Exhibit 10.1
 
North Bay Resources, Inc.
 
Convertible Promissory Note
 
Issuance Date: August 2, 2012 U.S. $113,000.00
 
This Convertible Promissory Note (this “Note”) is issued pursuant to that
certain Securities Purchase Agreement dated August 2, 2012, as the same may be
amended from time to time (the “Agreement”), by and between the Company (as
defined below) and the Holder (as defined below).
 
FOR VALUE RECEIVED, North Bay Resources, Inc., a Delaware corporation (the
“Company”), hereby promises to pay to the order of Tonaquint, Inc., a Utah
corporation, or its registered assigns (the “Holder”), the initial principal sum
of $113,000.00 (the “Original Principal Amount”), and any additional advances
and other amounts that may accrue under the terms of this Note as set forth
herein when due, whether upon the Maturity Date, on any Installment Date with
respect to the Installment Amount due on such Installment Date (each as defined
below), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest (“Interest”) on any Outstanding Balance
(as defined below) at the applicable interest rate from the date set forth above
as the Issuance Date (the “Issuance Date”) until the same becomes due and
payable, whether upon any Installment Date, the Maturity Date or acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). Certain capitalized terms used herein are defined in Section 28 hereof.
For purposes hereof, the term “Outstanding Balance” means the Original Principal
Amount, as reduced or increased, as the case may be, pursuant to the terms
hereof for redemption, conversion or otherwise, plus any accrued but unpaid
Interest, collection and enforcements costs, and any other fees or charges
(including without limitation Late Charges (as defined below)) incurred under
this Note or under the Agreement.
 
1. PAYMENTS OF PRINCIPAL; PREPAYMENT. On each Installment Date (which includes
the Maturity Date), the Company shall pay to the Holder an amount equal to the
Installment Amount due on such Installment Date in accordance with Section 8.
Additionally, so long as no Event of Default (as defined below) shall have
occurred, the Company may, in its sole and absolute discretion and upon giving
the Holder not less than five (5) Trading Days written notice (a “Prepayment
Notice”), pay in cash all or any portion of the Outstanding Balance at any time
prior to the Maturity Date; provided that in the event the Company elects to
prepay all or any portion of the Outstanding Balance, it shall pay to the Holder
125% of the portion of the Outstanding Balance the Company elects to prepay (the
“Prepayment Premium”).
 
2. INTEREST; INTEREST RATE. The Company acknowledges that the Original Principal
Amount of this Note exceeds the Purchase Price (as defined in the Agreement) and
that such excess consists of (a) an original issue discount of $10,000 and (b)
$3,000 of unpaid Transaction Expenses (as defined in the Agreement), both of
which shall be fully earned and charged to the Company as of the Issuance Date
and paid to the Holder as part of the Original Principal Amount as set forth in
this Note. Interest on the Outstanding Balance shall accrue from the Issuance
Date at the rate of eight percent (8%) per annum, provided that upon the
occurrence of an Event of Default, Interest shall accrue on the Outstanding
Balance at the rate of twenty-two percent (22%) per annum, as set forth in
Section 4.2(d) hereof. All Interest calculations hereunder shall be computed on
the basis of a 360-day year comprised of twelve (12) thirty (30) day months,
shall compound daily and shall be payable in accordance with the terms of this
Note.  Notwithstanding any provision to the contrary herein, in no event shall
the applicable interest rate at any time exceed the maximum interest rate
allowed under applicable law. All payments owing hereunder shall be in lawful
money of the United States of America or Conversion Shares, as provided for
herein, and delivered to Holder at the address furnished to the Company for that
purpose. All payments shall be applied first to (a) costs of collection, if any,
then to (b) fees and charges, if any, then to (c) accrued and unpaid Interest,
and thereafter to (d) principal.
 
 
1

--------------------------------------------------------------------------------

 
 
3. CONVERSION OF NOTE. At the option of the Holder, this Note is convertible
into validly issued, fully paid and non-assessable shares of Common Stock, on
the terms and conditions set forth in this Section 3.
 
3.1. Conversion Right.
 
(a) Subject to the provisions of Section 3.4, and beginning 180 days after the
Issuance Date, the Holder shall be entitled to convert any portion of the
Outstanding Balance into validly issued, fully paid and non-assessable shares of
Common Stock (the “Section 3 Conversion Shares”) in accordance with Section 3.3,
calculated using the Conversion Rate (as defined below).
 
(b) The Company shall not issue any fraction of a share of Common Stock upon any
conversion. All shares issuable upon each conversion of this Note shall be
aggregated for purposes of determining whether such conversion would result in
the issuance of a fractional share.  If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share. The Company
shall pay any and all transfer, stamp, issuance and similar taxes that may be
payable with respect to the issuance and delivery of Section 3 Conversion
Shares.
 
3.2. Conversion Rate. The number of Section 3 Conversion Shares issuable upon
conversion of any portion of the Outstanding Balance pursuant to Section 3.1(a)
shall be determined by dividing (x) the applicable Conversion Amount by (y) the
Conversion Price (such formula is referred to herein as the “Conversion Rate”).
 
(a) “Conversion Amount” means the portion of the Outstanding Balance to be
converted.
 
(b) “Conversion Price” means, as of any Conversion Date or other date of
determination, $0.06, subject to adjustment as provided herein.
 
3.3. Mechanics of Conversion.
 
(a) Conversion Prior to Maturity Date. To convert any Conversion Amount into
shares of Common Stock on any date, the Holder shall deliver (whether via email,
facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time,
on such date (a “Conversion Date”), a copy of an executed notice of conversion
substantially in the form attached hereto as Exhibit A (the “Conversion Notice”)
to the Company. If required by Section 3.3(c), within three (3) Trading Days
following a conversion of this Note as aforesaid, the Holder shall surrender
this Note to a nationally recognized overnight delivery service for delivery to
the Company (or an indemnification undertaking with respect to this Note in the
case of its loss, theft or destruction as contemplated by Section 15.2). On or
before the first (1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile or email an acknowledgment of
confirmation, in the form attached hereto as Exhibit B, of receipt of such
Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer
Agent”). On or before the close of business on the third (3rd) Trading Day
following the date of receipt of a Conversion Notice (the “Delivery Date”), the
Company shall, provided that all DWAC Eligible Conditions are then satisfied,
credit the aggregate number of Section 3 Conversion Shares to which the Holder
shall be entitled to the account specified on the Conversion Notice via the DWAC
system. If all DWAC Eligible Conditions are not then satisfied, and the Holder
elects in writing to accept certificated shares (which election shall not
constitute a waiver of any Event of Default or any right or remedy of the Holder
hereunder), the Company shall instead issue and deliver (via reputable overnight
courier) to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of Section
3 Conversion Shares to which the Holder shall be entitled; provided, however,
that, in addition to any other rights or remedies that Holder may have under
this Note, such number of certificated shares shall be increased by 5% for each
conversion so elected by the Holder that occurs more than six (6) months after
the Issuance Date. If this Note is physically surrendered for conversion
pursuant to Section 3.3(c) and the Outstanding Balance of this Note is greater
than the principal portion of the Conversion Amount being converted, then the
Company shall as soon as practicable and in no event later than three
(3) Trading Days after receipt of this Note and at its own expense, issue and
deliver to the Holder (or its designee) a new Note (in accordance with Section
15.4)) representing the Outstanding Balance not converted. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date. In the event of a partial
conversion of this Note pursuant hereto, the principal amount converted shall be
deducted from the Installment Amount(s) relating to the Installment Date(s) as
set forth in the applicable Conversion Notice.
 
 
2

--------------------------------------------------------------------------------

 
 
(b) Company’s Failure to Timely Deliver. Failure for any reason whatsoever to
issue any portion of the Section 3 Conversion Shares to Holder by the applicable
Delivery Date in the manner required under this Note shall be a “Conversion
Failure”. Upon the occurrence of a Conversion Failure, in addition to all other
remedies available to the Holder, (1) the Company shall pay in cash to the
Holder on each day after such third (3rd) Trading Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to the greater of
(A) $2,000.00 per day and (B) 2% of the product of (i) the sum of the number of
Section 3 Conversion Shares not issued to the Holder on a timely basis and to
which the Holder is entitled multiplied by (ii) the Closing Sale Price of the
Common Stock on the Trading Day immediately preceding the last possible date
which the Company could have issued such shares of Common Stock to the Holder
without violating Section 3.3(a); and (2) the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or have
returned (as the case may be) any portion of this Note that has not been
converted pursuant to such Conversion Notice, provided that the voiding of a
Conversion Notice shall not affect the Company’s obligations to make any
payments which have accrued or are owed to the Holder prior to the date of such
notice pursuant to this Section 3.3(b) or otherwise. Notwithstanding the
foregoing, a Conversion Failure shall not exist to the extent Section 3
Conversion Shares are not issued by the Company in order to comply with the
limitations set forth in Section 3.4 hereof. Upon the occurrence of a Conversion
Failure (unless Holder elects to void the Conversion Notice), in addition to
such failure being considered an Event of Default hereunder, for purposes of
Section 7.1, the Company shall also be deemed to have issued the Section 3
Conversion Shares to Holder on the applicable date and pursuant to the terms set
forth in this Section 3, with Holder entitled to all the rights and privileges
associated with such deemed issued shares (the “Deemed Conversion Issuance”).
 
(c) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the name and address of the holders of all or
any portion of the Note and the principal amount of the Note held by such holder
(the “Registered Note”). The entries in the Register shall be conclusive and
binding for all purposes absent manifest error. The Company and the holder shall
treat each Person whose name is recorded in the Register as the owner of the
Note for all purposes (including, without limitation, the right to receive
payments of principal and Interest hereunder) notwithstanding notice to the
contrary. The Registered Note may be assigned, transferred or sold in whole or
in part only by registration of such assignment or sale on the Register. Upon
its receipt of a request to assign, transfer or sell all or part of the
Registered Note by the holder thereof, the Company shall record the information
contained therein in the Register and issue one or more new Registered Notes in
the same aggregate principal amount as the principal amount of the surrendered
Registered Note to the designated assignee or transferee pursuant to Section 15.
Notwithstanding anything to the contrary in this Section 3.3(c), the Holder may
assign this Note or any portion thereof to its Affiliate without delivering a
request to assign or sell this Note to the Company and the recordation of such
assignment or sale in the Register (a “Related Party Assignment”); provided,
that (A) the Company may continue to deal solely with such assigning or selling
Holder unless and until such Holder has delivered a request to assign or sell
the Note or portion thereof to the Company for recordation in the Register; (B)
the failure of such assigning or selling Holder to deliver a request to assign
or sell such Note or portion thereof to the Company shall not affect the
legality, validity, or binding effect of such assignment or sale; and (C) such
assigning or selling Holder shall, acting solely for this purpose as a
non-fiduciary agent of the Company, maintain a register (the “Related Party
Register”) comparable to the Register on behalf of the Company, and any such
assignment or sale shall be effective upon recordation of such assignment or
sale in the Related Party Register.  Notwithstanding anything to the contrary
set forth in this Section 3, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the entire Outstanding Balance of
this Note is being converted (in which event this Note shall be delivered to the
Company as contemplated by Section 3.3(a)) or (B) the Holder has provided the
Company with prior written notice (which notice may be included in a Conversion
Notice) requesting reissuance of this Note upon physical surrender of this Note.
The Holder and the Company shall maintain records showing the Outstanding
Balance and Late Charges converted and/or paid (as the case may be) and the
dates of such conversions and/or payments (as the case may be) or shall use such
other method, reasonably satisfactory to the Holder and the Company, so as not
to require physical surrender of this Note upon conversion.
 
