COMPANY NOTE

 

$200,000.00 October 18, 2011

 

SUNVALLEY SOLAR, INC.
Convertible Promissory Note

For value received, Sunvalley Solar, Inc., a Nevada corporation (the
“Borrower”), hereby promises to pay to the order of Tonaquint, Inc., a Utah
corporation, or its successors or assigns (the “Lender” or “Holder”, and
together with the Borrower, the “Parties”), the principal sum of $200,000.00
together with all accrued and unpaid interest thereon, fees incurred or other
amounts owing hereunder, all as set forth below in this Convertible Promissory
Note (this “Note”). This Note is issued pursuant to that certain Securities
Purchase Agreement dated October 18, 2011, entered into by and between the
Borrower and the Lender, as the same may be amended from time to time, (the
“Purchase Agreement”). Defined terms used herein but not otherwise defined shall
have the meanings ascribed thereto in the Purchase Agreement.

1.                  Principal and Interest Payments. Interest on the unpaid
principal balance of this Note and any unpaid fees shall accrue at the rate of
8.0% per annum, compounded daily. 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, as provided in Section 17
hereof. Upon the occurrence of an Event of Default (as defined below), the
Outstanding Balance (as defined below) of this Note shall accrue interest at the
rate of 22.00% per annum, compounded daily, from and after the date of the
occurrence of the Event of Default, whether before or after judgment. Interest
shall accrue on the basis of a 360 day year for the actual number of days
elapsed. The Borrower shall pay to the Lender all outstanding amounts due
hereunder in a payment due on or before the date that is nine (9) months from
the date hereof (the “Maturity Date”). All payments owing hereunder shall be in
lawful money of the United States of America delivered to the Lender at the
address furnished to the Borrower for that purpose. All payments shall be
applied first to (a) costs of collection, if any, then to (b) fees and
penalties, if any, then to (c) accrued and unpaid interest, and thereafter (d)
to principal. For purposes hereof, the term “Outstanding Balance” means the sum
of the outstanding principal balance of this Note and any accrued but unpaid
interest, collection and enforcement costs, and any other fees, penalties,
adjustments, including without limitation, the Default Effects, incurred under
this Note, including, without limitation, any increases in connection with a
prepayment of this Note as provided for in Section 3 hereof.

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2.                  Conversion.

(a)                Optional Conversion. At any time or from time to time after
the date that is one hundred eighty (180) days from the date hereof and prior to
payment in full of the entire Outstanding Balance, the Lender shall have the
right, at the Lender’s option, to convert the Outstanding Balance, in whole or
in part (the “Conversion Amount”), into shares of common stock, par value $0.001
per share (the “Common Stock”) of the Borrower. The number of shares of Common
Stock to be issued upon a conversion hereunder shall be determined by dividing
(1) the Conversion Amount by (2) the Conversion Price (as defined below). For
purposes hereof, the “Conversion Price” is calculated on the applicable date as
follows: (i) 61% (the “Conversion Factor”) multiplied by (ii) the average of the
three lowest closing bid prices (the “Trade Price”) during the ten (10) Trading
Days immediately preceding the Conversion Date (as defined below). The Trade
Price will be determined above by using the closing bid price on the
Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as
reported by Bloomberg, LP (“Bloomberg”), or if such information is not then
being reported by Bloomberg, then as reported by such other data information
source as may be selected by the Lender; or, if the OTCBB is not the principal
trading market for such security, the closing bid price of such security on the
principal securities exchange or trading market where such security is listed or
traded; or, if no closing bid price of such security is available in any of the
foregoing manners, the average of the closing bid prices of any market makers
for such security that are listed in the “pink sheets” by the National Quotation
Bureau, Inc. If the Trading Price cannot be calculated for such security on each
applicable date in the manner provided above, the Trade Price shall be the fair
market value as mutually determined by the Borrower and the holders of a
majority in interest of the Note(s) being converted for which the calculation of
the Trade Price is required in order to determine the Conversion Price of such
Note(s). “Trading Day” shall mean any day on which the Common Stock is tradable
for any period on the OTCBB, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.

(b)               Conversion Price During Major Announcements. Notwithstanding
anything contained in Section 2(a) to the contrary, in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any
other business entity (other than a merger in which the Borrower is the
surviving or continuing corporation and its capital stock is unchanged) or sell
or transfer all or substantially all of the assets of the Borrower, or (ii) any
person, group or entity (including the Borrower) publicly announces a tender
offer to purchase 50% or more of the Borrower’s Common Stock (or any other
takeover scheme) (the date of the announcement referred to in clause (i) or (ii)
is hereinafter referred to as the “Announcement Date”), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as defined below), be equal to the
lower of (x) the Conversion Price which would have been applicable for a
Conversion occurring on the Announcement Date, and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
Section 2(a). For purposes hereof, “Adjusted Conversion Price Termination Date”
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
2(b) has been made, the date upon which the Borrower (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section 2(b)
to become operative.

