| EXHIBIT 10.7 |
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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THISCERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARECONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOTBE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THESECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICHCOUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLEFORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESSSOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDINGTHE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONAFIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECUREDBY THE SECURITIES.
Principal Amount: $65,000.00                                                           Issue Date: January 16, 2010
Purchase Price: $65,000.00
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, ALL FUELS & ENERGY COMPANY, a Delaware corporation(hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES,INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of Sixty Five ThousandDollars ($65,000.00) together with any interest as set forth herein, on October 16, 2010 (the“Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eightpercent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the samebecomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein withthe written consent of the Holder which may be withheld for any reason or for no reason. Anyamount of principal or interest on this Note which is not paid when due shall bear interest at the rateof twenty two percent (22%) per annum from the due date thereof until the same is paid (“DefaultInterest”).  Interest shall commence accruing on the Issue Date, shall be computed on the basis ofa 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extentnot converted into common stock, $0.01 par value per share (the “Common Stock”) in accordancewith the terms hereof) shall be made in lawful money of the United States of America.  All paymentsshall be made at such address as the Holder shall hereafter give to the Borrower by written noticemade in accordance with the provisions of this Note.  Whenever any amount expressed to be due bythe terms of this Note is due on any day which is not a business day, the same shall instead be dueon the next succeeding day which is a business day and, in the case of any interest payment datewhich is not the date on which this Note is paid in full, the extension of the due date thereof shallnot be taken into account for purposes of determining the amount of interest due on such date.  Asused in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a dayon which commercial banks in the city of New York, New York are authorized or required by lawor executive order to remain closed.  Each capitalized term used herein, and not otherwise defined,shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the datehereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof andshall not be subject to preemptive rights or other similar rights of shareholders of the Borrower andwill not impose personal liability upon the holder thereof.  
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right.  The Holder shall have the right from time to time, and at any time on or priorto the later of: (i) the Maturity Date; and (ii) the date of payment of the Default Amount (as definedin Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstandingprincipal amount of this Note to convert all or any part of the outstanding and unpaid principalamount of this Note into fully paid and non- assessable shares of Common Stock, as such CommonStock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower intowhich such Common Stock shall hereafter be changed or reclassified at the conversion price  (the“Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in noevent shall the Holder be entitled to convert any portion of this Note in excess of that portion of thisNote upon conversion of which the sum of (1) the number of shares of Common Stock beneficiallyowned by the Holder and its affiliates (other than shares of Common Stock which may be deemedbeneficially owned through the ownership of the unconverted portion of the Notes or the unexercisedor unconverted portion of any other security of the Borrower subject to a limitation on conversionor exercise analogous to the limitations contained herein) and (2) the number of shares of CommonStock issuable upon the conversion of the portion of this Note with respect to which thedetermination of this proviso is being made, would result in beneficial ownership by the Holder andits affiliates of more than 4.99% of the outstanding shares of Common Stock.  For purposes of theproviso to the immediately preceding sentence, beneficial ownership shall be determined inaccordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of suchproviso.  The number of shares of Common Stock to be issued upon each conversion of this Noteshall be determined by dividing the Conversion Amount (as defined below) by the applicableConversion Price then in effect on the date specified in the notice of conversion, in the form attachedhereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder inaccordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile(or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).  The term“Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) theprincipal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option,accrued and unpaid interest, if any, on such principal amount at the interest rates provided in thisNote to the Conversion Date, provided, however, that the Company shall have the right to pay anyor all interest in cash plus (3) at the Borrower’s option, Default Interest, if any, on the amountsreferred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, anyamounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  
1.2 Conversion Price.
(a) Calculation of Conversion Price.  The Conversion Price shall be the Variable Conversion Price(as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividendsor rights offerings by the Borrower relating to the Borrower’s securities or the securities of anysubsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinarydistributions and similar events).  The “Variable Conversion Price” shall mean the ApplicablePercentage (as defined herein) multiplied by the Market Price (as defined herein).  “Market Price”means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stockduring the ten (10) Trading Day period ending one Trading Day prior to the date the ConversionNotice is sent by the Holder to the Borrower via facsimile (the “Conversion Date”).  “Trading Price”means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board,or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“ReportingService”) mutually acceptable to Borrower and Holder and hereafter designated by Holders of amajority in interest of the Notes and the Borrower or, if the OTCBB is not the principal tradingmarket for such security, the closing bid price of such security on the principal securities exchangeor trading market where such security is listed or traded or, if no closing bid price of such securityis available in any of the foregoing manners, the average of the closing bid prices of any marketmakers 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 such date in the manner providedabove, the Trading Price shall be the fair market value as mutually determined by the Borrower andthe holders of a majority in interest of the Notes being converted for which the calculation of theTrading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day”shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on theprincipal securities exchange or other securities market on which the Common Stock is then beingtraded.  “Applicable Percentage” shall mean 58%. 
