CONVERTIBLE NOTE
FOR VALUE RECEIVED, ETERNAL TECHNOLOGIES GROUP, INC., a Nevada
corporation (hereinafter called "Borrower"), hereby promises to pay to PLATINUM
PARTNERS VALUE ARBITRAGE FUND LP, 152 West 57th Street, 54th Floor, New York, NY
10019 (Fax 212-581-0002) (the "Holder") or order, without demand, the sum of
Twenty-Two Thousand Five Hundred & Zero / One Hundreth Dollars ($22,500.00).
This Note has been entered into in lieu of the payment of liquidated
damages due to Holder from Borrower for the period of January 24, 2004 through
May 24, 2005. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.001 par value per share
("Common Stock") as set forth below.
1.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the date of the issuance
of this Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note, at the election of the
Holder (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock as such stock
exists on the date of issuance of this Note, or any shares of capital stock of
Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 1.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the
Borrower of a completed Notice of Conversion, a form of which is annexed hereto,
Borrower shall issue and deliver to the Holder within ten (10) business days
from the Conversion Date (such tenth day being the "Delivery Date") that number
of shares of Common Stock for the portion of the Note converted in accordance
with the foregoing. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be eighty percent (80%) of the average of the
five (5) closing prices of the Common Stock as reported by Bloomberg L.P. for
the Principal Market for the five (5) trading days preceding the date of this
Note.
(c) The Conversion Price and number and kind of shares or other securities
to be issued upon conversion determined pursuant to Section 1.1(a), shall be
subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof shall thereafter be deemed to evidence the right to purchase such number
and kind of shares or other securities and property as would have been issuable
or distributable on account of such consolidation, merger, sale or conveyance,
upon or with respect to the securities subject to the conversion or purchase
right immediately prior to such consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to successive transactions of a
similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes that may be issued or
outstanding, this Note, as to the unpaid principal portion thereof shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event..
D. Share Issuance. So long as this Note is outstanding, if the Borrower
shall offer, issue or agree to issue any shares of Common Stock for a
consideration less than the Conversion Price in effect at the time of such
issue, then, and thereafter successively upon each such issue, the Conversion
Price shall be reduced to such other lower issue price. For purposes of this
adjustment, the subsequent issuance of any security 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 an adjustment to the Conversion
Price upon the issuance of the above-described security and again upon the
issuance of shares of Common Stock upon exercise of such conversion or purchase
rights if such issuance is at a price lower than the then applicable Conversion
Price. The reduction of the Conversion Price described in this paragraph is in
addition to other rights of the Holder described in this Note.
(d) Whenever the Conversion Price is adjusted pursuant to Section 1.1(c)
above, the Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will reserve
from its authorized and unissued Common Stock not less than one hundred percent
(100%) of the number of shares to provide for the issuance of Common Stock upon
the full conversion of this Note. Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.
1.2 Method of Conversion. This Note may be converted by the Holder in whole
or in part as described in Section 1.1(a) hereof. Upon partial conversion of
this Note, a new Note containing the same date and provisions of this Note
shall, at the request of the Holder, be issued by the Borrower to the Holder for
the principal balance of this Note which shall not have been converted or paid.
1.3 Mandatory Conversion. Commencing after the actual effective date of the
Registration Statement described in Article 3 hereunder that includes the shares
underlying this Note, the Borrower will have the option by written notice to the
Holder ("Notice of Mandatory Conversion") of compelling the Holder to convert
all or a portion of the outstanding and unpaid principal of the Note thereon,
into Common Stock at the Conversion Price then in affect ("Mandatory
Conversion"). The Notice of Mandatory Conversion, which notice must be given on
the first day following a consecutive ten (10) day trading period during which
the closing price for the Company's Common Stock as reported by Bloomberg, LP
for the Principal Market shall be more than $0.60 each day with an average daily
volume in excess of 150,000 shares. The date the Notice of Mandatory Conversion
is given is the "Mandatory Conversion Date." The Notice of Mandatory Conversion
shall specify the aggregate principal amount of the Note which is subject to
Mandatory Conversion. Mandatory Conversion Notices must be given proportionately
to all Holders of Notes who received Notes similar in term and tenure as this
Note. The Borrower shall reduce the amount of Note principal subject to a Notice
of Mandatory Conversion by the amount of Note Principal for which the Holder had
delivered a Notice of Conversion to the Borrower during the twenty (20) trading
days preceding the Mandatory Conversion Date. Each Mandatory Conversion Date
shall be a deemed Conversion Date and the Borrower will be required to deliver
the Common Stock issuable pursuant to a Mandatory Conversion Notice in the same
manner and time period as described in Section 1.2 above.
ARTICLE II
REGISTRATION AND LIQUIDATED DAMAGES
2 Registration Rights. The registration rights granted to the Holder
pursuant to Section 11.1(ii) of the Subscription Agreement are hereby granted to
the Holder in connection with the Shares issuable upon conversion of this Note
("Shares").
ARTICLE III
MISCELLANEOUS
3.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
3.2 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 Borrower to: Eternal Technologies Group,
Inc., Section D, 5/F, Block A, Innotech Tower, 235 Nanjing Road, Heping
District, Tianjin 300052, Attn: XingJing Ma, CEO, telecopier number:
011-86-22-2721-7030, with an additional copy by telecopier only to: Hank
Vanderkam, Esq., 1301 Travis, #1200, Suite 1200, Houston, TX 77002 (Fax
713-547-8910), and (ii) if to the Holder, to the name, address and telecopy
number set forth on the front page of this Note, with a copy by telecopier only
to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York
10176, telecopier number: (212) 697-3575.
3.3 Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
3.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
3.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
3.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning 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 individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
5.7 Shareholder Status. The Holder shall not have rights as a shareholder
of the Borrower with respect to unconverted portions of this Note. However, the
Holder will have all the rights of a shareholder of the Borrower with respect to
the shares of Common Stock to be received by Holder after delivery by the Holder
of a Conversion Notice to the Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by an authorized officer as of the 24th day of May, 2005.
ETERNAL TECHNOLOGIES GROUP, INC.
By:________________________________
Name:
Title:
WITNESS:
- ----------------------------------
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal due on
the Note issued by ETERNAL TECHNOLOGIES GROUP, INC. on May 24, 2005 into Shares
of Common Stock of ETERNAL TECHNOLOGIES GROUP, INC. (the "Borrower") according
to the conditions set forth in such Note, as of the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
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