchase Price") of shares of the Company's
common stock, $.001 par value (the "Common Stock") at a per share Purchase Price
of $.875 ("Per Share Price"), and share purchase warrants (the "Warrants"), in
the form attached hereto as Exhibit A, to purchase shares of Common Stock (the
"Warrant Shares") (i.e. one (1) Warrant Share for each two shares of Common
Stock, which shall be purchased on the Closing Date, as defined in Section 13(b)
of this Agreement. In the event the Per Share Price would be less than $.8333,
then the Company will not be required to sell any Common Stock and Warrants to a
Subscriber unless the Subscriber elects a Per Share Price of $.8333. The shares
of Common Stock to be purchased hereunder (the "Shares"), the Warrants and the
Warrant Shares are collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the shares of Common
Stock and the Warrants contemplated hereby shall be held in escrow pursuant to
the terms of a Funds Escrow Agreement to be executed by the parties
substantially in the form attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Purchase and Sale of Shares and Warrants. Subject to the
satisfaction (or waiver) of the terms and conditions of this Agreement, each
Subscriber shall purchase shares of Common Stock in the amount designated on the
signature page hereto for the portion of the Purchase Price indicated on the
signature page hereto, and the amount of Warrants designated on the signature
page, and the Company shall sell such shares of Common Stock and Warrants to
such Subscriber.
2. Escrow Arrangements; Form of Payment. Upon execution hereof
by the parties and pursuant to the terms of the Escrow Agreement, each
Subscriber agrees to make the deliveries required of such Subscriber as set
forth in the Escrow Agreement and the Company agrees to make the deliveries
required of the Company as set forth in the Escrow Agreement. The Subscribers
hereby acknowledge that there is no minimum offering amount, and that the funds
shall be held in escrow with counsel to the Subscribers pending receipt of fully
executed subscription documents.
3. Warrant Exercise Price. The per Warrant Share exercise
price to acquire a Warrant Share shall be 110% of the closing trade price of the
Common Stock as reported by Bloomberg L.P. for the OTC Bulletin Board ("Bulletin
Board") for the second trading day preceding but not including the Closing Date.
The Warrants shall be exercisable for five years after the Issue Date (as
defined in the Warrant).
4. Subscriber's Representations and Warranties. Each
Subscriber hereby represents and warrants to and agrees with the Company as to
such Subscriber that:
(a) Information on Company. The Subscriber has been
furnished with or has
obtained from the EDGAR Website of the Securities and Exchange Commission (the
"Commission") the Company's Form 10-KSB for the year ended December 31, 2002 as
filed with the Commission as of May 7, 2003, together with all subsequently
filed Forms 10-QSB, 8-K, and filings made with the Commission available at the
EDGAR website (hereinafter referred to collectively as the "Reports"). In
addition, the Subscriber has received in writing from the Company such other
information concerning its operations, financial condition and other matters as
the Subscriber has requested in writing (such other information is collectively,
the "Other Written Information"), and considered all factors the Subscriber
deems material in deciding on the advisability of investing in the Securities.
EACH SUBSCRIBER ACKNLOWEDGES AND UNDERSTANDS FURTHER THAT IS HAS NOT AND IS NOT
RELYING UPON FIRST MONTAUK SECURITIES CORP. OR ANY OF ITS EMPLOYEES, OFFIERS OR
AGENTS IN CONNECTION WITH THIS PURCHASE, AND HAS BEEN ADVISED THAT FIRST MONTAUK
SECURITIES CORP HAS NOT CONDUCTED ANY DUE DILIGNECE INTO THE COMPANY OR ITS
OPERATIONS OR FINANCIAL CONDITION.