 
3

--------------------------------------------------------------------------------

 
 
3.4. Limitations on Conversions.
 
(a) Notwithstanding anything to the contrary contained in this Note (except as
set forth below in this subsection), this Note shall not be convertible by the
Holder hereof, and the Company shall not effect any conversion of this Note or
otherwise issue any shares of Common Stock pursuant to Section 3 or Section 8
hereof, to the extent (but only to the extent) that the Holder together with any
of its Affiliates would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the Common Stock outstanding.  Notwithstanding the forgoing, (i)
if any of the DWAC Eligible Conditions are not then satisfied, the term “4.99%”
shall be replaced in the preceding sentence with “9.99%” at such time as the
Market Capitalization of the Common Stock is less than $3,000,000.00, but (ii)
if all of the DWAC Eligible Conditions are then satisfied, the term “4.99%”
shall be replaced in the preceding sentence with “9.99%” only at such time as
the Market Capitalization of the Common Stock is less than $1,500,000.00.  For
the avoidance of any doubt, notwithstanding any other provision contained
herein, if the term “4.99%” is replaced with “9.99%” pursuant to the preceding
sentence, such change to “9.99%” shall be permanent.  For purposes of this
Agreement, the term “Market Capitalization of the Common Stock” shall mean the
product equal to (i) the average VWAP of the Common Stock for the immediately
preceding thirty (30) Trading Days, multiplied by (ii) the aggregate number of
outstanding shares of Common Stock as reported on the Company’s most recently
filed Form 10-Q or Form 10-K.
 
(b) To the extent the limitation set forth in subsection (a) immediately above
applies, the determination of whether this Note shall be convertible (vis-à-vis
other convertible, exercisable or exchangeable securities owned by the Holder or
any of its Affiliates) and of which such securities shall be convertible,
exercisable or exchangeable (as among all such securities owned by the Holder
and its Affiliates) shall, subject to such Maximum Percentage limitation, be
determined on the basis of the first submission to the Company for conversion,
exercise or exchange (as the case may be). No prior inability to convert this
Note, or to issue shares of Common Stock, pursuant to this Section 3.4 shall
have any effect on the applicability of the provisions of this Section 3.4 with
respect to any subsequent determination of convertibility. For purposes of this
Section 3.4, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(e) of the 1934 Act
(as defined in the Agreement) and the rules and regulations promulgated
thereunder. The provisions of this Section 3.4 shall be implemented in a manner
otherwise than in strict conformity with the terms of this Section 3.4 to
correct this Section 3.4 (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this Section 3.4 shall apply to a successor Holder of
this Note. The holders of Common Stock shall be third party beneficiaries of
this Section 3.4 and the Company may not waive this Section 3.4 without the
consent of holders of a majority of its Common Stock. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one (1) Trading Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding, including by virtue of any prior
conversion or exercise of convertible or exercisable securities into Common
Stock, including, without limitation, pursuant to this Note.
 
 
4

--------------------------------------------------------------------------------

 
 
4. RIGHTS UPON EVENT OF DEFAULT.
 
4.1. Event of Default. Each of the following events shall constitute an “Event
of Default”:
 
(a) Failure to Pay. The Company shall fail to make any payment when due and
payable under the terms of this Note including, without limitation, any payment
of costs, fees, interest, principal (including, without limitation, the
Company’s failure to deliver any Installment Amount when due or to pay any
redemption payments or amounts hereunder), or other amount due hereunder or
under any other Transaction Document (as defined in the Agreement).
 
(b) Failure to Deliver Shares. The Company (or its Transfer Agent) (i) fails to
issue Section 3 Conversion Shares by the Delivery Date; (ii) fails to issue
Pre-Installment Conversion Shares, Post-Installment Conversion Shares,
Pre-Installment Certificated Shares, or Post-Installment Certificated Shares, as
applicable, within the time periods required by Section 8; (iii) announces (or
threatens in writing) that it will not honor its obligation to issue shares to
Holder in accordance with Section 3 and/or Section 8 of this Note; (iv) fails to
transfer or cause its Transfer Agent to transfer (issue) (electronically or in
certificated form, as applicable) any Section 3 Conversion Shares,
Post-Installment Conversion Shares, Pre-Installment Conversion Shares,
Post-Installment Certificated Shares, or Pre-Installment Certificated Shares, as
applicable, issued to the Holder upon conversion of or otherwise pursuant to
this Note as and when required by this Note; (v) directs its Transfer Agent not
to transfer, or delays, impairs, and/or hinders its Transfer Agent in
transferring (or issuing) (electronically or in certificated form, as
applicable) any Section 3 Conversion Shares, Post-Installment Conversion Shares,
Pre-Installment Conversion Shares, Post-Installment Certificated Shares, or
Pre-Installment Certificated Shares, as applicable, to be issued to the Holder
upon conversion of or otherwise pursuant to this Note as and when required by
this Note; or (vi) as applicable, fails to remove (or directs its Transfer Agent
not to remove or impairs, delays, and/or hinders its Transfer Agent from
removing) any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate for any Section 3 Conversion Shares,
Post-Installment Certificated Shares or Pre-Installment Certificated Shares as
and when required by this Note (or makes any written announcement, statement or
threat that it does not intend to honor any such obligations).
 
(c) Judgment.  A final judgment or judgments for the payment of money
aggregating in excess of $100,000 are rendered against the Company and/or any of
its Subsidiaries and which judgments are not, within thirty (30) calendar days
after the entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within thirty (30) calendar days after the expiration of such stay;
provided, however, any judgment which is covered by insurance or an indemnity
from a credit worthy party shall not be included in calculating the $100,000
amount set forth above so long as the Company provides the Holder a written
statement from such insurer or indemnity provider (which written statement shall
be reasonably satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company or such Subsidiary (as the
case may be) will receive the proceeds of such insurance or indemnity within
thirty (30) calendar days of the issuance of such judgment.
 
 
5

--------------------------------------------------------------------------------

 
 
(d) Breach of Obligations; Covenants. The Company or its Subsidiaries, if any,
shall fail to observe or perform any other covenant, obligation, condition or
agreement contained in this Note or any of the other Transaction Documents,
including without limitation (i) all reporting covenants and covenants to timely
file all required quarterly and annual reports and any other filings required
pursuant to Rule 144, and (ii) strict compliance with all provisions of Sections
3, 8, 10 and 12 of this Note. For the avoidance of doubt, any failure to pay
cash when due or to deliver shares as required hereunder shall be subject to
Section 4.1(a) and Section 4.1(b), respectively, and shall not require any
notice to constitute an Event of Default.
 
(e) Breach of Representations and Warranties. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of the Company to the Holder in writing included in this Note or in
connection with any of the Transaction Documents, or as an inducement to the
Holder to enter into this Note or any of the other Transaction Documents, shall
be false, incorrect, incomplete or misleading in any material respect when made
or furnished or becomes false thereafter.
 
(f) Receiver or Trustee. The Company shall make an assignment for the benefit of
creditors, or apply for, or consent to, or otherwise be subject to, the
appointment of a receiver, trustee, liquidator, assignee, custodian,
sequestrator, or other similar official for a substantial part of its property
or business.
 
(g) Failure to Pay Debts. If any of the Company’s assets are assigned to its
creditors, or upon the occurrence of any default under, redemption of or
acceleration prior to maturity of any Indebtedness of the Company or any of its
Subsidiaries in an amount equal to $100,000 or more.
 
(h) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted by or
against the Company.
 
(i) Delisting of Common Stock. The suspension from trading or the failure of the
Common Stock to be trading on an Eligible Market for a period of five
(5) consecutive Trading Days or for more than an aggregate of ten (10) Trading
Days in any 365-day period.
 
(j) Liquidation. Any dissolution, liquidation, or winding up of the Company or
any substantial portion of its business.
 
(k) Cessation of Operations. Any cessation of operations by the Company or the
Company admits it is otherwise generally unable to pay its debts as such debts
become due; provided, however, that any disclosure of the Company’s ability to
continue as a “going concern” shall not be an admission that the Company cannot
pay its debts as they become due.
 
 
6

--------------------------------------------------------------------------------

 
 
(l) Maintenance of Assets. The failure by the Company to maintain any material
intellectual property rights, personal, real property or other assets which are
necessary to conduct its business (whether now or in the future).
 
(m) Financial Statement Restatement. The restatement of any financial statements
filed by the Company with the SEC for any date or period from two years prior to
the date of this Note and until this Note is no longer outstanding, if the
result of such restatement would, by comparison to the unrestated financial
statement, have constituted a material adverse effect on the rights of the
Company with respect to this Note or the Agreement.
 
(n) Reverse Split. The Company effectuates a reverse split of its Common Stock
without twenty (20) Trading Days prior written notice to the Holder.
 
(o) Replacement of Transfer Agent. In the event that the Company proposes to
replace its Transfer Agent, the Company fails to provide, prior to the effective
date of such replacement, a fully executed Transfer Agent Letter (as defined by
the Agreement) in a form as required to be initially delivered pursuant to the
Agreement (including but not limited to the provision to irrevocably reserve
shares of Common Stock in the Reserved Amount) signed by the successor transfer
agent and delivered to the Company and the Holder.
 
(p) Governmental Action. If any governmental or regulatory authority takes or
institutes any action against the Company, a Subsidiary, or an executive officer
or director of the Company, that will materially affect the Company’s financial
condition, operations or ability to pay or perform the Company’s obligations
under this Note.
 
(q) Share Reserve. The Company’s failure to maintain the Share Reserve (as
defined in the Agreement).
 