(b) Conversion Price During Major Announcements.  Notwithstanding anything contained in Section1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends toconsolidate or merge with any other corporation (other than a merger in which the Borrower is thesurviving or continuing corporation and its capital stock is unchanged) or sell or transfer all orsubstantially all of the assets of the Borrower or (ii) any person, group or entity (including theBorrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s CommonStock (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, effectiveupon the Announcement Date and continuing through the Adjusted Conversion Price TerminationDate (as defined below), be equal to the lower of (x) the Conversion Price which would have beenapplicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price thatwould otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, theConversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof,“Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transactionor tender offer (or takeover scheme) for which a public announcement as contemplated by thisSection 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) orthe person, group or entity (in the case of clause (ii) above) consummates or publicly announces thetermination or abandonment of the proposed transaction or tender offer (or takeover scheme) whichcaused this Section 1.2(b) to become operative.
1.3 Authorized Shares.  The Borrower covenants that during the period the conversion right exists,the Borrower will reserve from its authorized and unissued Common Stock a sufficient number ofshares, free from preemptive rights, to provide for the issuance of Common Stock upon the fullconversion of this Note issued pursuant to the Purchase Agreement.  The Borrower is required at alltimes to have authorized and reserved two times the number of shares that is actually issuable uponfull conversion of the Note (based on the Conversion Price of the Notes in effect from time to time;initially 11,206,897 shares) (the “Reserved Amount”).  The Reserved Amount shall be increasedfrom time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of thePurchase Agreement.  The Borrower represents that upon issuance, such shares will be duly andvalidly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securitiesor make any change to its capital structure which would change the number of shares of CommonStock into which the Notes shall be convertible at the then current Conversion Price, the Borrowershall at the same time make proper provision so that thereafter there shall be a sufficient number ofshares of Common Stock authorized and reserved, free from preemptive rights, for conversion of theoutstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transferagent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii)agrees that its issuance of this Note shall constitute full authority to its officers and agents who arecharged with the duty of executing stock certificates to execute and issue the necessary certificatesfor shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not havesufficient authorized but unissued shares of Common Stock available to effect such conversion inaccordance with the provisions of this Article I (a “Conversion Default”), the Borrower shall issueto the Holder all of the shares of Common Stock which are then available to effect such conversion.The portion of this Note which the Holder included in its Conversion Notice and which exceeds theamount which is then convertible into available shares of Common Stock (the “Excess Amount”)shall, notwithstanding anything to the contrary contained herein, not be convertible into CommonStock in accordance with the terms hereof until (and at the Holder’s option at any time after) the dateadditional shares of Common Stock are authorized by the Borrower to permit such conversion, atwhich time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price onthe Conversion Default Date (as defined below) and (ii) the Conversion Price on the ConversionDate thereafter elected by the Holder in respect thereof.  In addition, the Borrower shall pay to theHolder payments (“Conversion Default Payments”) for a Conversion Default in the amount of (x)the sum of (1) the then outstanding principal amount of this Note plus (2) accrued and unpaid intereston the unpaid principal amount of this Note through the Authorization Date (as defined below) plus(3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24,multiplied by (z) (N/365), where N = the number of days from the day the holder submits a Noticeof Conversion giving rise to a Conversion Default (the “Conversion Default Date”) to the date (the“Authorization Date”) that the Borrower authorizes a sufficient number of shares of Common Stockto effect conversion of the full outstanding principal balance of this Note.  The Borrower shall useits best efforts to authorize a sufficient number of shares of Common Stock as soon as practicablefollowing the earlier of (i) such time that the Holder notifies the Borrower or that the Borrowerotherwise becomes aware that there are or likely will be insufficient authorized and unissued sharesto allow full conversion thereof and (ii) a Conversion Default.  The Borrower shall send notice tothe Holder of the authorization of additional shares of Common Stock, the Authorization Date andthe amount of Holder’s accrued Conversion Default Payments.  The accrued Conversion DefaultPayments for each calendar month shall be paid in cash or shall be convertible into Common Stock(at such time as there are sufficient authorized shares of Common Stock) at the applicableConversion Price, at the Borrower’s option, as follows:
(a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holderby the fifth (5th) day of the month following the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock, the Holder may convert suchpayment amount into Common Stock at the Conversion Price (as in effect at the time of conversion)at any time after the fifth day of the month following the month in which it has accrued inaccordance with the terms of this Article I (so long as there is then a sufficient number of authorizedshares of Common Stock).
The Holder’s election shall be made in writing to the Borrower at any time prior to 6:00 p.m., NewYork, New York time, on the third day of the month following the month in which ConversionDefault payments have accrued.  If no election is made, the Holder shall be deemed to have electedto receive cash.  Nothing herein shall limit the Holder’s right to pursue actual damages (to the extentin excess of the Conversion Default Payments) for the Borrower’s failure to maintain a sufficientnumber of authorized shares of Common Stock, and each holder shall have the right to pursue allremedies available at law or in equity (including degree of specific performance and/or injunctiverelief).