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(c)                Conversion Mechanics. In order to convert this Note into
Common Stock, the Lender shall give written notice to the Borrower at its
principal corporate office or the notice address provided in the Purchase
Agreement (which notice, notwithstanding anything herein to the contrary, may be
given via facsimile, email, or other means in the discretion of the Lender)
pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) and
Exhibit A-1 (the “Conversion Worksheet”) of the election to convert the same
pursuant to this Section 2 (the date on which a Conversion Notice is given, a
“Conversion Date”). Such Conversion Notice shall state the Conversion Amount,
the number of shares of Common Stock to which the Lender is entitled pursuant to
the Conversion Notice (the “Conversion Shares”), and the account into which the
shares of Common Stock are to be deposited (the “Lender Account”). The Borrower
shall immediately, but in no event later than three (3) Trading Days after
receipt of a Conversion Notice (the “Delivery Date”), deliver the Conversion
Shares to the Lender Account. Notwithstanding anything to the contrary herein,
all such deliveries of Conversion Shares shall be electronic, via DWAC. In the
event the Borrower fails to deliver the Conversion Shares on or before the
Delivery Date, in addition to all other remedies available to the Lender
hereunder or under any other Transaction Documents and at law or in equity, a
penalty equal to 1.83% of the Conversion Amount shall be added to the balance of
this Note per day until such Conversion Shares are delivered. The conversion
shall be deemed to have been made immediately prior to the close of business on
the date of the Conversion Notice, and the person or entity entitled to receive
the shares of Common Stock upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.

(d)               No Fractional Shares. Conversion calculations pursuant to this
Section 2 shall be rounded up to the nearest whole share, and no fractional
shares shall be issuable by the Borrower upon conversion of this Note or any
portion thereof. All shares issuable upon conversion of this Note or any portion
thereof shall be aggregated for purposes of determining whether such conversion
would result in the issuance of a fractional share.

(e)                No Impairment. The Borrower will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the
Borrower, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 2 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the Lender
against impairment.

3.                  Prepayment by the Borrower. Prior to the date that is one
hundred and eighty (180) days from the date hereof, so long as no Event of
Default shall have occurred and the Borrower shall have a sufficient number of
shares of Common Stock authorized to accommodate conversion of the Outstanding
Balance, the Borrower may, in its sole and absolute discretion and upon giving
the Lender 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 Borrower elects to
prepay all or any portion of the Outstanding Balance, it shall pay to the Lender
(a) 130% of the portion of the Outstanding Balance the Borrower elects to prepay
if the prepayment occurs prior to the date that is sixty (60) days from the date
hereof, (b) 140% of the portion of the Outstanding Balance the Borrower elects
to prepay if the prepayment occurs on a date that is between sixty-one (61) days
and one hundred twenty (120) days from the date hereof, and (c) 150% of the
portion of the Outstanding Balance the Borrower elects to prepay if the
prepayment occurs on a date that is between one hundred twenty-one (121) days
and one hundred eighty (180) days from the date hereof. If the Borrower delivers
a Prepayment Notice and fails to pay the specified prepayment amount due to the
Lender within two (2) Trading Days following the date of prepayment set forth in
the Prepayment Notice, the Borrower shall forever forfeit its right to repay
this Note pursuant to this Section.

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4.                  Certain Adjustments. The number and class of securities into
which this Note may be converted under Section 2 shall be subject to adjustment
in accordance with the following provisions:

(a)                Computation of Adjusted Conversion Price. Except as
hereinafter provided, in case the Borrower shall at any time after the date
hereof issue or sell any (i) shares of Common Stock or preferred shares
convertible into Common Stock, or (ii) debt, warrants, options or other
instruments or securities convertible into or exercisable for shares of Common
Stock (together herein referred to as “Equity Securities”), in each case for
consideration (or with a conversion price or exercise price) per share of Common
Stock less than the Conversion Price in effect immediately prior to the issuance
or sale of such securities or instruments, or without consideration, other than
for Excepted Issuances (as defined below), then forthwith upon such issuance or
sale, the Conversion Price shall (until another such issuance or sale) be
reduced to the price equal to the price (or conversion price or exercise price)
of any such securities or instruments; provided, however, that in no event shall
the Conversion Price be adjusted pursuant to this computation to an amount in
excess of the Conversion Price in effect immediately prior to such computation.
For the purposes of this Section 4, the term Conversion Price shall mean the
Conversion Price per share set forth in Section 2(a) hereof, as adjusted from
time to time pursuant to the provisions of this Section.