(b) Information on Subscriber. The Subscriber is, and will be at the
time of the exercise of any of the Warrants, an "accredited investor", as
such term is defined in Regulation D promulgated by the Commission under
the Securities Act of 1933, as amended (the "1933 Act"), is experienced in
investments and business matters, has made investments of a speculative
nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives,
has such knowledge and experience in financial, tax and other business
matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and
is duly and legally qualified to purchase and own the Securities. The
Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on
the signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Shares and Warrants. On the Closing Date, the
Subscriber will purchase the Shares and Warrants as principal for its own
account and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in
part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration. Such
Purchaser hereby confirms its understanding that it may not cover short
sales made prior to the Effective Date with Shares or Warrant Shares
registered for resale on the Registration Statement. The Purchaser
acknowledges that it does not intend to cover short positions made by it
before the Effective Date with Shares or Warrant Shares held by it and
registered on the Registration Statement.
(e) Shares Legend. The Shares and the Warrant Shares shall bear the
following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ETERNAL TECHNOLOGIES GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the following or similar
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ETERNAL TECHNOLOGIES GROUP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
(h) Authority; Enforceability. This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been
duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity; and Subscriber has
full corporate power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder and
under all other agreements entered into by the Subscriber relating hereto.
(i) Correctness of Representations. Each Subscriber represents as to
such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise
notifies the Company prior to the Closing Date (as hereinafter defined),
shall be true and correct as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date for a period
of three years.
5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or financial condition of the
Company
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its subsidiaries has been duly authorized
and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Warrant, the Escrow
Agreement and any other agreements delivered together with this Agreement
or in connection herewith have been duly authorized, executed and delivered
by the Company and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement, the Warrant, the Escrow
Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Company
relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of
the Company or other equity interest in any of the subsidiaries of the
Company except as described on Schedule 5(d),or the Reports.
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the Amex, the National Association
of Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC Bulletin
Board nor the Company's Shareholders is required for the execution and
compliance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto, including,
without limitation, the issuance and sale of the Securities, and the
performance of the Company's obligations hereunder and under all such other
agreements.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither
the issuance and sale of the Securities nor the performance of the
Company's obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of
time or both would be reasonably likely to constitute a default) under
(A) the articles of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of
any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its subsidiaries or over the
properties or assets of the Company or any of its affiliates, (C) the
terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which
the Company or any of its affiliates, or subsidiaries is a party, by
which the Company or any of its affiliates or subsidiaries is bound,
or to which any of the properties of the Company or any of its
affiliates or subsidiaries is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates or
subsidiaries is a party except the violation, conflict, breach, or
default of which would not have a material adverse effect on the
Company; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance, and upon exercise of the Warrants, the Warrant
Shares will be duly and validly issued, fully paid and nonassessable
(and if registered pursuant to the 1933 Act, and resold pursuant to an
effective registration statement will be free trading and
unrestricted, provided that each Subscriber complies with the
prospectus delivery requirements of the 1933 Act and any state
securities laws);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of
the Company; and
(iv) will not subject the holders thereof to personal liability
by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over
the Company, or any of its affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating
hereto. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates which
litigation if adversely determined could have a material adverse effect on
the Company.
(i) Reporting Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a
class of common shares registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has timely
filed all reports and other materials required to be filed thereunder with
the Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation
of the price of the common stock of the Company to facilitate the sale or
resale of the Securities or affect the price at which the Securities may be
issued or resold.
(k) Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in
the Reports, and except as modified in the Other Written Information or in
the Schedules hereto, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the
Reports. The Reports do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances
when made.
(l) Stop Transfer. The Securities, when issued, will be restricted
securities. The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities
laws. The Company will not issue any stop transfer or other order impeding
the sale, resale or delivery of the Securities unless contemporaneous
notice of such instruction is given to the Subscriber.
(m) Defaults. The Company is not in violation of its Articles of
Incorporation or ByLaws. The Company is (i) not in default under or in
violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a material adverse effect on the Company,
(ii) not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of
trade, unfair competition or similar matters, or (iii) to its knowledge in
violation of any statute, rule or regulation of any governmental authority
which violation would have a material adverse effect on the Company.
(n) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers
to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of the Bulletin Board. Nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the
offer of the Securities to be integrated with other offerings. The Company
will not conduct any offering other than the transactions contemplated
hereby that will be integrated with the offer or issuance of the
Securities.
(o) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in connection with
the offer or sale of the Securities.