1.4 Method of Conversion.
(a) Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder inwhole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrowera Notice of Conversion (by facsimile or other reasonable means of communication dispatched onthe Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section1.4(b), surrendering this Note at the principal office of the Borrower.  
(b) Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein,upon conversion of this Note in accordance with the terms hereof, the Holder shall not be requiredto physically surrender this Note to the Borrower unless the entire unpaid principal amount of thisNote is so converted.  The Holder and the Borrower shall maintain records showing the principalamount so converted and the dates of such conversions or shall use such other method, reasonablysatisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note uponeach such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall,prima facie, be controlling and determinative in the absence of manifest error.  Notwithstanding theforegoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Noteunless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower willforthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as theHolder (upon payment by the Holder of any applicable transfer taxes) may request, representing inthe aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, byacceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph,following conversion of a portion of this Note, the unpaid and unconverted principal amount of thisNote represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable inrespect of any transfer involved in the issue and delivery of shares of Common Stock or othersecurities or property on conversion of this Note in a name other than that of the Holder (or in streetname), and the Borrower shall not be required to issue or deliver any such shares or other securitiesor property unless and until the person or persons (other than the Holder or the custodian in whosestreet name such shares are to be held for the Holder’s account) requesting the issuance thereof shallhave paid to the Borrower the amount of any such tax or shall have established to the satisfactionof the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holderof a facsimile transmission (or other reasonable means of communication) of a Notice of Conversionmeeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue anddeliver or cause to be issued and delivered to or upon the order of the Holder certificates for theCommon Stock issuable upon such conversion within three (3) business days after such receipt (and,solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note)(such second business day being hereinafter referred to as the “Deadline”) in accordance with theterms hereof and the Purchase Agreement (including, without limitation, in accordance with therequirements of [Section 2(g)] of the Purchase Agreement that certificates for shares of CommonStock issued on or after the effective date of the Registration Statement upon conversion of this Noteshall not bear any restrictive legend).
(e) Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Noticeof Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuableupon such conversion, the outstanding principal amount and the amount of accrued and unpaidinterest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaultson its obligations under this Article I, all rights with respect to the portion of this Note being soconverted shall forthwith terminate except the right to receive the Common Stock or other securities,cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Noticeof Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates forCommon Stock shall be absolute and unconditional, irrespective of the absence of any action by theHolder to enforce the same, any waiver or consent with respect to any provision thereof, the recoveryof any judgment against any person or any action to enforce the same, any failure or delay in theenforcement of any other obligation of the Borrower to the holder of record, or any setoff,counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holderof any obligation to the Borrower, and irrespective of any other circumstance which might otherwiselimit such obligation of the Borrower to the Holder in connection with such conversion.  TheConversion Date specified in the Notice of Conversion shall be the Conversion Date so long as theNotice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, onsuch date.
(f) Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificatesrepresenting the Common Stock issuable upon conversion, provided the Borrower’s transfer agentis participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer(“FAST”) program, upon request of the Holder and its compliance with the provisions contained inSection 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agentto electronically transmit the Common Stock issuable upon conversion to the Holder by creditingthe account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission(“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to Deadline.  Without in any way limiting the Holder’sright to pursue other remedies, including actual damages and/or equitable relief, the parties agree thatif delivery of the Common Stock issuable upon conversion of this Note is more than three (3)business days after the Deadline (other than a failure due to the circumstances described in Section1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder$2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver suchCommon Stock.  Such cash amount shall be paid to Holder by the fifth day of the month followingthe month in which it has accrued or, at the option of the Holder (by written notice to the Borrowerby the first day of the month following the month in which it has accrued), shall be added to theprincipal amount of this Note, in which event interest shall accrue thereon in accordance with theterms of this Note and such additional principal amount shall be convertible into Common Stock inaccordance with the terms of this Note.