“Excepted Issuances” shall mean, collectively, (i) the Borrower’s issuance of
securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital and in which holders of such securities or debt are not at any time
granted registration rights, and (ii) the Borrower’s issuance of Common Stock or
the issuance or grant of options to purchase Common Stock to employees,
directors, and consultants, pursuant to plans or agreements which are
constituted or in effect on the date of this Note.

For purposes of any computation to be made in accordance with this Section 4,
the following provisions shall be applicable:

(i)                   In case of the issuance or sale of any Equity Securities
for consideration part or all of which shall be cash, the amount of the cash
consideration shall be deemed to be the amount of cash received by the Borrower
for such Equity Securities (or, if Equity Securities are offered by the Borrower
for subscription, the subscription price, or, if such securities shall be sold
to underwriters or dealers for public offering without a subscription price, the
public offering price, before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or other persons or entities performing similar services), or any
expenses incurred in connection therewith and less any amounts payable to
security holders or any affiliate thereof, including, without limitation, any
employment agreement, royalty, consulting agreement, covenant not to compete,
earnout or contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such amounts shall be valued at the
aggregate amount payable thereunder whether such payments are absolute or
contingent and irrespective of the period or uncertainty of payment, the rate of
interest, if any, or the contingent nature thereof.

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(ii)                 In case of the issuance or sale (otherwise than as a
dividend or other distribution on any capital stock of the Borrower) of Equity
Securities for consideration part or all of which shall be other than cash, the
amount of the consideration other than cash shall be deemed to be the value of
such consideration as determined in good faith by the Board of Directors of the
Borrower.

(iii)                Equity Securities issuable by way of dividend or other
distribution on any capital stock of the Borrower shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of stockholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.

(iv)               The reclassification of securities of the Borrower other than
Equity Securities into securities including Equity Securities shall be deemed to
involve the issuance of such Equity Securities for consideration other than cash
immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such securities, and the
value of the consideration allocable to such securities shall be determined as
provided in this Section 4.

(v)                 The number of Equity Securities at any one time outstanding
shall include the aggregate number of shares of Common Stock issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
then outstanding options, rights, warrants, and convertible and exchangeable
securities.

(b)               Adjustment for Reorganization or Recapitalization. If, while
this Note remains outstanding and unconverted, there shall be a reorganization
or recapitalization of the Borrower (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), all necessary
or appropriate lawful provisions shall be made so that the Lender shall
thereafter be entitled to receive upon conversion of this Note, the greatest
number of shares of stock or other securities or property that a holder of the
class of securities deliverable upon conversion of this Note would have been
entitled to receive in such reorganization or recapitalization if this Note had
been converted immediately prior to such reorganization or recapitalization, all
subject to further adjustment as provided in this Section 4. If the per share
consideration payable to the Lender for such class of securities in connection
with any such transaction is in a form other than cash or marketable securities,
then the value of such consideration shall be determined in good faith by the
Board of Directors of the Borrower. The foregoing provisions of this subsection
shall similarly apply to successive reorganizations or recapitalizations and to
the stock or securities of any other corporation that are at the time receivable
upon the conversion of this Note. In all events, appropriate adjustment shall be
made in the application of the provisions of this Note (including adjustment of
the Conversion Price and number of shares of Common Stock into which this Note
is then convertible pursuant to the terms and conditions of this Note) with
respect to the rights and interests of the Lender after the transaction, to the
end that the provisions of this Note shall be applicable after that event, as
near as reasonably may be, in relation to any shares or other property
deliverable or issuable after such reorganization or recapitalization upon
conversion of this Note.

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(c)                Adjustments for Split, Subdivision or Combination of Shares.
If the Borrower at any time while this Note remains outstanding and unconverted,
shall split or subdivide any class of securities into which this Note may be
converted into a different number of securities of the same class, the number of
shares of such class issuable upon conversion of this Note immediately prior to
such split or subdivision shall be proportionately increased and the Conversion
Price and any other applicable prices for such class of securities shall be
proportionately decreased. If the Borrower at any time while this Note, or any
portion hereof, remains outstanding and unconverted shall combine any class of
securities into which this Note may be converted, into a different number of
securities of the same class, the number of shares of such class issuable upon
conversion of this Note immediately prior to such combination shall be
proportionately decreased and the Conversion Price and any other applicable
prices for such class of securities shall be proportionately increased.