(r) Certification of Equity Conditions. A false or inaccurate certification
(including, without limitation, a false or inaccurate deemed certification) by
the Company that the Equity Conditions are satisfied, that there has been no
Equity Conditions Failure or as to whether any Event of Default has occurred.
 
(s) DWAC Eligibility. The failure of any of the DWAC Eligible Conditions to be
satisfied at any time during which the Company has obligations under this Note.
 
(t) Cross Default. Notwithstanding anything to the contrary contained in this
Note or the other Transaction Documents, a breach or default by the Company of
any covenant or other term or condition contained in (i) any of the other
Transaction Documents, or (ii) any Other Agreements (defined below); shall, at
the option of the Holder, be considered a default under this Note, in which
event the Holder shall be entitled (but in no event required) to apply all
rights and remedies of the Holder under the terms of this Note. The Company
hereby agrees to notify the Holder in writing within three (3) Trading Days
after any such default; provided, however, any filing of an 8-K that identifies
any such default shall not be deemed notice under this Section 4.1(t). “Other
Agreements” means, collectively, (1) all existing and future agreements and
instruments between, among or by the Company (or a Subsidiary), on the one hand,
and the Holder (or an Affiliate of Holder), on the other hand, and (2) any
financing agreement or a material agreement that affects the Company’s ongoing
business operations. For the avoidance of doubt, all existing and future loan
transactions between the Company and the Holder and its Affiliates will be
cross-defaulted with each other loan transaction and with all other existing and
future debt of the Company to the Holder.
 
 
7

--------------------------------------------------------------------------------

 
 
Each subsection of this Section 4.1 shall be interpreted and applied
independently, and no such subsection shall be deemed to limit or qualify any
other subsection in any manner whatsoever.
 
4.2. Notice of an Event of Default; Redemption Right.
 
(a) Upon the occurrence of an Event of Default, the Company shall within one
(1) Trading Day deliver written notice thereof via facsimile and overnight
courier (with next day delivery specified) (an “Event of Default Notice”) to the
Holder.
 
(b) At any time and from time to time after the earlier of the Holder’s receipt
of an Event of Default Notice and the Holder becoming aware of an Event of
Default, the Holder may require the Company to redeem (regardless of whether
such Event of Default has been cured) all or any portion of this Note by
delivering written notice thereof (the “Event of Default Redemption Notice”) to
the Company, which Event of Default Redemption Notice shall indicate the portion
of the Outstanding Balance the Holder is electing to redeem (the “Default
Redemption Amount”). Redemptions required by this Section 4.2(b) shall be made
in accordance with the provisions of Section 10. Notwithstanding anything to the
contrary in this Section 4, but subject to Section 3.4, until the Default
Redemption Amount (together with Late Charges thereon) is paid in full pursuant
to and in accordance with the terms set forth in Section 10; the Outstanding
Balance (together with any Late Charges thereon), may be converted, in whole or
in part from time to time, by the Holder into Common Stock pursuant to the other
terms of this Note. In the event of a partial redemption of this Note pursuant
hereto, the applicable Default Redemption Amount shall be deducted from the
Installment Amount(s) relating to the applicable Installment Date(s) as set
forth in the Event of Default Redemption Notice. Notwithstanding the foregoing,
this Section 4.2(b) shall not apply to an Event of Default arising under Section
4.1(h) (Bankruptcy).
 
(c) Upon the occurrence of an Event of Default occurring under Section 4.1(h)
due to the institution by or against the Company of any bankruptcy proceeding
for relief under any bankruptcy law or any law for the relief of debtors, (i)
the Outstanding Balance shall automatically increase to an amount equal to the
Outstanding Balance immediately prior to such Event of Default multiplied by the
Redemption Premium, and (ii) all amounts owed under this Note shall accelerate
and be immediately due and payable, all without the need for any further notice
to or action by any party hereunder.
 
(d) Upon the occurrence of any Event of Default, this Note shall thereafter
accrue interest at the rate of 1.8% per month (or 22% per annum), compounding
daily, whether before or after judgment; provided, however, that notwithstanding
any provision to the contrary herein, in no event shall the applicable interest
rate at any time exceed the maximum interest rate allowed under applicable law.
 
(e) Notwithstanding anything herein, if shares of Common Stock are delivered to
Holder in certificated form rather than electronic form, the Outstanding Balance
shall automatically increase by an amount equal to the decline in Value (as
defined below), if any, of such shares between the time such shares were
required to be delivered to the Holder hereunder, and the date such shares are
deposited in Holder’s brokerage account without any restrictive legend and such
shares are freely tradable under Rule 144 or without the need for registration
under any applicable federal or state securities laws. The Company agrees to use
it best efforts to cause such shares to become freely tradable. “Value”, as used
in this subsection, shall mean the five (5) Trading Day trailing average VWAP
for the applicable shares.
 
 
8

--------------------------------------------------------------------------------

 
 
5. RIGHTS UPON FUNDAMENTAL TRANSACTION.
 
5.1. Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing all of the
obligations of the Company under this Note and the other Transaction Documents
in accordance with the provisions of this Section 5.1 pursuant to written
agreements in form and substance satisfactory to the Holder and approved by the
Holder, in its sole discretion, prior to such Fundamental Transaction, including
agreements to deliver to the Holder in exchange for this Note a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to this Note, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the
interest rates of this Note, having similar conversion rights as this Note and
having similar ranking to this Note, and being satisfactory to the Holder in its
sole discretion, (ii) the Successor Entity is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market, and
(iii) the Company has received the prior written consent from Holder to enter
into such Fundamental Transaction. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Note and the other Transaction Documents referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Note and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of such Fundamental Transaction, in lieu
of the shares of the Company’s Common Stock (or other securities, cash, assets
or other property (except such items still issuable under Section 6, which shall
continue to be receivable thereafter) issuable upon the conversion or redemption
of this Note prior to such Fundamental Transaction), such shares of the publicly
traded common stock (or their equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Note been converted
immediately prior to such Fundamental Transaction (without regard to any
limitations on the conversion of this Note), as adjusted in accordance with the
provisions of this Note. The provisions of this Section 5 shall apply similarly
and equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the conversion of this Note.
 
5.2. Notice of a Fundamental Transaction; Redemption Right. No sooner than
twenty (20) Trading Days nor later than ten (10) Trading Days prior to the
consummation of a Fundamental Transaction, but not prior to the public
announcement of such Fundamental Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a “Fundamental
Transaction Notice”). At any time during the period beginning after the Holder’s
receipt of a Fundamental Transaction Notice or the Holder becoming aware of a
Fundamental Transaction if a Fundamental Transaction Notice is not delivered to
the Holder in accordance with the immediately preceding sentence (as applicable)
and ending on the later of twenty (20) Trading Days after (i) consummation of
such Fundamental Transaction and (ii) the date of receipt of such Fundamental
Transaction Notice, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (“Fundamental
Transaction Redemption Notice”) to the Company, which Fundamental Transaction
Redemption Notice shall indicate the portion of the Outstanding Balance the
Holder is electing to redeem (the “Fundamental Transaction Redemption Amount”).
The Fundamental Transaction Redemption Amount shall be redeemed by the Company
in cash pursuant to and in accordance with Section 10 and shall have priority to
payments to stockholders in connection with such Fundamental Transaction.
Notwithstanding anything to the contrary in this Section 5, but subject to
Section 3.4, until the Fundamental Transaction Redemption Amount (together with
any Late Charges thereon) is paid in full, the Outstanding Balance (together
with any Late Charges thereon), may be converted, in whole or in part from time
to time, by the Holder into Common Stock pursuant to Section 3. In the event of
a partial redemption of this Note pursuant hereto, the Fundamental Transaction
Redemption Amount shall be deducted from the Installment Amount(s) relating to
the applicable Installment Date(s) as set forth in the Fundamental Transaction
Redemption Notice.
 
 
9

--------------------------------------------------------------------------------

 
 
6. DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.
 
6.1. Distribution of Assets. Without the prior written consent of Holder, the
Company agrees not to declare or make any dividend or other distributions of its
assets (or rights to acquire its assets) to any or all holders of shares of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction). For the
avoidance of doubt, an announcement of an intent to declare a dividend shall not
be construed as actually declaring a dividend.
 
6.2. Purchase Rights. In addition to any adjustments pursuant to Section 7
below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights (provided, however, to the extent that the
Holder’s right to participate in any such Purchase Right would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled
to participate in such Purchase Right to such extent (or beneficial ownership of
such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder
until such time, if ever, as its right thereto would not result in the Holder
exceeding the Maximum Percentage).
 
6.3. Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Note (i) in addition to the shares of Common Stock receivable
upon such conversion, such securities or other assets to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock)
using a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and
substance satisfactory to the Holder. The provisions of this Section 6 shall
apply similarly and equally to successive Corporate Events and shall be applied
without regard to any limitations on the conversion or redemption of this Note.
 
 
10

--------------------------------------------------------------------------------

 
 
7. RIGHTS UPON ISSUANCE OF SECURITIES.
 
7.1. Adjustment of Conversion Price upon Issuance of Common Stock. Except with
respect to Excluded Securities, if and whenever on or after the Issuance Date
the Company issues or sells Common Stock, Options, Convertible Securities, or
upon any conversion or Deemed Issuance, or in accordance with subsections (a)
through (e) below is deemed to have issued or sold, any shares of Common Stock
(including without limitation the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding any Excluded
Securities issued or sold or deemed to have been issued or sold) for a
consideration per share (the “New Issuance Price”) less than a price equal to
the Conversion Price in effect immediately prior to such issue, conversion, or
sale or deemed issuance or sale (such Conversion Price then in effect is
referred to herein as the “Applicable Price”) (the foregoing a “Dilutive
Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal to the New Issuance
Price.  For the avoidance of doubt, if the New Issuance Price is greater than
the Applicable Price, there shall be no adjustment to the Conversion Price. For
purposes of determining the adjusted Conversion Price under this Section 7.1,
the following shall be applicable:
 
(a) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7.1(a), the “lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to (1) the lower of (x) the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option and
(y) the lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option minus (2) the sum of all amounts paid or payable to
the holder of such Option (or any other Person) upon the granting or sale of
such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option plus
the value of any other consideration received or receivable by, or benefit
conferred on, the holder of such Option (or any other Person). Except as
contemplated below, no further adjustment of the Conversion Price shall be made
upon the actual issuance of such share of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
share of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.
 