(p) Listing. The Company's common stock is quoted on the Bulletin
Board. The Company has not received any oral or written notice that its
common stock will be delisted from the Bulletin Board nor that its common
stock does not meet all requirements for the continuation of such quotation
and the Company satisfies the requirements for the continued listing of its
common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since
December 31, 2002 and which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the Company's
financial condition, other than as set forth in Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since December 31, 2002,
no event or circumstance has occurred or exists with respect to the Company
or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date are set
forth on Schedule 5(s). Except as set forth in the Reports and Other
Written Information and Schedule 5(d), there are no options, warrants, or
rights to subscribe to, securities, rights or obligations convertible into
or exchangeable for or giving any right to subscribe for any shares of
capital stock of the Company. All of the outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
(t) Dilution. The Company's executive officers and directors have
studied and fully understand the nature of the Securities being sold hereby
and recognize that they have a potential dilutive effect on the interests
of other holders of the Company's securities. The board of directors of the
Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company.
(u) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the
date hereof in all material respects, will be true and corrects of the
Closing Date in all material respects, and, unless the Company otherwise
notifies the Subscribers prior to the Closing Date, shall be true and
correct in all material respects as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date for a period
of three years.
6. Regulation D Offering. The offer and issuance of the Securities to
the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section
4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated
thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company's legal counsel
opining on the availability of an exemption from registration under the
1933 Act as it relates to the offer and issuance of the Securities. A form
of the legal opinion is annexed hereto as Exhibit C. The Company will
provide, at the Company's expense, such other legal opinions in the future
as are reasonably necessary for the exercise of the Warrants and resale of
the Shares and Warrant Shares.
7. Reissuance of Securities. The Company agrees to reissue
certificates representing the Shares and the Warrant Shares without the
legends set forth in Sections 4(e) and 4(f) above at such time as (a) the
holder thereof is permitted to and disposes of the Securities pursuant to
Rule 144(d) and/or Rule 144(k) under the 1933 Act in the opinion of counsel
reasonably satisfactory to the Company, or (b) upon resale subject to an
effective registration statement after the Shares and the Warrant Shares
are registered under the 1933 Act. The Company agrees to cooperate with
each Subscriber in connection with all resales pursuant to Rule 144(d) and
Rule 144(k) and provide legal opinions at the Company's expense necessary
to allow such resales provided the Company and its counsel receive
reasonably requested written representations from each Subscriber and
selling broker, if any. Provided each Subscriber provides required
certifications and representation letters, if any, if the Company fails to
remove any legend as required by this Section 7 (a "Legend Removal
Failure"), then beginning on the tenth (10th) day following the date that
each Subscriber has requested the removal of the legend and delivered all
items reasonably required by the Company to be delivered by each
Subscriber, that the Company continues to fail to remove such legend, the
Company shall pay to each Subscriber or assignee holding Shares or Warrant
Shares, subject to a Legend Removal Failure, as liquidated damages and not
a penalty an amount equal to ten percent (10%) of the purchase price of the
Shares and Warrant Shares subject to a Legend Removal Failure for each
15-day period or part thereof that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as
required by this Section 7 for an aggregate of thirty (30) days, each
Subscriber or assignee holding Securities subject to a Legend Removal
Failure may, at its option, require the Company to purchase all or any
portion of the Shares and Warrant Shares subject to a Legend Removal
Failure held by each Subscriber or assignee at a price per share equal to
130% of the purchase price of such Shares and Warrant Shares.
8. Broker's Fee/ Escrow Agent.
(a) Legal Fee. The Company shall hire Vanderkam & Associates as Escrow
Agent in connection with this Agreement and the purchase and sale of the
shares of Common Stock and the Warrants (the "Offering").
(b) Broker. The Company on the one hand, and each Subscriber (for
himself only) on the other hand, agree to indemnify the other against and
hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or Broker's Commission other than First
Montauk Securities Corp. ("Broker") on account of services purported to
have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby and arising out of
such party's actions. Anything to the contrary in this Agreement to the
contrary notwithstanding, each Subscriber is providing indemnification only
for such Subscriber's own actions and not for any action of any other
Subscriber. Each Subscriber's liability hereunder is several and not joint.