(d)               Adjustments for Dividends in Stock or Other Securities or
Property. If, while this Note remains outstanding and unconverted, the holders
of any class of securities as to which conversion rights under this Note exist
at the time shall have received, or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, other or additional stock or other securities or
property (other than cash) of the Borrower by way of dividend, then and in each
case, this Note shall represent the right to acquire, in addition to the number
of shares of such class of security receivable upon conversion of this Note, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Borrower that such holder would hold on the date of such conversion had such
holder been the holder of record of the class of security receivable upon
conversion of this Note on the date hereof and had thereafter, during the period
from the date hereof to and including the date of such conversion, retained such
shares and/or all other additional stock available to such holder as aforesaid
during said period, giving effect to all adjustments called for during such
period by the provisions of this Section 4.

(e)                Adjustments for Spin Offs. If, at any time while any portion
of this Note remains outstanding and unconverted, the Borrower spins off or
otherwise divests itself of a part of its business or operations or disposes of
all or of a part of its assets in a transaction (the “Spin Off”) in which the
Borrower, in addition to or in lieu of any other compensation received and
retained by the Borrower for such business, operations or assets, causes
securities of another entity (the “Spin Off Securities”) to be issued to
security holders of the Borrower, the Borrower shall cause (i) to be reserved
Spin Off Securities equal to the number thereof which would have been issued to
the Lender had the entire balance of this Note outstanding on the record date
(the “Record Date”) for determining the amount and number of Spin Off Securities
to be issued to security holders of the Borrower been converted as of the close
of business on the Trading Day immediately before the Record Date (the “Reserved
Spin Off Shares”), and (ii) to be issued to the Lender on the conversion of all
or any portion of this Note, such amount of the Reserved Spin Off Shares equal
to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (I)
the numerator is the principal amount of the portion of the Outstanding Balance
then being converted, and (II) the denominator is the entire Outstanding Balance
of this Note. In the event of any Spin Off, (i) the Lender shall have the right
to convert the Outstanding Balance by delivering a Conversion Notice to the
Borrower within ten (10) days of receipt of notice of such Spin Off from the
Borrower, or (ii) immediately upon the consummation of a Spin Off, all amounts
owed under this Note shall accelerate and be immediately due and payable in the
sole discretion of the Lender.

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(f)                No Change Necessary. The form of this Note need not be
changed because of any adjustment in the number and class of securities issuable
upon its conversion.

5.                  Further Adjustments. In case at any time or, from time to
time, the Borrower shall take any action that affects the class of securities
into which this Note may be converted under Section 2, other than an action
described herein, then, unless such action will not have a material adverse
effect upon the rights of the Lender, the number and class of securities into
which this Note is convertible shall be adjusted in such a manner and at such
time as shall be equitable under the circumstances.

6.                  Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to Section 4 or Section 5, the Borrower at
its sole expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Lender a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Lender, furnish or cause to be furnished to the
Lender a like certificate setting forth (i) such adjustments and readjustments,
and (ii) the number and class of securities and the amount, if any, of other
property which at the time would be received upon the conversion of this Note
under Section 2.

7.                  Change of Control. In the event of (i) any transaction or
series of related transactions (including any reorganization, merger or
consolidation) that results in the transfer of 50% or more of the outstanding
voting power of the Borrower, or (ii) a sale of all or substantially all of the
assets of the Borrower to another person or entity, this Note shall be
automatically due and payable in cash. The Borrower will give the Lender not
less than ten (10) Trading Days prior written notice of the occurrence of any
events referred to in this Section 7.

8.                  Representations and Warranties of the Borrower. In addition
to the representations and warranties set forth in the Purchase Agreement, which
are incorporated herein, the Borrower hereby represents and warrants to the
Lender that:

(a)                The Borrower understands and acknowledges that the number of
Conversion Shares issuable upon conversion of this Note will increase in certain
circumstances. The Borrower further acknowledges that its obligation to issue
Conversion Shares upon conversion of this Note in accordance with its terms is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Borrower;

(b)               The Borrower is not and for at least the last 12 months prior
to the date hereof has not been a “shell company,” as defined in paragraph
(i)(1)(i) of Rule 144 or Rule 12(b)(2) of the Exchange Act;

(c)                The Borrower is subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act and has filed all required
reports under Section 13 or Section 15(d) of the Exchange Act during the 12
months prior to the date hereof (or for such shorter period that the Borrower
was required to file such reports); and

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(d)               The issuance of this Note has been duly authorized by the
Borrower. Upon conversion in accordance with the terms of this Note, the
Conversion Shares, when issued, will be validly issued, fully paid and
non-assessable, free from all taxes, liens, claims, pledges, mortgages,
restrictions, obligations, security interests and encumbrances of any kind,
nature and description. The Borrower has reserved from its duly authorized
capital stock the appropriate number of shares of Common Stock for issuance upon
conversion of this Note as required by the terms of this Note.