(b) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities, and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 7.1(b), the “lowest price per share
for which one share of Common Stock is issuable upon the conversion, exercise or
exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security and (y) the lowest conversion price set forth in such
Convertible Security for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other Person) upon
the issuance or sale of such Convertible Security plus the value of any other
consideration received or receivable by, or benefit conferred on, the holder of
such Convertible Security (or any other Person). Except as contemplated below,
no further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion, exercise or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price has been or is to be made pursuant to other provisions of this
Section 7.1, except as contemplated below, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
 
 
11

--------------------------------------------------------------------------------

 
 
(c) Change in Option Price or Rate of Conversion. If the purchase or exercise
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion, exercise or exchange of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases or decreases at
any time, the Conversion Price in effect at the time of such increase or
decrease shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or increased or
decreased conversion rate (as the case may be) at the time initially granted,
issued or sold. For purposes of this Section 7.1(c), if the terms of any Option
or Convertible Security that was outstanding as of the Issuance Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7.1 shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.
 
(d) Calculation of Consideration Received. If any Option or Convertible Security
is issued or deemed issued in connection with the issuance or sale or deemed
issuance or sale of any other securities of the Company, together comprising one
integrated transaction, (x) such Option or Convertible Security (as applicable)
will be deemed to have been issued for consideration equal to the Black Scholes
Consideration Value thereof and (y) the other securities issued or sold or
deemed to have been issued or sold in such integrated transaction shall be
deemed to have been issued for consideration equal to the difference of (I) the
aggregate consideration received by the Company minus (II) the Black Scholes
Consideration Value of each such Option or Convertible Security (as applicable).
If any shares of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company therefor.
If any shares of Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such consideration, except
where such consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company for such securities will be
the average VWAP of such security for the five (5) Trading Day period
immediately preceding the date of receipt. If any shares of Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities
(as the case may be). The fair value of any consideration other than cash or
publicly traded securities will be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within ten (10) Trading
Days after the occurrence of an event requiring valuation (the “Valuation
Event”), the fair value of such consideration will be determined within five
(5) Trading Days after the tenth (10th) day following such Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the Holder.
The determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.
 
 
12

--------------------------------------------------------------------------------

 
 
(e) Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase shares of Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase (as the case may be).
 
7.2. Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any provision of Section 5 or Section 7.1, if the
Company at any time on or after the Issuance Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. Without limiting any provision of Section 5 or
Section 7.1, if the Company at any time on or after the Issuance Date combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 7.2 shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 7.2 occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.
 
7.3. Other Events. In the event that the Company (or any Subsidiary) shall take
any action to which the provisions hereof are not strictly applicable, or, if
applicable, would not operate to protect the Holder from dilution or if any
event occurs of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of the Holder, provided that no such adjustment pursuant
to this Section 7.3 will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the Company.
 
8. COMPANY INSTALLMENT CONVERSION OR REDEMPTION. Beginning on the date that is
one hundred eighty (180) calendar days following the Issuance Date (the “Initial
Installment Date”), and on each applicable Installment Date thereafter, the
Company shall pay to the Holder of this Note the applicable Installment Amount
due on such date by converting such Installment Amount in accordance with this
Section 8 (a “Company Conversion”); provided, however, the Company may, at its
option as described below, pay all or any part of such Installment Amount by
redeeming such Installment Amount in cash (a “Company Redemption”) or by any
combination of a Company Conversion and a Company Redemption so long as the
entire amount of such Installment Amount due shall be converted and/or redeemed
by the Company on the applicable Installment Date, subject to the provisions of
this Section 8; provided further that the Company shall not be entitled to
effect a Company Conversion with respect to any portion of such Installment
Amount and shall be required to pay the entire amount of such Installment Amount
in cash pursuant to a Company Redemption if on the applicable Installment Notice
Due Date or on the applicable Installment Date (as the case may be) there is an
Equity Conditions Failure, and such failure is not waived by Holder as permitted
herein.
 
 
13

--------------------------------------------------------------------------------

 
 
8.1. General. On or prior to the date which is the twenty-third (23rd) Trading
Day prior to each Installment Date (each, an “Installment Notice Due Date”), the
Company shall deliver written notice to the Holder substantially in the form
attached hereto as Exhibit C-1 (each, a “Company Installment Notice”), and such
Company Installment Notice shall (i) either (A) confirm that the applicable
Installment Amount of this Note shall be converted in whole pursuant to a
Company Conversion, or (B) (1) state that the Company elects to redeem, or is
required to redeem in accordance with the provisions of this Note, in whole or
in part, the applicable Installment Amount pursuant to a Company Redemption and
(2) specify the portion of the applicable Installment Amount which the Company
elects, or is required to redeem, pursuant to a Company Redemption (such amount
to be redeemed in cash, the “Company Redemption Amount”) and the portion of the
applicable Installment Amount, if any, with respect to which the Company will,
and is permitted to, effect a Company Conversion (such amount of the applicable
Installment Amount so specified to be so converted pursuant to this Section 8 is
referred to herein as the “Company Conversion Amount”), which amounts when added
together, must equal the entire applicable Installment Amount and (ii) if the
applicable Installment Amount is to be paid, in whole or in part, pursuant to a
Company Conversion, certify that there is not an Equity Conditions Failure as of
the Installment Notice Due Date. Each Company Installment Notice shall be
irrevocable and may not be revoked by the Company. If the Company does not
timely deliver a Company Installment Notice on an applicable Installment Notice
Due Date that complies with this Section 8, then the Company shall be deemed to
have delivered on such Installment Notice Due Date an irrevocable Company
Installment Notice confirming a Company Conversion of the entire Installment
Amount payable as required hereunder and shall be deemed to have certified that
there is not an Equity Conditions Failure as of the applicable Installment
Notice Due Date. The applicable Company Conversion Amount (whether set forth in
the applicable Company Installment Notice or by operation of this Section 8)
shall be converted in accordance with Section 8.2 and the applicable Company
Redemption Amount shall be redeemed in accordance with Section 8.3. If the
Transfer Agent is not participating in the DTC/FAST Program, then
Pre-Installment Conversion Shares shall be delivered pursuant to Section 8.4
hereof.
 
8.2. Mechanics of Company Conversion. Subject to Section 3.4, if the Company
delivers a Company Installment Notice and elects, or is deemed to have delivered
a Company Installment Notice and deemed to have elected, in whole or in part, a
Company Conversion in accordance with Section 8.1, then this Section 8.2 shall
apply. Notwithstanding the foregoing, if an Equity Conditions Failure has
occurred as of the applicable Installment Notice Due Date, then the Company
shall identify each such Equity Conditions Failure in the Company Installment
Notice and request a waiver thereof from Holder pursuant to Section 8.6 hereof.
If such waiver is obtained, then the remainder of this Section 8.2 shall apply,
but if such waiver is not obtained, then the remainder of this Section 8.2 shall
not apply and the Company must deliver cash to the Holder in an amount equal to
the Installment Amount (or such lessor amount authorized by the Holder in
writing) pursuant to Section 8.3 hereof.
 
(a) Provided that there is no Equity Conditions Failure as of the applicable
Installment Notice Due Date (or any such failure is waived in whole or in part
as permitted herein) and a Company Conversion is not otherwise prohibited under
any other provision of this Note, no later than three (3) Trading Days after
each applicable Installment Notice Due Date, the Company shall deliver to the
Holder’s account the Pre-Installment Conversion Shares, and as to which the
Holder shall be the owner thereof as of the applicable Installment Notice Due
Date.
 
 
14

--------------------------------------------------------------------------------

 
 
(b) No later than three (3) Trading Days after each Installment Date, the
Company shall deliver to the Holder’s account a number of shares of Common Stock
equal to the amount, if any, by which the Post-Installment Conversion Shares
exceed the Pre-Installment Conversion Shares previously delivered to Holder. So
long as no Event of Default has occurred regarding payment, conversion or
redemption under this Note (each a “Payment Default”), if the Pre-Installment
Conversion Shares on the applicable Installment Date exceed the Post-Installment
Conversion Shares, then the excess will be applied towards the next
Pre-Installment Conversion Shares to be issued by the Company (unless the
Outstanding Balance has been reduced to zero, in which case Holder will return
such excess shares to the Company). If a Payment Default has occurred and the
Pre-Installment Conversion Shares for the applicable Installment Date exceed the
Post-Installment Conversion Shares, then Holder shall not be required to return
to the Company any of the excess shares or apply such excess shares to any
future issuance or conversion of shares hereunder. The Company agrees to deliver
to the Holder such calculations required under this Section 8.2(b) substantially
in the form attached hereto as Exhibit C-2.
 
(c) If an Event of Default occurs during any applicable Company Conversion
Measuring Period (defined below), then Holder may elect to either (i) return any
Pre-Installment Conversion Shares delivered in connection with the applicable
Installment Date, or (ii) retain such Pre-Installment Conversion Shares but only
reduce the Company Conversion Amount used to calculate the Pre-Installment
Conversion Shares (and thereby only reduce the Outstanding Balance) by the
product of (A) the Company Conversion Amount applicable to such Installment Date
multiplied by (B) the Conversion Share Ratio (as defined in Section 28.9).
“Company Conversion Measuring Period” means the period beginning on the
applicable Installment Notice Due Date and ending on the applicable Installment
Date.
 
(d) If there is an Equity Conditions Failure as of the applicable Installment
Date that is not waived as permitted herein or a Company Conversion is not
otherwise permitted under any other provision of this Note, then, at the option
of the Holder designated in writing to the Company, the Holder may require the
Company to do any one or more of the following:
 
(i) the Company must redeem all or any part designated by the Holder of the
Company Conversion Amount for which shares have not yet been delivered to Holder
(such designated amount is referred to as the “Designated Redemption Amount”)
and the Company shall pay to the Holder within three (3) Trading Days of such
Installment Date, by wire transfer of immediately available funds, an amount in
cash equal to the Redemption Premium multiplied by the Designated Redemption
Amount (the “Designated Redemption Price”) (if the Company fails to pay the
Designated Redemption Price by the third (3rd) Trading Day following such
written notice to the Company, then such failure to pay shall be an Event of
Default under Section 4.1(a) hereof), or
 
(ii) the Company Conversion shall be null and void with respect to the Company
Conversion Amount for which shares have not yet been delivered to Holder, and
Holder shall be entitled to all the rights of a holder of this Note with respect
to such remaining Company Conversion Amount; provided, however, the Conversion
Price for such remaining Company Conversion Amount shall thereafter be adjusted
to equal the lesser of (Y) the Default Conversion Price as in effect on the date
on which the Holder voided the Company Conversion and (Z) the Default Conversion
Price that would be in effect on the date on which the Holder delivers a
subsequent Conversion Notice relating thereto as if such date was an Installment
Date.
 