The Company agrees that it will pay Broker a cash fee equal to _____% of
the Purchase Price on the Closing Date (as defined herein) directly out of
the funds held pursuant to the Escrow Agreement ("Broker's Commissions") as
payment to broker for acting as a finder in connection with the sale of the
Securities hereunder. The Company represents that there are no other
parties entitled to receive fees, commissions, or similar payments in
connection with the offering described in this Agreement except the Broker.
9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any
state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of
any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale
in any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing. The Company shall promptly secure the listing of the
shares of Common Stock to be purchased hereunder and the Warrant
Shares upon each national securities exchange, or quotation system, if
any, upon which shares of common stock are then listed (subject to
official notice of issuance) and shall maintain such listing so long
as any Securities are outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap Market, Nasdaq National Market System, OTC Bulletin Board, or
New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock (the
"Principal Market")), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market, as applicable. The Company will provide
the Subscribers copies of all notices it receives notifying the
Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the
Closing Date, the Bulletin Board is and will be the Principal Market.
(c) Market Regulations. The Company shall notify the Commission,
the Principal Market and applicable state authorities, in accordance
with their requirements, if any, of the transactions contemplated by
this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to
the Subscribers and promptly provide copies thereof to Subscriber.
(d) Reporting Requirements. From the Closing Date and until at
least two (2) years after the actual effective date of the
Registration Statement described in Section 11.1(iv) hereof, the
Company will (i) cause its Common Stock to continue to be registered
under Section 12(b) or 12(g) of the 1934 Act, (ii) comply in all
respects with its reporting and filing obligations under the 1934 Act,
(iii) comply with all reporting requirements that are applicable to an
issuer with a class of shares registered pursuant to Section 12(b) or
12(g) of the 1934 Act, as applicable, and (iv) comply with all
requirements related to any registration statement filed pursuant to
this Agreement. The Company will use its best efforts not to take any
action or file any document (whether or not permitted by the 1933 Act
or the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under said acts until the later of two (2) years after the
actual effective date of the Registration Statement described in
Section 11.1(iv) hereof. Until the earlier of the resale of the Shares
and the Warrant Shares by each Subscriber or at least two (2) years
after the Warrants have been exercised, the Company will use its best
efforts to continue the listing or quotation of the Common Stock on
the Principal Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market.
(e) Use of Proceeds. The Purchase Price will be used by the
Company for working capital and may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing
related debt, redemption of redeemable notes or equity instruments of
the Company nor non-trade obligations outstanding on the Closing Date.
(f) Reservation of Common Stock. The Company undertakes to
reserve from its authorized but unissued common stock, at all times
that Warrants remain outstanding, a number of common shares equal to
the amount of common shares issuable upon exercise of the Warrants.
(g) Taxes. From the date of this Agreement until two (2) years
after the Closing Date, the Company will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set
aside on its books adequate reserves with respect thereto, and
provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance. From the date of this Agreement until two (2)
years after the Closing Date, the Company will keep its assets which
are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in the Company's line
of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than 100% of the
insurable value of the property insured; and the Company will
maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar
businesses similarly situated and to the extent available on
commercially reasonable terms.
(i) Books and Records. From the date of this Agreement until two
(2) years after the Closing Date, the Company will keep true records
and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and
affairs in accordance with generally accepted accounting principles
applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement
until two (2) years after the Closing Date, the Company shall duly
observe and conform in all material respects to all valid requirements
of governmental authorities relating to the conduct of its business or
to its properties or assets.
(k) Intellectual Property. From the date of this Agreement until
two (2) years after the Closing Date, the Company shall maintain in
full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned
or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(l) Properties. From the date of this Agreement until two (2)
years after the Closing Date, the Company will keep its properties in
good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and the
Company will at all times comply with each provision of all leases to
which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a material
adverse effect.