9.                  Affirmative and Negative Covenants. In addition to the
covenants set forth in the Purchase Agreement, the Borrower covenants and
agrees, while any portion of this Note remains outstanding and unconverted, as
follows:

(a)                The Borrower shall do all things necessary to preserve and
keep in full force and effect its corporate existence including, without
limitation, maintain all licenses or similar qualifications required by it to
engage in its business in all jurisdictions in which it is at the time so
engaged; and continue to engage in business of the same general type as
conducted as of the date hereof; and continue to conduct its business
substantially as now conducted or as otherwise permitted hereunder;

(b)               The Borrower shall pay and discharge promptly when due all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or in respect of its property before the same shall become
delinquent or in default, which, if unpaid, might reasonably be expected to give
rise to liens or charges upon such properties or any part thereof, unless, in
each case, the validity or amount thereof is being contested in good faith by
appropriate proceedings and the Borrower has maintained adequate reserves with
respect thereto in accordance with GAAP;

(c)                The Borrower shall comply in all material respects with all
federal, state and local laws and regulations, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations and
requirements (collectively, “Requirements”) of all governmental bodies,
departments, commissions, boards, insurers, courts, authorities, officials or
officers which are applicable to the Borrower or any of its properties, except
where the failure to so comply would not have a Material Adverse Effect on the
Borrower or any of its properties; provided, however, that nothing provided
herein shall prevent the Borrower from contesting the validity or the
application of any Requirements;

(d)               The Borrower shall keep proper records and books of account
with respect to its business activities, in which proper entries, reflecting all
of their financial transactions, are made in accordance with GAAP;

(e)                From the date hereof until the date that is six (6) months
after the date that all the Conversion Shares either have been sold by the
Lender, or may permanently be sold by the Lender without any restrictions
pursuant to Rule 144 (the “Registration Period”), the Borrower shall file with
the Securities and Exchange Commission (the “SEC”) in a timely manner all
required reports under Sections 13 or 15(d) of the Exchange Act and such reports
shall conform to the requirement of the Exchange Act and the SEC for filing
thereunder;

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(f)                The Borrower shall furnish to the Lender, so long as the
Lender owns any Common Stock, promptly upon request, (i) a written statement by
the Borrower that it has complied with the reporting requirements of Rule 144,
(ii) a copy of the most recent annual or quarterly report of the Borrower and
such other reports and documents so filed by the Borrower, and (iii) such other
information as may be reasonably requested to permit the Lender to sell such
securities pursuant to Rule 144 without registration;

(g)               During the Registration Period, the Borrower shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
otherwise permit such termination;

(h)               On the date hereof and at all times prior to the repayment in
full of this Note, the Borrower shall reserve the number of shares required by
the Share Reserve for the purpose of, among other things, the conversion of this
Note. The Borrower represents that it has sufficient authorized and unissued
shares of Common Stock available to create the Share Reserve after considering
all other commitments that may require the issuance of Common Stock. The
Borrower shall take all action reasonably necessary to at all times have
authorized, and reserved for the purpose of issuance, such number of shares of
Common Stock as shall be necessary to effect the full conversion of the Note
multiplied by five (5) (the “Share Reserve”). If at any time the Share Reserve
is insufficient to effect the full conversion of the Note, the Borrower shall
increase the Share Reserve accordingly. If the Borrower does not have sufficient
authorized and unissued shares of Common Stock available to increase the Share
Reserve, the Borrower shall call and hold a special meeting of the stockholders
within thirty (30) days of such occurrence, for the sole purpose of increasing
the number of authorized shares. The Borrower’s management shall recommend to
the stockholders to vote in favor of increasing the number of shares of Common
Stock authorized. Management shall also vote all of its shares in favor of
increasing the number of authorized shares of Common Stock. The Borrower shall
use its best efforts to cause such additional shares of Common Stock to be
authorized so as to comply with the requirements of this Section 9(h);

(i)                 The Common Stock shall be listed or quoted for trading on
any of (i) NYSE Amex, (ii) the New York Stock Exchange, (iii) the Nasdaq Global
Market, (iv) the Nasdaq Capital Market, (v) the OTC Bulletin Board, or (f) the
OTCQX or OTCQB (each, a “Primary Market”). The Borrower shall promptly secure
the listing of all of its securities issuable under the terms of the Transaction
Documents upon each national securities exchange and automated quotation system,
if any, upon which the Common Stock is then listed (subject to official notice
of issuance) and shall maintain such listing of all securities from time to time
issuable under the terms of the Transaction Documents;

(j)                 The Borrower shall notify the Lender in writing, promptly
upon learning thereof, of any litigation or administrative proceeding commenced
or threatened against the Borrower involving a claim in excess of $100,000.00;

(k)               The Borrower shall use the proceeds from this Note for working
capital and general corporate purposes only; and

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(l)                 The Borrower shall notify the Lender in writing, promptly
upon the occurrence of any Event of Default.