(e) Notwithstanding anything to the contrary in this Section 8.2, but subject to
Section 3.4, until the Company delivers Common Stock representing the Company
Conversion Amount to the Holder, the Company Conversion Amount may be converted
by the Holder into Common Stock pursuant to Section 3. In the event that the
Holder elects to convert the Company Conversion Amount prior to the applicable
Installment Date as set forth in the immediately preceding sentence, the Company
Conversion Amount so converted shall be deducted from the Installment Amount(s)
relating to the applicable Installment Date(s) as set forth in the applicable
Conversion Notice.
 
 
15

--------------------------------------------------------------------------------

 
 
(f) All Common Stock to be delivered to the Holder under this Section 8.2 shall
be transferred via the DWAC system.  Failure to do so shall constitute an Event
of Default under Section 4.1(b) hereof.
 
8.3. Mechanics of Company Redemption. If the Company elects, or is required to
elect, a Company Redemption, in whole or in part, in accordance with Section 8.1
or Section 8.2, then the Company Redemption Amount, if any, which is to be paid
to the Holder on the applicable Installment Date shall be redeemed by the
Company on such Installment Date in an amount of cash, and the Company shall pay
to the Holder on such Installment Date, by wire transfer of immediately
available funds an amount, equal to the applicable Company Redemption Amount. If
the Company fails to pay the applicable Company Redemption Amount on the
applicable Installment Date, then, at the option of the Holder designated in
writing to the Company (any such designation shall be a “Conversion Notice” for
purposes of this Note), the Holder may require the Company to convert all or any
part of the Company Redemption Amount at the Default Conversion Price
(determined as of the date of such designation as if such date were an
Installment Date). Conversions required by this Section 8.3 shall be made in
accordance with the provisions of Section 3.3. Notwithstanding anything to the
contrary in this Section 8.3, but subject to Section 3.4 and the Holder’s right
to require the Company to convert all or any part of the Company Redemption
Amount at the Default Conversion Price as set forth above, until the Company
Redemption Amount (together with any Late Charges thereon) is paid in full, the
Company Redemption Amount (together with any Late Charges thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3. In the event the Holder elects to convert all or any portion of the
Company Redemption Amount prior to the applicable Installment Date as set forth
in the immediately preceding sentence, the Company Redemption Amount so
converted shall be deducted from the Installment Amounts relating to the
applicable Installment Date(s) as set forth in the applicable Conversion Notice.
 
8.4. DWAC Eligibility. If at any relevant time any of the DWAC Eligible
Conditions are not satisfied, then, although such status may constitute an
Equity Conditions Failure or an Event of Default hereunder, shares required to
be issued to the Holder under this Section 8 shall be issued as follows:
 
(a) No later than three (3) Trading Days after delivery or deemed delivery (as
applicable) of the applicable Company Installment Notice setting forth a Company
Conversion Amount, the Company shall deliver to the Holder via reputable
overnight courier the Pre-Installment Conversion Shares by original share
certificate, registered in the name of the Holder or its designee (the
“Pre-Installment Certificated Shares”); provided, however, that so long as
shares are not provided electronically to the Holder under Section 8, the
Pre-Installment Certificated Shares shall equal two (2) times the number of
Pre-Installment Conversion Shares that would otherwise be transferred
electronically to the Holder.
 
(b)  Upon receiving the Pre-Installment Certificated Shares, the Holder agrees
to promptly deposit such shares into its brokerage account and take reasonable
efforts to cause such shares to become “free trading” (i.e., not subject to the
transferability restrictions under Rule 144). The Holder will notify the Company
by email within two (2) Trading Days after the applicable Pre-Installment
Certificated Shares become “free trading” (the date such notice is sent to the
Company is referred to as the “Free Trading Notice Date”). The date that is
twenty three (23) Trading Days after the Free Trading Notice Date is referred to
herein as the “Certificated Shares Installment Date”).
 
 
16

--------------------------------------------------------------------------------

 
 
(c) The “Post-Installment Certificated Shares” shall be one (1) times the
greater of (A) the Post-Installment Conversion Shares calculated using the
applicable Installment Date, and (B) the Post-Installment Conversion Shares
calculated using the Certificated Shares Installment Date (as if such date were
the designated Installment Date).
 
(d) Provided that there is no Equity Conditions Failure as of the Certificated
Shares Installment Date (or such failure is waived as permitted herein) and a
Company Conversion is not otherwise prohibited under any other provision of this
Note, no later than three (3) Trading Days after the applicable Certificated
Shares Installment Date, the Company shall deliver to the Holder via reputable
overnight courier the Post-Installment Certificated Shares, less the
Pre-Installment Certificated Shares previously delivered to the Holder, by
original share certificate, registered in the name of the Holder or its
designee. If the Pre-Installment Certificated Shares for the applicable
Certificated Shares Installment Date exceed the Post-Installment Certificated
Shares, the Holder is not required to return to the Company any excess shares or
apply such excess shares to any further issuance of shares to be made hereunder.
 
8.5. Deemed Issuance. If Company fails to deliver shares as required by this
Section 8, in addition to such failure to act being considered an Event of
Default hereunder, for purposes of Section 7.1, the Company shall also be deemed
to have issued the Pre-Installment Conversion Shares or the Post-Installment
Conversion Shares, as applicable, to Holder on the applicable date and pursuant
to the terms set forth in this Section 8, with Holder entitled to all the rights
and privileges associated with such deemed issued shares (the “Deemed
Installment Issuance”).
 
8.6. Waiver of Equity Conditions Failure. Notwithstanding anything in the Note
to the Contrary, the Holder may waive in writing any Equity Conditions Failure,
except for the Non-Waivable Equity Conditions (defined below).  For purposes of
this Section 8, “Non-Waivable Equity Conditions” refer to (A) the Equity
Condition set forth in Section 28.20(iv) (indicating that Holder may not own
more than the Maximum Percentage set forth in Section 3.4 of the Note), and (B)
the Equity Condition set forth in Section 28.20(v) (Common Stock may be issued
without violating the rules of the Eligible Market). Any such waiver shall only
be made for the purposes of permitting a Company Conversion to occur under this
Section 8 and shall not be deemed a waiver of the underlying default or a
continuing waiver of a future Equity Conditions Failure. Any such waiver shall
not excuse the Company from the performance of any of its current or future
obligations under the Note.
 
8.7. Preparation of Company Installment Notice. Because of the complexity of the
calculations contemplated under this Note, the Holder may, at its sole
discretion, prepare the Company Installment Notice for the benefit of the
Company, including the calculation of Pre-Installment Conversion Shares,
Post-Installment Conversion Shares, Pre-Installment Certificated Shares,
Post-Installment Certificated Shares, and all calculations required under
Section 8.2(b) hereof; provided, however, that no error or mistake in the
preparation of such information may be deemed a waiver of the Holder’s right to
enforce the terms of this Note, even if such error or mistake arises from the
Holder’s own calculation. Nothing in this Section shall be deemed an obligation
of the Holder to prepare any such information, or a waiver of any of its rights
and remedies under this Note.
 
8.8. Transfer Fees. The Company shall pay any and all transfer, stamp, issuance
and similar taxes that may be payable with respect to the issuance and delivery
of Pre-Installment Conversion Shares, Post-Installment Conversion Shares,
Pre-Installment Certificated Shares, and Post-Installment Certificated Shares.
 
 
17

--------------------------------------------------------------------------------

 
 
9. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation (as defined in the
Agreement), bylaws, or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value of
any shares of Common Stock receivable upon conversion of this Note above the
Conversion Price then in effect, (ii) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of this
Note, and (iii) shall, so long as this Note is outstanding, take all action
necessary to maintain the Share Reserve (as defined in the Agreement).
 
10. HOLDER’S REDEMPTIONS. If the Holder has submitted to Company an Event of
Default Redemption Notice in accordance with Section 4.2(b), then the Company
shall pay to Holder in cash within ten (10) Trading Days after the Company’s
receipt of such Event of Default Redemption Notice an amount equal to the
Default Redemption Amount multiplied by the Redemption Premium (the “Event of
Default Redemption Price”); provided, however, that the Redemption Premium may
only be applied in computing the Event of Default Redemption Price with respect
to the first two Events of Default under this Note, and not to any subsequent
Events of Default. If the Holder has submitted to Company a Fundamental
Transaction Redemption Notice in accordance with Section 5.2, then the Company
shall pay to Holder in cash prior to the consummation of such Fundamental
Transaction if such notice is received prior to the consummation of such
Fundamental Transaction and within ten (10) Trading Days after the Company’s
receipt of such notice otherwise, an amount equal to the Fundamental Transaction
Redemption Amount multiplied by the Redemption Premium (the “Fundamental
Transaction Redemption Price”). Notwithstanding anything in this Note to the
contrary, such failure of the Company to pay the Redemption Price under this
Section 10 shall not be considered a separate Event of Default hereunder. In the
event that the Company does not pay the applicable Redemption Price to the
Holder within the time period required, at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to cancel the Event of Default Redemption Notice
or the Fundamental Transaction Redemption Notice, as applicable, by written
notice to the Company (the “Redemption Cancellation Notice”). Upon the Company’s
receipt of a Redemption Cancellation Notice, (y) the Outstanding Balance of this
Note as of the date of the Redemption Notice shall be increased by an amount
equal to (1) the applicable Event of Default Redemption Price, or Fundamental
Transaction Redemption Price (as the case may be), minus (2) the principal
portion of the Outstanding Balance submitted for redemption; and (z) the
Conversion Price of this Note shall be automatically adjusted with respect to
each conversion under this Note effected thereafter by the Holder to the lowest
of (A) 70% of the lowest Closing Bid Price of the Common Stock during the period
beginning on and including the date on which the applicable Redemption Notice is
delivered to the Company and ending on and including the date of the Redemption
Cancellation Notice, (B) the Market Price as of the date of the Redemption
Cancellation Notice, (C) the then current Market Price, and (D) the then current
Conversion Price. The Holder’s delivery of a Redemption Cancellation Notice and
exercise of its rights following such notice shall not affect the Company’s
obligations to make any payments of Late Charges which have accrued prior to the
date of such Redemption Cancellation Notice.
 
11. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law and as expressly provided in this Note.
 
12. COVENANTS. Until this Note has been converted, redeemed or otherwise
satisfied in accordance with its terms, the Company will comply with all
covenants and obligations set forth in all of the Transaction Documents.
 
 
18

--------------------------------------------------------------------------------

 
 
13. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder
shall be required for any change or amendment to this Note.
 