(m) Confidentiality. From the date of this Agreement until two
(2) years after the Closing Date, the Company agrees that it will not
disclose publicly or privately the identity of the Subscribers unless
expressly agreed to in writing by a Subscriber or only to the extent
required by law and then only upon ten days prior notice to
Subscriber.
(n) Blackout. The Company undertakes and covenants that until the
first to occur of (i) the registration statement described in Section
11.1(iv) having been effective for one hundred and eighty (180)
business days, or (ii) until all the Shares and Warrant Shares have
been resold pursuant to said registration statement, the Company will
not enter into any acquisition, merger, exchange or sale or other
transaction that could have the effect of delaying the effectiveness
of any pending registration statement, causing an already effective
registration statement to no longer be effective or current, or
require the filing of an amendment to an already effective
registration statement.
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Subscriber or any such person which results, arises out of or is based
upon (i) any material misrepresentation by Company or breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default
in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered
into by the Company and Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company or any
such person which results, arises out of or is based upon (i) any
material misrepresentation by such Subscriber in this Agreement or in
any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber
of any covenant or undertaking to be performed by such Subscriber
hereunder, or any other agreement entered into by the Company and
Subscribes relating hereto.
(c) The procedures set forth in Section 11.6 shall apply to the
indemnifications set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 121 days after
the Closing Date, but not later than three years after the
Closing Date ("Request Date"), the Company, upon a written
request therefor from any record holder or holders of more than
50% of the Shares issued in the Offering and Warrant Shares
(collectively "Registrable Securities"), shall prepare and file
with the Commission a registration statement under the 1933 Act
covering the Shares and Warrant Shares which are the subject of
such request. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities which are
included in an effective registration statement or included for
registration in a pending registration statement, or which have
been issued without further transfer restrictions after a sale or
transfer pursuant to Rule 144 under the 1933 Act. In addition,
upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and
shall include in such registration statement Registrable
Securities for which it has received written requests within 10
days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their
demand registration right under this Section 11.1(i).
(ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether
for its own account or for the account of other security holders
or both, except with respect to registration statements on Forms
S-4, S-8 or another form not available for registering the
Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration
statement, each such time it will give at least 15 days' prior
written notice to the record holder of the Registrable Securities
of its intention so to do. Upon the written request of the
holder, received by the Company within 10 days after the giving
of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company
will cause such Registrable Securities as to which registration
shall have been so requested to be included with the securities
to be covered by the registration statement proposed to be filed
by the Company, all to the extent required to permit the sale or
other disposition of the Registrable Securities so registered by
the holder of such Registrable Securities (the "Seller"). In the
event that any registration pursuant to this Section 11.1(ii)
shall be, in whole or in part, an underwritten public offering of
common stock of the Company, the number of shares of Registrable
Securities to be included in such an underwriting may be reduced
by the managing underwriter if and to the extent that the Company
and the underwriter shall reasonably be of the opinion that such
inclusion would adversely affect the marketing of the securities
to be sold by the Company therein; provided, however, that the
Company shall notify the Seller in writing of any such reduction.
Notwithstanding the foregoing provisions, or Section 11.4 hereof,
the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration
is received by the Company pursuant to Section 11.1(i), the
Company has determined to proceed with the actual preparation and
filing of a registration statement under the 1933 Act in
connection with the proposed offer and sale for cash of any of
its securities for the Company's own account and the Company
actually does file such other registration statement, such
written request shall be deemed to have been given pursuant to
Section 11.1(ii) rather than Section 11.1(i), and the rights of
the holders of Registrable Securities covered by such written
request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission not later
than thirty (30) days after the Closing Date (the "Filing Date"),
and use its reasonable commercial efforts to cause to be declared
effective within one hundred and twenty (120) days after the
Closing Date (the "Effective Date"), a Form SB-2 registration
statement (the "Registration Statement") (or such other form that
it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act. The
Company will register not less than a number of shares of common
stock in the aforedescribed registration statement that is equal
to the number of the Shares and Warrant Shares. The Registrable
Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber, and not issued, employed or reserved
for anyone other than each Subscriber. Such Registration
Statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary
to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of
the Registrable Securities. No securities of the Company other
than the Registrable Securities will be included in the
registration statement described in this Section 11.1(iv) except
as disclosed on Schedule 11.1, without the written consent of
Subscriber.