10.              Default. Upon each occurrence of any of the following events
(each, an “Event of Default”), (i) with respect to an Event of Default occurring
under all subsections other than subsection (c) of this Section 10, the
Outstanding Balance shall immediately increase to the higher of (A) 150% of the
Outstanding Balance immediately prior to the occurrence of the Event of Default,
and (B) 150% of the value of the Conversion Shares if the entire Outstanding
Balance were converted pursuant to Section 2 above and sold at the highest
closing price for the Common Stock during the period the Event of Default was
continuing for any such Event of Default, (ii) with respect to an Event of
Default occurring under subsection (c) hereof, the Outstanding Balance shall
immediately increase to the higher of (A) 200% of the Outstanding Balance
immediately prior to the occurrence of the Event of Default, and (B) 200% of the
value of the Conversion Shares if the entire Outstanding Balance were converted
pursuant to Section 2 above and sold at the highest closing price for the Common
Stock during the period the Event of Default was continuing for such Event of
Default, and (iii) this Note shall accrue interest at the rate of 1.83% per
month (or 22% per annum), compounding daily, whether before or after judgment
(the “Default Effects”); provided, however, that (1) in no event shall the
Default Effects be applied more than two times, and (2) 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.
Additionally, upon the occurrence of an Event of Default, the Lender may by
written notice to the Borrower declare the entire Outstanding Balance
immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Transaction Documents to the contrary notwithstanding;
provided, however, that upon the occurrence or existence of any Event of Default
described in Section 10(f), (g) or (h), immediately and without notice, all
outstanding obligations payable by the Borrower hereunder shall automatically
become immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the other Transaction Documents to the contrary
notwithstanding:

(a)                Failure to Pay. The Borrower 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 or other amount due hereunder.

(b)               Judgment. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any of its property or other assets for
more than $200,000.

(c)                Failure to Deliver Shares. The Borrower (or its transfer
agent) fails to issue the Conversion Shares (or announces or threatens in
writing that it will not honor its obligation to do so) upon exercise by the
Lender of the conversion rights of the Lender in accordance with Section 2(c) of
this Note, fails to transfer or cause its transfer agent to transfer (issue)
(electronically or in certificated form) any certificate for Conversion Shares
issued to the Lender upon conversion of or otherwise pursuant to this Note as
and when required by this Note, the Borrower 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) any Conversion Shares to
be issued to the Lender upon conversion of or otherwise pursuant to this Note as
and when required by this Note, or 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 Conversion 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) and any such failure
shall continue uncured (or any written announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for three (3) business
days after the Lender shall have delivered a Notice of Conversion.

10

 

(d)               Breach of Covenants. The Borrower 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 all reporting covenants and covenants to timely
file all required quarterly and annual reports and any other filings required
pursuant to Rule 144.

(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 Borrower to the Lender in writing included in
this Note or in connection with any of the Transaction Documents, or as an
inducement to the Lender 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 become false thereafter.

(f)                Receiver or Trustee. The Borrower 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 Borrower’s assets are
assigned to its creditors or if the Borrower fails to pay its debts generally as
they become due.

(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 Borrower.

(i)                 Delisting of Common Stock. The Borrower shall fail to
maintain the listing or the quotation of the Common Stock on at least one of the
OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the
Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
Exchange.

(j)                 Liquidation. Any dissolution, liquidation, or winding up of
Borrower or any substantial portion of its business.

(k)               Cessation of Operations. Any cessation of operations by
Borrower or Borrower admits it is otherwise generally unable to pay its debts as
such debts become due, provided, however, that any disclosure of the Borrower’s
ability to continue as a “going concern” shall not be an admission that the
Borrower cannot pay its debts as they become due.

(l)                 Maintenance of Assets. The failure by Borrower 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 Borrower 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 Lender with respect to this Note or the Purchase Agreement.

11

 

(n)               Reverse Split. The Borrower effectuates a reverse split of its
Common Stock without twenty (20) days prior written notice to the Lender.

(o)               Replacement of Transfer Agent. In the event that the Borrower
proposes to replace its transfer agent, the Borrower fails to provide, prior to
the effective date of such replacement, a fully executed Transfer Agent Letter
(as defined by the Purchase Agreement) in a form as initially delivered pursuant
to the Purchase 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 to Borrower and the Borrower.

(p)               Governmental Action. If any governmental or regulatory
authority takes or institutes any action that will materially affect the
Borrower’s financial condition, operations or ability to pay or perform the
Borrower’s obligations under this Note.