14. TRANSFER. This Note and any shares of Common Stock issued upon conversion of
this Note may be offered, sold, assigned or transferred by the Holder without
the consent of the Company.
 
15. REISSUANCE OF THIS NOTE.
 
15.1. Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Note (in accordance with Section 15.4),
registered as the Holder may request, representing the Outstanding Balance being
transferred by the Holder and, if less than the entire Outstanding Balance is
being transferred, a new Note (in accordance with Section 15.4) to the Holder
representing the Outstanding Balance not being transferred.
 
15.2. Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 15.4)
representing the Outstanding Balance.
 
15.3. Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 15.4 and in principal
amounts of at least $1,000) representing in the aggregate the Outstanding
Balance of this Note, and each such new Note will represent such portion of such
Outstanding Balance as is designated by the Holder at the time of such
surrender.
 
15.4. Issuance of New Notes. Subject to Section 10, whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Outstanding Balance (or in the case of a new Note
being issued pursuant to Section 15.1 or Section 15.3, the portion of the
Outstanding Balance designated by the Holder which, when added to the
outstanding balance represented by the other new Notes issued in connection with
such issuance, does not exceed the Outstanding Balance under this Note
immediately prior to such issuance of new Notes), (iii) shall have an issuance
date, as indicated on the face of such new Note, which is the same as the
Issuance Date of this Note, (iv) shall have the same rights and conditions as
this Note, and (v) shall represent accrued and unpaid Interest and Late Charges
and other increases to the Outstanding Balance as permitted hereunder from the
Issuance Date.
 
16. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies, including without limitation the Redemption Premium,
Prepayment Premium, and all other charges, fees, and collection costs provided
for in this Note, shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or
in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms of
this Note. The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any such breach or any
such threatened breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Note (including, without limitation, compliance with Section
7).
 
 
19

--------------------------------------------------------------------------------

 
 
17. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
attorneys’ fees and disbursements. The Company expressly acknowledges and agrees
that no amounts due under this Note shall be affected, or limited, by the fact
that the Purchase Price paid for this Note was less than the Original Principal
Amount.
 
18. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and the Holder and shall not be construed against any Person as the
drafter hereof. The headings of this Note are for convenience of reference and
shall not form part of, or affect the interpretation of, this Note. Terms used
in this Note but defined in the other Transaction Documents shall have the
meanings ascribed to such terms on the Issuance Date in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
 
19. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the
Holder 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. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party.
 
20. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Conversion Price, Default Conversion Price, Pre-Installment Conversion Price,
Conversion Rate, the Closing Bid Price, the Closing Sale Price, VWAP or fair
market value (as the case may be) or the arithmetic calculation of Conversion
Shares or the applicable Redemption Price (as the case may be), the Company or
the Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile (i) within two (2)
Trading Days after receipt of the applicable notice giving rise to such dispute
to the Company or the Holder (as the case may be) or (ii) if no notice gave rise
to such dispute, at any time after the Holder learned of the circumstances
giving rise to such dispute (including, without limitation, as to whether any
issuance or sale or deemed issuance or sale was an issuance or sale or deemed
issuance or sale of Excluded Securities). If the Holder and the Company are
unable to agree upon such determination or calculation within two (2) Trading
Days of such disputed determination or arithmetic calculation (as the case may
be) being submitted to the Company or the Holder (as the case may be), then the
Company shall, within two (2) Trading Days, submit via facsimile (a) the
disputed determination of the Conversion Price, Default Conversion Price,
Pre-Installment Conversion Price, Conversion Rate, the Closing Bid Price, the
Closing Sale Price, VWAP or fair market value (as the case may be) to an
independent, reputable investment bank selected by the Holder or (b) the
disputed arithmetic calculation of the Conversion Shares or any Redemption Price
(as the case may be) to the Company’s independent, outside accountant. The
Company shall cause at its expense the investment bank or the accountant (as the
case may be) to perform the determinations or calculations (as the case may be)
and notify the Company and the Holder of the results no later than ten
(10) Trading Days from the time it receives such disputed determinations or
calculations (as the case may be). Such investment bank’s or accountant’s
determination or calculation with respect to the disputes set forth in this
Section 20 (as the case may be) shall be binding upon all parties absent
demonstrable error.
 
 
20

--------------------------------------------------------------------------------

 
 
21. NOTICES; PAYMENTS.
 
21.1. Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with the
subsection of the Agreement titled “Notices.“  The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) Trading Days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with respect
to any grant, issuances, or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to all holders
of shares of Common Stock, or (C) for determining rights to vote with respect to
any Fundamental Transaction, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
 
21.2. Currency. All dollar amounts referred to in this Note are in United States
Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be paid in
U.S. Dollars. All amounts denominated in other currencies (if any) shall be
converted into the U.S. Dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation. “Exchange Rate” means, in relation to any
amount of currency to be converted into U.S. Dollars pursuant to this Note, the
U.S. Dollar exchange rate as published in The Wall Street Journal on the
relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of
calculation shall be the final date of such period of time).
 
21.3. Payments. Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, unless otherwise expressly set forth herein, such
payment shall be made in lawful money of the United States of America by wire
transfer of immediately available funds pursuant to wire transfer instructions
delivered to Company by Holder from time to time. Whenever any amount expressed
to be due by the terms of this Note is due on any day which is not a Trading
Day, the same shall instead be due on the next succeeding day which is a Trading
Day. Any amount due under the Transaction Documents which is not paid when due
shall result in a late charge being incurred and payable by the Company in an
amount equal to interest on such amount at the rate of eighteen percent (18%)
per annum from the date such amount was due until the same is paid in full
(“Late Charge”).
 
22. CANCELLATION. After repayment or conversion of the entire Outstanding
Balance, this Note shall automatically be deemed canceled, shall be surrendered
to the Company for cancellation and shall not be reissued.
 
23. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Agreement.
 
 
21

--------------------------------------------------------------------------------

 
 
24. GOVERNING LAW. This Note shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Note shall be governed by, the internal laws of the State of
Utah, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of Utah or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of Utah.
The Company hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in Salt Lake City for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law. In
the event that any provision of this Note 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 this Note. Nothing contained herein
shall be deemed or operate to preclude the Holder from bringing suit or taking
other legal action against the Company or any of its Subsidiaries in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
25. SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties.  The parties will endeavor in
good faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with one or more valid provisions, the effect of which comes as
close as possible to that of the prohibited, invalid or unenforceable
provision(s).
 
26. FEES AND CHARGES. The parties acknowledge and agree that upon Company’s
failure to comply with the provisions of this Note, the Holder’s damages would
be uncertain and difficult to estimate because of the parties’ inability to
predict future interest rates, the Holder’s increased risk, and the uncertainty
of the availability of a suitable substitute investment opportunity for the
Holder. Accordingly, any fees, charges, and interest due under this Note,
including without limitation the Prepayment Premium and the Redemption Premium,
are intended by the parties to be, and shall be deemed, a reasonable estimate of
the Holder’s actual loss of its investment opportunity and not a penalty, and
shall not be deemed in any way to limit any other right or remedy Holder may
have hereunder, at law or in equity.
 
27. UNCONDITIONAL OBLIGATION. Subject to the terms of the Agreement, no
provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Note at the time, place, and rate, and in the coin or currency or where
contemplated herein in shares of its Common Stock, as applicable, as herein
prescribed.  This Note is the direct obligation of the Company and not subject
to offsets, counterclaims, defenses, credits or deductions.
 
 
22

--------------------------------------------------------------------------------

 
 
28. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall
have the following meanings:
 
28.1. “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
“control” of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
 
28.2. “Agreement” means that certain Securities Purchase Agreement, dated as of
August 2, 2012, as may be amended from time to time, by and between the Company
and the Holder, pursuant to which the Company issued this Note.
 
28.3. “Approved Stock Plan” means any stock option plan which has been approved
by the Board of Directors of the Company, pursuant to which the Company’s
securities may be issued to any employee, officer or director for services
provided to the Company.
 
28.4. “Black Scholes Consideration Value” means the value of the applicable
Option or Convertible Security (as the case may be) as of the date of issuance
thereof calculated using the Black Scholes Option Pricing Model obtained from
the “OV” function on Bloomberg utilizing (i) an underlying price per share equal
to the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the public announcement of the execution of definitive documents with
respect to the issuance of such Option or Convertible Security (as the case may
be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible Security (as
the case may be) as of the date of issuance of such Option or Convertible
Security (as the case may be), and (iii) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg (determined utilizing a 365 day annualization factor) as of the
Trading Day immediately following the date of issuance of such Option or
Convertible Security (as the case may be).
 
28.5. “Bloomberg” means Bloomberg, L.P.
 
28.6. “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price (as the case may be)
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in “OTC Pink” by Pink OTC Markets Inc. (formerly
Pink Sheets LLC), and any successor thereto. If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as
the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in Section 20. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.
 
 
23

--------------------------------------------------------------------------------

 
 
28.7. “Common Stock” means (i) the Company’s shares of common stock, $0.001 par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.
 
28.8. “Contingent Obligation” means as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
28.9. “Conversion Share Ratio” means as to any applicable Installment Date, the
quotient of (i) the number of Pre-Installment Conversion Shares delivered in
connection with such Installment Date divided by (ii) the number of
Post-Installment Conversion Shares applicable to such Installment Date.
 
28.10. “Conversion Shares” means shares of Common Stock issuable by the Company
upon any conversion of this Note, including without limitation, Section 3
Conversion Shares, Pre-Installment Conversion Shares, Post-Installment
Conversion Shares, Pre-Installment Certificated Shares, and Post-Installment
Certificated Shares.
 
28.11. “Convertible Securities” means any stock, preferred stock, stock
appreciation rights, phantom stock, equity related rights, equity linked rights,
or other security (other than Options) that is at any time and under any
circumstances, directly or indirectly, convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
shares of Common Stock.
 
28.12. “Current Subsidiary” means any Person in which the Company on the
Issuance Date, directly or indirectly, (i) owns any of the outstanding capital
stock or holds any equity or similar interest of such Person or (ii) controls or
operates all or any part of the business, operations or administration of such
Person, and all of the foregoing, collectively, “Current Subsidiaries.”
 
28.13. “Deemed Issuance” means (i) a Deemed Conversion Issuance as defined in
Section 3.3(b) hereof, (ii) a Deemed Installment Issuance as defined in Section
8.5 hereof, and (iii) a Deemed Warrant Issuance as defined in Section 7.1(e)
hereof.
 