11.2. Registration Procedures. If and whenever the Company is required
by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any shares of Registrable Securities under the 1933 Act,
the Company will, as expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 11,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and
promptly provide to the holders of Registrable Securities (the "Sellers")
copies of all filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective
for a period of two (2) years, and comply with the provisions of the 1933
Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Seller's
intended method of disposition set forth in such registration statement for
such period;
(c) furnish to the Seller, at the Company's expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller,
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Seller when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the
Seller, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by
the seller, attorney, accountant or agent in connection with such
registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, the Seller will furnish to the Company in
writing such information and representation letters with respect to itself
and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities
laws.
11.4. Non-Registration Events. The Company and the Subscribers agree
that the Seller will suffer damages if any registration statement required
under Section 11.1(iv) above is not filed by the Filing Date and not
declared effective by the Commission by the Effective Date, and any
registration statement required under Section 11.1(i) or 11.1(ii) is not
filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner
and within the time periods contemplated by Section 11 hereof, and it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (i) the registration statement on Form SB-2 or such other
form described in Section 11.1(iv) is not filed on or before the Filing
Date or is not declared effective on or before the sooner of the Effective
Date, or within ten (10) business days of receipt by the Company of a
written or oral communication from the Commission that the registration
statement described in Section 11.1(iv) will not be reviewed, (ii) if the
registration statement described in Sections 11.1(i) or 11.1(ii) is not
filed within 60 days after such written request, or is not declared
effective within 120 days after such written request, or (iii) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is filed and declared effective but shall thereafter cease to be effective
(without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall
exceed 30 days in the aggregate per year or more than 20 consecutive days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses
(i), (ii) and (iii) of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to one
percent (1%) for the first thirty day or part thereof and two percent (2%)
for each thirty days or part thereof thereafter, of the Purchase Price of
the Shares and actually paid "Purchase Price" (as defined in the Warrants)
issued or issuable upon exercise of the Warrants, during the pendency of
such Non-Registration Event, for the Registrable Securities owned of record
by such holder as of or subsequent to the occurrence of such
Non-Registration Event. Payments to be made pursuant to this Section 11.4
shall be payable in cash and due and payable within ten (10) business days
after the end of each thirty (30) day period or part thereof.
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including reasonable
counsel fees) incurred in connection with complying with state securities
or "blue sky" laws, fees of the National Association of Securities Dealers,
Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fee of one counsel for all Sellers are called "Registration
Expenses". All underwriting discounts and selling commissions applicable to
the sale of Registrable Securities, including any fees and disbursements of
any additional counsel to the Seller, are called "Selling Expenses". The
Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection
with each registration statement under Section 11 shall be borne by the
Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under
such registration statement or as all Sellers thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each
officer of the Seller, each director of the Seller, each underwriter
of such Registrable Securities thereunder and each other person, if
any, who controls such Seller or underwriter within the meaning of the
1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling
person may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities was
registered under the 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made, and will subject
to the provisions of Section 11.6(c) reimburse the Seller, each such
underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable to the Seller
to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i)
the Seller failed to send or deliver a copy of the final prospectus
delivered by the Company to the Seller with or prior to the delivery
of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final
prospectus would have corrected such untrue statement or alleged
untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information
furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller
severally but not jointly will, to the extent permitted by law,
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the 1933 Act, each officer
of the Company who signs the registration statement, each director of
the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may
become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller
will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller, as such, furnished in writing
to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however,
that the liability of the Seller hereunder shall be limited to the
gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to such
indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified
party under this Section 11.6(c), except and only if and to the extent
the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with
counsel satisfactory to such indemnified party, and, after notice from
the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this Section 11.6(c) for
any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those
available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified parties, as a
group, shall have the right to select one separate counsel and to
assume such legal defenses and otherwise to participate in the defense
of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which
either (i) a Seller, or any controlling person of a Seller, makes a
claim for indemnification pursuant to this Section 11.6 but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this
Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in
each such case, the Company and the Seller will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that
the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by
the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however,
that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all
such securities offered by it pursuant to such registration statement;
and (z) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 10(f) of the 1933 Act) will be entitled
to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within five (5) business days (such fifth business day,
the "Delivery Date") after the business day on which the Company
has received (i) a notice that Registrable Securities have been
sold, (ii) a representation that the prospectus delivery
requirements, if applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common
Stock that have been sold, the Company at its expense, (i) shall
deliver, and shall cause legal counsel selected by the Company to
deliver, to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, for the
delivery of unlegended shares of Common Stock issuable pursuant
to any effective and current registration statement described in
Section 11 of this Agreement (the "Unlegended Shares"); and (ii)
cause the transmission of the certificates representing the
Unlegended Shares together with a legended certificate
representing the balance of the unsold shares of Common Stock, if
any, to the Subscriber at the address specified in the notice of
sale, via express courier, by electronic transfer or otherwise on
or before the Delivery Date.