(q)               Share Reserve. The Borrower’s failure to maintain the Share
Reserve pursuant to the Purchase Agreement.

(r)                 Cross Default. Notwithstanding anything to the contrary
contained in this Note or the other Transaction Documents, a breach or default
by the Borrower of any covenant or other term or condition contained in (i) the
Note, (ii) any of the other Transaction Documents, or (iii) any Other Agreements
(defined below); shall, at the option of the Lender, be considered a default
under this Note, in which event the Lender shall be entitled (but in no event
required) to apply all rights and remedies of the Lender under the terms of this
Note. “Other Agreements” means, collectively, all existing and future agreements
and instruments between, among or by: (1) the Borrower (or a subsidiary), and,
or for the benefit of, (2) the Lender and any affiliate of the Lender,
including, without limitation, promissory notes, purchase agreements, contracts
or other agreements or undertakings; provided, however, the term “Other
Agreements” shall not include the Transaction Documents. The intent of this
provision is that all existing and future loan transactions will be
cross-defaulted with each other loan transaction and with all other existing and
future debt of Borrower to the Lender.

11.              Ownership Limitation. Notwithstanding the provisions of this
Note, if at any time after the date hereof, the Lender shall or would receive
shares of Common Stock in payment of interest or principal under this Note or
upon conversion of this Note, so that the Lender would, together with other
shares of Common Stock held by it or its Affiliates, own or beneficially own by
virtue of such action or receipt of additional shares of Common Stock a number
of shares exceeding 9.99% of the number of shares of Common Stock outstanding on
such date (the “9.99% Cap”), the Borrower shall not be obligated and shall not
issue to the Lender shares of Common Stock which would exceed the 9.99% Cap, but
only until such time as the 9.99% Cap would no longer be exceeded by any such
receipt of shares of Common Stock by the Borrower. The foregoing limitations are
enforceable, unconditional and non-waivable and shall apply to all Affiliates
and assigns of the Lender.

12.              No Rights or Liabilities as Stockholder. This Note does not by
itself entitle the Lender to any voting rights or other rights as a stockholder
of the Borrower. In the absence of conversion of this Note, no provisions of
this Note, and no enumeration herein of the rights or privileges of the Lender,
shall cause the Lender to be a stockholder of the Borrower for any purpose.

12

 

13.              Unconditional Obligation. No provision of this Note shall alter
or impair the obligation of the Borrower, which is absolute and unconditional,
to pay the principal of, and interest on, this Note at the time, place, and
rate, and in the currency or where contemplated herein in shares of Common
Stock, as applicable, as herein prescribed. This Note is a direct obligation of
the Borrower and not subject to offsets, counterclaims, credits or deductions.

14.              Confession of Judgment. Upon the occurrence of an Event of
Default, in addition to any other rights or remedies the Lender may have under
the Transaction Documents or applicable law, the Lender shall have the right,
but not the obligation, to cause the Judgment by Confession attached to the
Purchase Agreement to be entered into a court of competent jurisdiction.

15.              Binding Effect. This Note shall be binding on the Parties and
their respective heirs, successors, and assigns; provided, however, that the
Borrower shall not assign its rights hereunder in whole or in part without the
express written consent of the Lender.

16.              Governing Law; Venue. The terms of this Note shall be construed
in accordance with the laws of the State of Utah as applied to contracts entered
into by Utah residents within the State of Utah which contracts are to be
performed entirely within the State of Utah. With respect to any disputes
arising out of or related to this Note, the Parties consent to the exclusive
personal jurisdiction of, and venue in, the state courts located in Salt Lake
County, State of Utah (or in the event of federal jurisdiction, any United
States District Court for the District of Utah), and hereby waive, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdiction or to any claim that such venue of the suit, action or proceeding
is improper.

17.              Lawful Interest. It being the intention of the Lender and the
Borrower to comply with all applicable laws with regard to the interest charged
hereunder, it is agreed that, notwithstanding any provision to the contrary in
this Note or any other Transaction Document, no such provision, including
without limitation any provision of this Note providing for the payment of
interest or other charges, shall require the payment or permit the collection of
any amount in excess of the maximum amount of interest permitted by law to be
charged for the use or detention, or the forbearance in the collection, of all
or any portion of the indebtedness evidenced by this Note or by any extension or
renewal hereof (“Excess Interest”). If any Excess Interest is provided for, or
is adjudicated to be provided for, in this Note or any other Transaction
Document, then in such event:

(a)                the provisions of this Section shall govern and control;

(b)               the Borrower shall not be obligated to pay any Excess
Interest;