28.14. “Default Conversion Price” means, with respect to a particular date of
determination, the lower of (i) the Conversion Price then in effect and (ii) the
Market Price as of the specified Installment Notice Due Date or the Installment
Date, as applicable. All such determinations to be appropriately adjusted for
any stock split, stock dividend, stock combination or other similar transaction
during any applicable Measuring Period.
 
28.15. “DTC” means the Depository Trust Company.
 
28.16. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer
Program.
 
 
24

--------------------------------------------------------------------------------

 
 
28.17. “DWAC” means Deposit Withdrawal at Custodian as defined by the DTC.
 
28.18. “DWAC Eligible Conditions” means that (i) the Common Stock is eligible at
DTC for full services pursuant to DTC’s Operational Arrangements, including
without limitation transfer through DTC’s DWAC system, (ii) the Company has been
approved (without revocation) by the DTC’s underwriting department, and (iii)
the Transfer Agent is approved as an agent in the DTC/FAST Program.
 
28.19. “Eligible Market” means The New York Stock Exchange, NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital
Market, the OTC Bulletin Board, the OTCQX or the OTCQB, or the Principal Market.
In no event shall quotations provided on OTC Pink by Pink OTC Markets Inc., or
its successor, be considered an Eligible Market.
 
28.20. “Equity Conditions” means: (i) with respect to the applicable date of
determination either (A) a Registration Statement is effective and the
prospectus contained therein is available for the issuance by the Company to the
Holder of all of the Conversion Shares, or (B) all of the Conversion Shares are
otherwise freely tradable under Rule 144 or without the need for registration
under any applicable federal or state securities laws (in each case,
disregarding any limitation on conversion of this Note); (ii) on each day during
the period beginning one month prior to the applicable date of determination and
ending on and including the applicable date of determination (the “Equity
Conditions Measuring Period”), the Common Stock (including all of the Conversion
Shares) is listed or designated for quotation (as applicable) on an Eligible
Market and shall not have been suspended from trading on an Eligible Market
(other than suspensions of not more than two (2) Trading Days and occurring
prior to the applicable date of determination due to business announcements by
the Company); (iii) on each day during the Equity Conditions Measuring Period,
the Company shall have delivered all shares of Common Stock issuable upon
conversion of this Note on a timely basis as set forth in Section 3 hereof and
all other shares of capital stock required to be delivered by the Company on a
timely basis as set forth in the other Transaction Documents; (iv) any shares of
Common Stock to be issued in connection with the event requiring determination
may be issued in full without violating Section 3.4 hereof (the Holder
acknowledges that the Company shall be entitled to assume that this condition
has been met for all purposes hereunder absent written notice from the Holder);
(v) any shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating the rules or
regulations of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause any of the Conversion
Shares to not be freely tradable without the need for registration under any
applicable state securities laws (in each case, disregarding any limitation on
conversion of this Note); (viii) on each day during the Equity Conditions
Measuring Period, the Company otherwise shall have been in material compliance
with each, and shall not have breached any, term, provision, covenant,
representation or warranty of any Transaction Document; (ix) without limiting
clause (viii) above, on each day during the Equity Conditions Measuring Period,
there shall not have occurred an Event of Default or an event that with the
passage of time or giving of notice would constitute an Event of Default; (x)
all DWAC Eligible Conditions shall be satisfied as of each applicable
Installment Notice Due Date and Installment Date; (xi) on each Installment
Notice Due Date and each Installment Date, the average and median daily dollar
volume of the Common Stock on its Principal Market for the previous twenty-three
(23) Trading Days shall be greater than $10,000; and (xii) the ten (10) day
average VWAP of the Common Stock is greater than $.01.
 
28.21. “Equity Conditions Failure” means, with respect to a particular date of
determination, that on any day during the period commencing twenty three
(23) Trading Days immediately prior to such date of determination and ending on
such date of determination, the Equity Conditions have not been satisfied (or
waived in writing by the Holder). If an Equity Conditions Failure is the result
of an Event of Default, then the Equity Conditions Failure shall be deemed
permanent and may not be cured by the Company.
 
 
25

--------------------------------------------------------------------------------

 
 
28.22. “Excluded Securities” means any shares of Common Stock, Options, or
convertible securities issued or issuable (i) in connection with any Approved
Stock Plan; provided that the option term, exercise price or similar provisions
of any issuances pursuant to such Approved Stock Plan are not amended, modified
or changed on or after the Issuance Date; (ii) in connection with mergers,
acquisitions, strategic licensing arrangements, strategic business partnerships
or joint ventures, in each case with non-affiliated third parties and otherwise
on an arm’s-length basis, the purpose of which is not to raise additional
capital; provided, that such third parties are not granted any registration
rights, (iii) in connection with the Company’s existing equity line of credit
with Tangiers Investors LP, and (iv) in connection with any promissory notes or
warrants in existence as of the Issuance Date.  Notwithstanding the foregoing,
any Common Stock issued or issuable to raise capital for the Company or its
Subsidiaries, directly or indirectly, in connection with any transaction
contemplated by clause (ii) above, including, without limitation, securities
issued in one or more related transactions or that result in similar economic
consequences, shall not be deemed to be Excluded Securities.
 
28.23. “Fundamental Transaction” means that (i) (1) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) the Company
or any of its Significant Subsidiaries shall, directly or indirectly, in one or
more related transactions, sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of its respective properties or
assets to any other Person, or (3) the Company or any of its Subsidiaries shall,
directly or indirectly, in one or more related transactions, allow any other
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4) the
Company or any of its Subsidiaries shall, directly or indirectly, in one or more
related transactions, consummate a stock or share purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with any other Person
whereby such other Person acquires more than 50% of the outstanding shares of
Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination), or (5) the Company
or any of its Subsidiaries shall, directly or indirectly, in one or more related
transactions, reorganize, recapitalize or reclassify the Common Stock, other
than an increase in the number of authorized shares of the Company’s Common
Stock, or (ii) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.
 
28.24. “GAAP” means United States generally accepted accounting principles,
consistently applied.
 
 
26

--------------------------------------------------------------------------------

 
 
28.25. “Indebtedness” of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including,
without limitation, “capital leases” in accordance with GAAP (other than trade
payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.
 
28.26. “Installment Amount” means the greater of (i) $37,666.67 ($113,000.00 ÷
3), plus the sum of any accrued and unpaid Interest as of the applicable
Installment Date and accrued and unpaid Late Charges, if any, under this Note as
of the applicable Installment Date, and any other amounts accruing or owing to
Holder under this Note as of such Installment Date, and (ii) the then
Outstanding Balance divided by the number of Installment Dates remaining prior
to the Maturity Date. In the event the Holder shall sell or otherwise transfer
any portion of this Note, the transferee shall be allocated a pro rata portion
(based on the portion of the Note transferred compared with the Outstanding
Balance of the Note as of the transfer date) of each unpaid Installment Amount
hereunder.
 
28.27. “Installment Date” means the Initial Installment Date and the same day on
each of the following calendar months following the Initial Installment Date,
regardless of any Event of Default; provided, however, that if the Outstanding
Balance is not paid on the Maturity Date, then in addition to any remedies
available under the Transaction Documents, the Installment Dates will continue
on the same day of each calendar month until the Outstanding Balance is paid in
full, thus requiring the Company to continue to provide Company Installment
Notices to the Holder pursuant to Section 8 hereof.
 
28.28. “Market Price” means 70% of the arithmetic average of the three (3)
lowest VWAPs of the shares of Common Stock during the ten (10) consecutive
Trading Day period immediately preceding the date of such determination (the
“Measuring Period”). All such determinations are to be appropriately adjusted
for any stock split, stock dividend, stock combination or other similar
transaction during such Measuring Period.
 
28.29. “Maturity Date” shall mean the date that is nine (9) months after the
Issuance Date.
 
28.30. “New Subsidiary” means, as of any date of determination, any Person in
which the Company after the Issuance Date, directly or indirectly, (i) owns or
acquires any of the outstanding capital stock or holds any equity or similar
interest of such Person or (ii) controls or operates all or any part of the
business, operations or administration of such Person, and all of the foregoing,
collectively, “New Subsidiaries.”
 
28.31. “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
 
28.32. “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.
 
 
27

--------------------------------------------------------------------------------

 
 
28.33. “Person” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any
other entity or a government or any department or agency thereof.
 
28.34. “Post-Installment Conversion Price” means, with respect to a particular
date of determination, the lower of (i) the Conversion Price then in effect and
(ii) the Market Price for the applicable Installment Date. All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during any applicable Measuring
Period.
 
28.35. “Post-Installment Conversion Shares” means that number of shares of
Common Stock that would be required to be delivered pursuant to Section 8 on an
applicable Installment Date without taking into account the delivery of any
Pre-Installment Conversion Shares. The Post-Installment Conversion Shares are
equal to the quotient of (i) the Company Conversion Amount divided by (ii) the
Post-Installment Conversion Price as of the applicable Installment Date.
 
28.36. “Pre-Installment Conversion Price” means, with respect to a particular
date of determination, the lower of (i) the Conversion Price then in effect and
(ii) the Market Price for the applicable Installment Notice Due Date. All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during any applicable Measuring
Period.
 
28.37. “Pre-Installment Conversion Shares” means the number of shares of Common
Stock to be delivered pursuant to Section 8.1. The Pre-Installment Conversion
Shares are equal to the quotient of (i) the Company Conversion Amount divided by
(ii) the Pre-Installment Conversion Price as of the applicable Installment
Notice Due Date.
 
28.38. “Principal Market” means the OTCQB.
 
28.39. “Redemption Notices” means, collectively, Event of Default Redemption
Notices and Fundamental Transaction Redemption Notices, and each of the
foregoing, individually, a “Redemption Notice.”
 
28.40. “Redemption Premium” means 125%.
 
28.41. “Redemption Prices” means, collectively, Event of Default Redemption
Prices and Fundamental Transaction Redemption Prices, and each of the foregoing,
individually, a “Redemption Price.”
 
28.42. “SEC” means the United States Securities and Exchange Commission or the
successor thereto.
 
28.43.  “Significant Subsidiaries” means, as of any date of determination,
collectively, all Subsidiaries that would constitute a “significant subsidiary”
under Rule 1-02 of Regulation S-X promulgated by the SEC, and each of the
foregoing, individually, a “Significant Subsidiary.”
 
28.44. “Subsidiaries” means, as of any date of determination, collectively, all
Current Subsidiaries and all New Subsidiaries, and each of the foregoing,
individually, a “Subsidiary.”
 
