NEITHER THE ISSUANCE AND SALE OF THIS NOTENOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLESTATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (I) ANEFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (II) AN OPINION OF COUNSEL,IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING,THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE.  THE PRINCIPAL AMOUNT REPRESENTED BY THISNOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOFPURSUANT TO THIS NOTE.

 

**LoretoResources Corporation**

10% CONVERTIBLE PROMISSORY NOTE

 

 

FOR VALUE RECEIVED, **Loreto ResourcesCorporation**, a Nevada corporation (the "**Company**"), hereby promises to pay to **____________** or registeredassigns ("**Holder**") the amount set out above as the Principal Amount (as reduced pursuant to the terms hereof pursuantto redemption, conversion or otherwise, the "**Principal**") when due, whether upon the Maturity Date (as definedbelow), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest at the rateof 10.00% per annum ("**Interest**") from the date set out above as the Issuance Date (the "**Issuance Date**")until the same becomes due and payable on the Maturity Date.

 

1.          PAYMENTSOF PRINCIPAL AND INTEREST; MATURITY.  Payment in full of all unpaid Principal and all accrued and unpaid Interest is dueno later than July 31, 2013 (the "**Maturity Date**"), unless this Note is repaid earlier in accordance withSection 2 herein or converted in accordance with Section 3 herein; provided, however, that theCorporation and Holders of a majority in interest of these Notes may mutually agree to extend the term of the Note beyond the MaturityDate. All Interest shall be paid in shares of the Corporation’s common stock (“**Interest Shares**”).The amount of Interest Shares to be delivered shall be determined by dividing the amount of Interest required to be paid by (i)in the event of a mandatory conversion in accordance with Section 3 herein, the Conversion Price (defined below), or (ii) if nomandatory conversion, (a) a number equal to the volume weighted average price of the Corporation’s common stock as reportedby Bloomberg L.P. for the ten trading days preceding but not including the relevant payment date, or (b) if no such pricing isavailable, a number determined in good faith by the Board of Directors of the Corporation to be the fair market value of the commonstock at the payment date.

 

2.          PREPAYMENT.The Company and the Holder understand and agree that the Principal and any accrued Interest may be prepaid by the Company at anytime without penalty.

 

3.          MandatoryConversion. Upon the closing of the next securities offering or other financing by the Company in which the Companyraises a minimum of US one million dollars ($1,000,000), which offering closes concurrent with the closing of a related mergeror other acquisition transaction (the “Financing”), the entire unpaid Principaland accrued but unpaid Interest shall be automatically, and without any action or notice by the Company or the Holder, convertedinto the securities or instruments issued by the Company in the Financing (the “Conversion Securities”)at a price (the “Conversion Price”) equal to either (a) the price per shareof stock (or unit of stock and other securities) paid by investors in the Financing, if the Financing is an issuance of stock (orunits of stock and other securities), or (b) the price paid by investors in the Financing, expressed as a percentage of the faceamount of debt securities, if the Financing is an issuance of debt securities (or units of debt securities and other securities)(including debt securities convertible into stock). No fraction of shares will be issued on conversion, but if shares are issuable,the number of shares issuable shall be rounded to the nearest whole share. The number or amount of Conversion Securities issuableupon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding Principal and accruedbut unpaid Interest to be converted by (y) the Conversion Price. The Company’s calculation of the applicable Conversion Priceshall be conclusive, absent manifest error. The Company shall afford the Holder the opportunity to become a party to all agreementsand instruments for the benefit of the investors in the Financing, including, but not limited to, if applicable, any registrationrights agreement. 

 

4.          Limitationon Conversion. The Holder shall not be entitled to convert this Note on any date, if and to the extent that the numberof shares of common stock of the Company issuable upon the conversion of this Note on such date (or issuable upon conversion orexercise of the Conversion Securities if such securities are not shares of common stock of the Company), together with the numberof shares of common stock of the Company beneficially owned by the Holder and its affiliates otherwise than on account of ownershipof this Note on such date, would result in beneficial ownership by the Holder and its affiliates of more than 9.9% of the outstandingshares of common stock of the Company on such date. For the purposes of the immediately preceding sentence, beneficial ownershipshall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.

 

5.          EVENTOF DEFAULT. Failure by the Company to make payment pursuant to Section 1 hereof shall constitute an event of default ("**Eventof Default**"). In an Event of Default, the Holder shall be entitled to all legal remedies available to it to pursue collections,and the Company shall bear all reasonable costs of collection, including but not limited to necessary attorneys’ fees.

 

6.          NOWAIVER. No failure or delay by the Holder in exercising any right, power or privilege under this Note shall operate as a waiverthereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of anyother right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights orremedies provided by applicable law. No course of dealing between the Company and the Holder shall operate as a waiver of any rightsby the Holder.

 

 

7.   NOTICES; PAYMENTS.

 

(a)          Notices. All notices or other communications which are required or permitted under this Note shall be in writing and shallbe sufficient if transmitted by hand delivery, by facsimile transmission, by registered or certified mail, postage pre-paid, byelectronic mail, or by nationally recognized overnight courier, to the persons at the addressesset forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered (i) if transmittedby hand delivery, as of the date delivered, (ii) if transmitted by facsimile or electronic mail, as of the date so transmittedwith an automated confirmation of delivery, (iii) if transmitted by nationally recognized overnight courier,as of the Business Day (as defined below) immediately following the date of delivery to the carrier, and (iv) if transmitted byregistered or certified mail, postage pre-paid, on the fifth Business Day following posting with the U.S. Postal Service:

 

If to the Company to:

 

Loreto Resources Corporation

c/o Gottbetter& Partners, LLP

488 Madison Avenue,12th Floor

New York, NY10022

Attention: AdamS. Gottbetter, Esq.

Fax (212) 400-6901

 

If to the Holder to:

 

Unless a specific notice is otherwise requiredunder this Note, the Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, includingin reasonable detail a description of such action and the reason therefore.

 

(b)          Payments. Except as otherwise provided in this Note, whenever any payment of cash is to be made by the Company to the Holder, suchpayment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent viaovernight courier service to the Holder at the address noted in paragraph (a) above; provided that the Holder may elect to receivea payment via wire transfer of immediately available funds by providing the Company with prior written notice setting out suchrequest and the Holder's wire transfer instructions.  Whenever any amount expressed to be due by the terms of this Note isdue on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Forthe purposes of this Section 7, the term "**Business Day**" means any day of the year other than a Saturday, a Sundayor a day on which the U.S. Securities and Exchange Commission is required or authorized to close.

 

 

8.          TRANSFER. The Holder acknowledges and agrees that this Note may only be offered, sold, assigned or transferred by the Holder if consentedto in writing by the Company.

 

9.          CONSTRUCTION;HEADINGS.  This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed againstany person as the drafter hereof. The headings in this Note are for convenience of reference and shall not form part of, or affectthe interpretation of, this Note.

 

10.        SEVERABILITY.In the event that one or more of the provisions of this Note shall for any reasons be held invalid, illegal, or unenforceable inany respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, but this Note shallbe construed as if such invalid, illegal or unenforceable provision had never been contained herein.

 

11.        GOVERNINGLAW. This Note and the rights and obligations of the Company and the Holder shall be governed by and construed in accordancewith the laws of the State of New York.

 

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