(b) In lieu of delivering physical certificates representing
the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of a
Subscriber and its compliance with the provisions contained in
this paragraph, so long as the certificates therefore do not bear
a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Subscriber's prime
Broker with DTC through its Deposit Withdrawal Agent Commission
system.
(c) The Company understands that a delay in the delivery of
the Unlegended Shares pursuant to Section 11 hereof beyond the
Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a
penalty) to the Subscriber for late delivery of Unlegended Shares
in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares. The
Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
(d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber
Unlegended Shares within ten (10) calendar days after the
Delivery Date and the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber anticipated receiving from the Company
(a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected
by the Subscriber) the amount by which (A) the Subscriber's total
purchase price (including brokerage commissions, if any) for the
shares of common stock so purchased exceeds (B) the aggregate
purchase price of the shares of Common Stock delivered to the
Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which
amount shall be paid as liquidated damages and not as a penalty).
For example, if a Subscriber purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with
respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the
Company shall be required to pay the Subscriber $1,000, plus
interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of
the Buy-In.
12. (a) Right of First Refusal. Until 180 days after the registration
statement to be filed with the Commission pursuant to Section 11.1(iv)
hereof is actually declared effective by the Commission (the "Exclusion
Period"), the Subscribers shall be given not less than seven (7) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities or debt obligations, except in connection with
(i) employee stock options or compensation plans, (ii) as full or partial
consideration in connection with any merger, consolidation or purchase of
substantially all of the securities or assets of any corporation or other
entity, or (iii) as may have been described in the Reports or Other Written
Information filed or delivered prior to the Closing Date (collectively
"Excepted Issuances"). The Subscriber shall have the right during the
fourteen (14) business days following the notice to agree to purchase such
offered common stock, debt or other securities in accordance with the terms
and conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscribers shall be
given prompt notice of such modification and shall have the right during
the original notice period or for a period of fourteen (14) business days
following the notice of modification, whichever is longer, to exercise such
right.
(b) Offering Restrictions. Except as disclosed in the Reports or
Other Written Information filed with the Commission or made available
to the Subscriber prior to the Closing Date, or in connection with
Excepted Issuances, the Company will not issue any equity, convertible
debt or other securities convertible into common stock on any terms
more favorable to such other investor than any of the terms of the
Offering, until after the Exclusion Period without the prior written
consent of the Subscriber, which consent may be withheld for any
reason.
(c) Favored Nations Provision. If during the Exclusion Period,
except for the Excepted Issuances, the Company shall offer, issue or
agree to issue any Common Stock or securities convertible into or
exercisable for shares of Common Stock to any person, firm or
corporation at a price per share or conversion or exercise price per
share which shall be less than the per share purchase price of the
Shares, without the consent of Subscriber still holding Shares, then
the Company shall issue, for each such occasion, additional shares of
Common Stock to the Subscriber so that the average per share purchase
price of the shares of Common Stock issued to such Subscriber is equal
to such other lower price per share. The delivery to the Subscriber of
the additional shares of Common Stock shall be not later than the
closing date of the transaction giving rise to the requirement to
issue additional shares of Common Stock. The Subscriber is granted the
registration rights described in Section 11 hereof in relation to such
additional shares of Common Stock except that the Filing Date and
Effective Date vis-a-vis such additional common shares shall be,
respectively, the sixtieth (60th) and one hundred and twentieth
(120th) date after the closing date giving rise to the requirement to
issue the additional shares of Common Stock. For purposes of the
issuance and adjustment described in this paragraph, the issuance of
any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the
additional shares of Common Stock upon the issuance of such
convertible security, warrant, right or option and again upon any
subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower
than the then purchase price per share of the shares of Company Stock.