 
28

--------------------------------------------------------------------------------

 
 
28.45. “Successor Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with which
such Fundamental Transaction shall have been made, provided that if such Person
is not a publicly traded entity whose common stock or equivalent equity security
is quoted or listed for trading on an Eligible Market, Successor Entity shall
mean such Person's Parent Entity.
 
28.46.  “Trading Day” means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
 
28.47. “Voting Stock” of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers, trustees or other similar governing body of such
Person (irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
 
28.48. “VWAP” means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in “OTC Pink” by Pink OTC Markets Inc.
(formerly Pink Sheets LLC), and any successor thereto. If the VWAP cannot be
calculated for such security on such date on any of the foregoing bases, the
VWAP of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 20. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
 
29. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one (1) Trading Day after any such receipt or delivery,
publicly disclose such material, non-public information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, non-public information relating to the Company or its
Subsidiaries.
 
 
29

--------------------------------------------------------------------------------

 
 
30. MAXIMUM PAYMENTS. Nothing contained in this Note shall, or shall be deemed
to, establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges under this Note exceeds the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Holder and thus refunded to
the Company.
 
 
[Remainder of page intentionally left blank]
 
 
 
 
 
 

 
 
30

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 
 
THE COMPANY:

North Bay Resources, Inc.

By: /s/ Perry
Leopold                                                             
Name: Perry Leopold                              
Title: CEO/Chairman                                                     

ACKNOWLEDGED, ACCEPTED AND AGREED:

Tonaquint, Inc.

By: /s/ John M. Fife                               
       John M. Fife, President
 
 
 
[Signature page to Convertible Promissory Note]
 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT A

Tonaquint, Inc.
303 East Wacker Drive, Suite 1200
Chicago, Illinois 60601

North Bay Resources,
Inc.                                                                                Date:                                           
Attn: Perry Leopold
_______________
_______________

CONVERSION NOTICE
The above-captioned Holder hereby gives notice to North Bay Resources, Inc., a
Delaware corporation (the “Company”), pursuant to that certain Convertible
Promissory Note made by the Company in favor of the Holder on August 2, 2012
(the “Note”), that the Holder elects to convert the portion of the Note balance
set forth below into fully paid and non-assessable shares of Common Stock of the
Company as of the date of conversion specified below.  Said conversion shall be
based on the Conversion Price set forth below.  In the event of a conflict
between this Conversion Notice and the Note, the Note shall govern, or, in the
alternative, at the election of the Holder in its sole discretion, the Holder
may provide a new form of Conversion Notice to conform to the Note.

 
A.
Date of conversion:
____________

 
B.
Conversion #:
 
____________

 
C.
Conversion Amount:
____________

 
D.
Conversion Price:  _______________

 
E.
Section 3 Conversion Shares:  _______________ (C divided by D)

 
F.
Remaining Outstanding Balance of Note:  ____________

$_________________ of the Conversion Amount converted hereunder shall be
deducted from the Installment Amount(s) relating to the following Installment
Date(s): __________________________________________.

Please transfer the Section 3 Conversion Shares electronically (via DWAC) to the
following account:
Broker:                                                Address:                                          
DTC#:                                                                                                                                                   
Account #:                                      
                                                                                                      
Account Name:                                                         

To the extent the Section 3 Conversion Shares are not able to be delivered to
the Holder electronically via the DWAC system, the Holder hereby

_______ elects, or

_______ does not elect

to receive certificates representing such Section 3 Conversion Shares.  If the
Holder so elects, such certificates should be transmitted by the Company to the
Holder via reputable overnight courier after receipt of this Conversion Notice
(by facsimile transmission or otherwise) to:

_____________________________________
_____________________________________
_____________________________________

Any such election shall not constitute a waiver of any Event of Default (as
defined in the Note) or any right or remedy of the Holder under the Note or
under any other Transaction Document.

Sincerely,

Holder:                      Tonaquint, Inc.

By: _________________________
       John M. Fife, President
 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT B
ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs
[COLONIAL STOCK TRANSFER CO., INC.] to issue the above indicated number of
shares of Common Stock in accordance with the Irrevocable Instructions to
Transfer Agent dated August 2, 2012 from the Company and acknowledged and agreed
to by ___________________.
 

 
North Bay Resources, Inc.
 
 
 
By: ________________________
Name: ______________________
Title: _______________________
 

 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT C-1

North Bay Resources, Inc.
2120 Bethel Road
Lansdale, Pennsylvania 19446

 
Tonaquint,
Inc.                                                                                           Date:                                           
Attn: John Fife
303 E. Wacker Dr., Suite 1200
Chicago, IL 60657
COMPANY INSTALLMENT NOTICE
 
The above-captioned Company hereby gives notice to Tonaquint, Inc., a Utah
corporation (the “Holder”), pursuant to that certain Convertible Promissory Note
made by the Company in favor of the Holder on August 2, 2012 (the “Note”), of
certain Company elections and certifications related to payment of the
Installment Amount of $_________________ due on ___________, 201_ (the
“Installment Date”). In the event of a conflict between this Installment Notice
and the Note, the Note shall govern, or, in the alternative, at the election of
the Holder in its sole discretion, the Holder may provide a new form of
Installment Notice to conform to the Note.  Capitalized terms used in this
notice without definition shall have the meanings given to them in the Note.
 
PRE-INSTALLMENT ELECTIONS AND CERTIFICATIONS
AS OF THE INSTALLMENT NOTICE DUE DATE

A.  
COMPANY ELECTIONS

 
The Company elects to pay the Installment Amount as follows (check one):
 
______(i)
Redeeming the Installment Amount in cash in accordance with Section 8 of the
Note (“Company Redemption”) (if selected, no other sections of this Notice need
to be completed)

 
______(ii)
Converting the Installment Amount in accordance with Section 8 of the Note
(“Company Conversion”) (if selected, complete Section B(1) and Section (C) of
this Notice)

 
______(iii)
Combination of Company Redemption and Company Conversion (if selected, complete
Section B(2) and Section (C) of this Notice)

 
B.  
COMPANY CONVERSION (if applicable)

 
1.  
Company Conversion:

 
 
A.
Installment Notice Due Date:
____________, 201_

 
B.
Company Conversion Amount:
_____________

 
C.
Pre-Installment Conversion Price:  _______________ (lower of (i) Conversion
Price in effect and (ii) Market Price as of Installment Notice Due Date)

 
D.
Pre-Installment Conversion Shares:  _______________ (B divided by C)

 
E.
Excess shares to be applied from previous installment (if any): _____________

 
F.
Installment shares to be delivered: ________________ (D minus E )

 
G.
Remaining Note balance:  ____________

 
 
 

--------------------------------------------------------------------------------

 

2.  
Combination of Company Redemption and Company Conversion (if elected above):

 
 
A.
Installment Notice Due Date:
____________, 201_

 
B.
Installment Amount:
____________

 
C.
Company Redemption Amount: _____________

 
D.
Company Conversion Amount: _____________ (B minus C)

 
E.
Pre-Installment Conversion Price:  _______________ (lower of (i) Conversion
Price in effect and (ii) Market Price as of Installment Notice Due Date)

 
F.
Pre-Installment Conversion Shares:  _______________ (D divided by E)

 
G.
Excess shares to be applied from previous installment (if any): _____________

 
H.
Installment shares to be delivered: ________________ (F minus G)

 
I.
Remaining Note balance:  ____________

C.  
EQUITY CONDITIONS CERTIFICATION (if applicable)

 
1.  
Market Capitalization of the Common Stock:________________

 
(Check One)
 
2.  
_________The Company herby certifies that no Equity Conditions Failure exists as
of the Installment Notice Due Date.

 
3.  
_________The Company hereby gives notice that an Equity Conditions Failure has
occurred and requests a waiver from the Holder with respect thereto.  The Equity
Conditions Failure is as follows:

 
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
 

 
Sincerely,
 
Company:  North Bay Resources, Inc.
 
 
By: ___________________________________
 
Name: ______________________________
 
Title: _______________________________
 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT C-2

North Bay Resources, Inc.
2120 Bethel Road, Lansdale, Pennsylvania 19446

 
Tonaquint,
Inc.                                                                                           Date:                                           
Attn: John Fife
303 E. Wacker Dr., Suite 1200
Chicago, IL 60657
COMPANY INSTALLMENT NOTICE
 
The above-captioned Company hereby gives notice to Tonaquint, Inc., a Utah
corporation (the “Holder”), pursuant to that certain Convertible Promissory Note
made by the Company in favor of the Holder on August 2, 2012 (the “Note”), of
Post-Installment Conversion Shares and Equity Conditions Certifications related
to _____________, 201_ (the “Installment Date”). In the event of a conflict
between this Installment Notice and the Note, the Note shall govern, or, in the
alternative, at the election of the Holder in its sole discretion, the Holder
may provide a new form of Installment Notice to conform to the
Note.  Capitalized terms used in this notice without definition shall have the
meanings given to them in the Note.
 
POST-INSTALLMENT CONVERSION SHARES AND CERTIFICATIONS
AS OF THE INSTALLMENT DATE

1.  
POST-INSTALLMENT CONVERSION SHARES

 
A.  
Installment Notice Due
Date:                                                       ____________, 201_

 
B.  
Company Conversion
Amount:                                                        _____________

 
C.  
Post-Installment Conversion Price:  _______________ (lower of (i) Conversion
Price in effect and (ii) Market Price as of Installment Date)

 
D.  
Post-Installment Conversion Shares:  _______________ (B divided by C)

 
E.  
Pre-Installment Conversion Shares delivered: ________________

 
F.  
Post-Installment Conversion Shares to be delivered: ________________ (only
applicable if D minus E is greater than zero)

 
G.  
Pre-Installment Conversion Shares to be applied to next installment or
returned:_________________ (only applicable if D minus E is less than zero and
no Payment Default has occurred)

 
H.  
Pre-Installment Conversion Shares to be retained by the Holder because of a
Payment Default: _________________ (only applicable if D minus E is less than
zero and a Payment Default has occurred)

 
2.  
EQUITY CONDITIONS CERTIFICATION

 
A.  
Market Capitalization of the Common Stock:________________

 
 
 

--------------------------------------------------------------------------------

 
 
(Check One)
 
B.  
_________The Company herby certifies that no Equity Conditions Failure exists as
of the applicable Installment Date.

 
C.  
_________The Company hereby gives notice that an Equity Conditions Failure has
occurred and requests a waiver from the Holder with respect thereto.  The Equity
Conditions Failure is as follows:

 
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
 

 
Sincerely,
 
Company:  North Bay Resources, Inc.
 

By: ___________________________________
 
Name: _____________________________
 
Title: ______________________________