(c)                any Excess Interest that the Lender may have received
hereunder shall, at the option of the Lender, be (i) applied as a credit against
the principal balance due under this Note or the accrued and unpaid interest
thereon not to exceed the maximum amount permitted by law, or both, (ii)
refunded to the Borrower, or (iii) any combination of the foregoing;

(d)               the applicable interest rate or rates shall be automatically
subject to the reduction to the maximum lawful rate allowed to be contracted for
in writing under the applicable governing usury laws, and this Note and the
Transaction Documents shall be deemed to have been, and shall be, reformed and
modified to reflect such reduction in such interest rate or rates; and

13

 

(e)                the Borrower shall not have any action or remedy against the
Lender for any damages whatsoever or any defense to enforcement or this Note or
arising out of the payment or collection of any Excess Interest.

18.              Pronouns. Regardless of their form, all words used in this Note
shall be deemed singular or plural and shall have the gender as required by the
text.

19.              Headings. The various headings used in this Note as headings
for sections or otherwise are for convenience and reference only and shall not
be used in interpreting the text of the section in which they appear and shall
not limit or otherwise affect the meanings thereof.

20.              Severability. If any part of this Note is construed to be in
violation of any law, such part shall be modified to achieve the objective of
the Parties to the fullest extent permitted by law and the balance of this Note
shall remain in full force and effect.

21.              Attorneys’ Fees. If any action at law or in equity is necessary
to enforce this Note or to collect payment under this Note, the Lender shall be
entitled to recover reasonable attorneys’ fees directly related to such
enforcement or collection actions.

22.              Amendments and Waivers; Remedies. No failure or delay on the
part of a Party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to a Party hereto at law, in equity or otherwise. Any amendment,
supplement or modification of or to any provision of this Note, any waiver of
any provision of this Note, and any consent to any departure by either Party
from the terms of any provision of this Note, shall be effective (i) only if it
is made or given in writing and signed by the Borrower and the Lender and (ii)
only in the specific instance and for the specific purpose for which made or
given.

23.              Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if it is sent by
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient, as set forth in the Purchase Agreement. Any
Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth in the Purchase
Agreement using any other means (including personal delivery, expedited courier,
messenger service, facsimile, ordinary mail, or electronic mail), but no such
notice, request, demand, claim or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient or receipt is confirmed electronically or by return mail. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Party notice in
any manner herein set forth.

24.              Entire Agreement. This Note, together with the other
Transaction Documents, contains the complete understanding and agreement of the
Borrower and the Lender and supersedes all prior representations, warranties,
agreements, arrangements, understandings, and negotiations with respect to the
subject matter thereof. THIS NOTE, TOGETHER WITH THE OTHER TRANSACTION
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

[Remainder of page intentionally left blank]

14

 

IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth
above.

 

Exhibits

 

Exhibit A – Conversion Notice

Exhibit A-1 – Conversion Worksheet

 

THE BORROWER:   SUNVALLEY SOLAR, INC.   By: /s/ Zhijian Zhang Name: Zhijian
Zhang Title: CEO

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

TONAQUINT, INC.

 

By: /s/ John M. Fife

John M. Fife, President

15

 

EXHIBIT A

 

Tonaquint, Inc.

303 EAST WACKER DRIVE, SUITE 1200

CHICAGO, ILLINOIS 60601

 

Date:

 

Sunvalley Solar, Inc.

398 Lemon Creek Dr., Suite A

Walnut, CA 91789

Attn: _________

 

VIA FAX:

 

CONVERSION NOTICE

 

The above-captioned Lender hereby gives notice to Sunvalley Solar, Inc., a
Nevada corporation (the “Company”), pursuant to that certain Convertible
Promissory Note made by the Company in favor of the Lender on October 18, 2011,
as the same may be amended from time to time, (the “Note”), that the Lender
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. Such 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 Lender in its sole discretion, the Lender may provide a new form of
Conversion Notice to conform to the Note.

 

 A. Date of conversion: ____________
 B. Conversion #: ____________
 C. Conversion Amount: ____________
 D. Average trade price ___ (of lowest (3) Trading Days of the last 10 Trading
    Days per Exhibit A-1)
 E. Conversion Factor: 61%
 F. Conversion Price: _______________ (D multiplied by E)
 G. Conversion Shares: _______________ (C divided by F)
 H. Remaining Note Balance: ____________

 

Please transfer the Conversion Shares electronically (via DWAC) to the following
account:

 

Broker: Address: DTC#: Account #: Account Name:

 

Sincerely,

 

Tonaquint, Inc.

 

By: _______________________

John M. Fife, President

16

 

EXHIBIT A-1

 

CONVERSION WORKSHEET

 

Trading Day Closing Bid Price Lowest (Yes or No)                        

17