The Subscriber is also granted the right to accept vis-a-vis any term
or condition of the Offering, any term of the subsequent offering that
Subscriber deems more favorable than the term or condition of the
Offering.
(d) Maximum Exercise of Rights. In the event the exercise of the
rights described in Sections 12(a) or 12(c) would result in the
issuance of an amount of common stock of the Company that would exceed
the maximum amount described in Section 10 of the Warrant, then the
purchase and/or issuance of such other Common Stock or Common Stock
equivalents of the Company will be deferred in whole or in part until
such time as the Subscriber is able to beneficially own such Common
Stock or Common Stock equivalents without exceeding the maximum amount
set forth in Section 10 of the Warrant. The determination of when such
Common Stock or Common Stock equivalents may be issued shall be made
by each Subscriber as to only such Subscriber.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered
by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set
forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine,
at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received),
or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i)
if to the Company, to: Eternal Technologies Group, Inc., 200 South
Knowles Avenue, Winter Park, FL 32789, Attn: JiJun Wu, President and
CEO, telecopier: (407) 622-2060, with a copy by telecopier only to:
Vanderkam & Associates, 1301 Travis, #1200, Houston, TX 77002, Attn:
Hank Vanderkam, Esq., telecopier: (713) 547-8910, (ii) if to the
Subscribers, to: the address and telecopier number indicated on the
signature page hereto, and (iii) if to the Broker, to: First Montauk
Securities Corp., 328 Newman Springs Road, Red Bank, NJ 07701, Attn:
Ernest Pellegrino, Director of Corporate Finance, telecopier: (732)
842-9047.
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Vanderkam & Associates, 1301
Travis, Suite 1200, Houston, TX 77002, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date
shall be the date that subscriber funds representing the net amount
due the Company from the Purchase Price of the Offering is transmitted
by wire transfer or otherwise to or for the benefit of the Company
(the "Closing Date").
(c) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire
agreement between the parties hereto with respect to the subject
matter hereof and may be amended only by a writing executed by both
parties. Neither the Company nor the Subscribers have relied on any
representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of either party
shall be assigned by that party without prior notice to and the
written consent of the other party.
(d) 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.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement 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 and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches
of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any
other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action
or proceeding is improper. Nothing in this Section shall affect or
limit any right to serve process in any other manner permitted by law.
[THIS SPACE INTENTIONALLY LEFT BLANK]
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ETERNAL TECHNOLOGIES GROUP, INC.
A Nevada Corporation
By:_________________________________
Name:
Title:
Dated: October _____, 2003
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SUBSCRIBER PURCHASE PRICE SHARES WARRANTS
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EXHIBIT A to the SUBSCRIPTION AGREEMENT - FORM OF WARRANT
EXHIBIT B to the SUBSCRIPTION AGREEMENT - ESCROW AGREEMENT
EXHIBIT C to the SUBSCRIPTION AGREEMENT - FORM OF LEGAL OPINION
SCHEDULE 5(d) to the SUBSCRIPTION AGREEMENT - ADDITIONAL ISSUANCES
SCHEDULE 5(q) to the SUBSCRIPTION AGREEMENT - UNDISCLOSED LIABILITIES
SCHEDULE 5(s) to the SUBSCRIPTION AGREEMENT - CAPITALIZATION
SCHEDULE 11.1 to the SUBSCRIPTION AGREEMENT - OTHER SECURITIES TO BE REGISTERED