1.5 Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note maynot be sold or transferred unless  (i) such shares are sold pursuant to an effective registrationstatement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with anopinion of  counsel (which opinion shall be in form, substance and scope customary for opinions ofcounsel in comparable transactions) to the effect that the shares to be sold or transferred may be soldor transferred pursuant to an exemption from such registration or (iii) such shares are sold ortransferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such sharesare transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell orotherwise transfer the shares only in accordance with this Section 1.5 and who is an AccreditedInvestor (as defined in the Purchase Agreement).  Except as otherwise provided in the PurchaseAgreement (and subject to the removal provisions set forth below), until such time as the shares ofCommon Stock issuable upon conversion of this Note have been registered under the Act orotherwise may be sold pursuant to Rule 144 without any restriction as to the number of securitiesas of a particular date that can then be immediately sold, each certificate for shares of CommonStock issuable upon conversion of this Note that has not been so included in an effective registrationstatement or that has not been sold pursuant to an effective registration statement or an exemptionthat permits removal of the legend, shall bear a legend substantially in the following form, asappropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THISCERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES AREEXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOTBE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THESECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICHCOUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLEFORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESSSOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDINGTHE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONAFIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECUREDBY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a newcertificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall havereceived an opinion of counsel, in form, substance and scope customary for opinions of counsel incomparable transactions, to the effect that a public sale or transfer of such Common Stock may bemade without registration under the Act and the shares are so sold or transferred, (ii) such Holderprovides the Borrower or its transfer agent with reasonable assurances that the Common Stockissuable upon conversion of this Note (to the extent such securities are deemed to have been acquiredon the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuableupon conversion of this Note, such security is registered for sale by the Holder under an effectiveregistration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without anyrestriction as to the number of securities as of a particular date that can then be immediately sold.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance ordisposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrowerof a transaction or series of related transactions in which more than 50% of the voting power of theBorrower is disposed of, or the consolidation, merger or other business combination of the Borrowerwith or into any other Person (as defined below) or Persons when the Borrower is not the survivorshall either:  (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which theBorrower shall be required to pay to the Holder upon the consummation of and as a condition to suchtransaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treatedpursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liabilitycompany, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued andoutstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation,exchange of shares, recapitalization, reorganization, or other similar event, as a result of whichshares of Common Stock of the Borrower shall be changed into the same or a different number ofshares of another class or classes of stock or securities of the Borrower or another entity, or in caseof any sale or conveyance of all or substantially all of the assets of the Borrower other than inconnection with a plan of complete liquidation of the Borrower, then the Holder of this Note shallthereafter have the right to receive upon conversion of this Note, upon the basis and upon the termsand conditions specified herein and in lieu of the shares of Common Stock immediately theretoforeissuable upon conversion, such stock, securities or assets which the Holder would have been entitledto receive in such transaction had this Note been converted in full immediately prior to suchtransaction (without regard to any limitations on conversion set forth herein), and in any such caseappropriate provisions shall be made with respect to the rights and interests of the Holder of thisNote to the end that the provisions hereof (including, without limitation, provisions for adjustmentof the Conversion Price and of the number of shares issuable upon conversion of the Note) shallthereafter be applicable, as nearly as may be practicable in relation to any securities or assetsthereafter deliverable upon the conversion hereof.  The Borrower shall not affect any transactiondescribed in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days priorwritten notice (but in any event at least fifteen (15) days prior written notice) of the record date ofthe special meeting of shareholders to approve, or if there is no such record date, the consummationof, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similarevent or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b)the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument theobligations of this Section 1.6(b).  The above provisions shall similarly apply to successiveconsolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of itsassets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase,by way of return of capital or otherwise (including any dividend or distribution to the Borrower’sshareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., aspin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion ofthis Note after the date of record for determining shareholders entitled to such Distribution, toreceive the amount of such assets which would have been payable to the Holder with respect to theshares of Common Stock issuable upon such conversion had such Holder been the holder of suchshares of Common Stock on the record date for the determination of shareholders entitled to suchDistribution.
(d) Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding,the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to haveissued or sold, any shares of Common Stock for no consideration or for a consideration per share(before deduction of reasonable expenses or commissions or underwriting discounts or allowancesin connection therewith) less than the Conversion Price in effect on the date of such issuance (ordeemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately uponthe Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration pershare received by the Borrower in such Dilutive Issuance.
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower inany manner issues or grants any warrants, rights or options (not including employee stock optionplans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock orother securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (suchwarrants, rights and options to purchase Common Stock or Convertible Securities are hereinafterreferred to as “Options”) and the price per share for which Common Stock is issuable upon theexercise of such Options is less than the Conversion Price then in effect, then the Conversion Priceshall be equal to such price per share.  For purposes of the preceding sentence, the “price per sharefor which Common Stock is issuable upon the exercise of such Options” is determined by dividing(i) the total amount, if any, received or receivable by the Borrower as consideration for the issuanceor granting of all such Options, plus the minimum aggregate amount of additional consideration, ifany, payable to the Borrower upon the exercise of all such Options, plus, in the case of ConvertibleSecurities issuable upon the exercise of such Options, the minimum aggregate amount of additionalconsideration payable upon the conversion or exchange thereof at the time such ConvertibleSecurities first become convertible or exchangeable, by (ii) the maximum total number of shares ofCommon Stock issuable upon the exercise of all such Options (assuming full conversion ofConvertible Securities, if applicable).  No further adjustment to the Conversion Price will be madeupon the actual issuance of such Common Stock upon the exercise of such Options or upon theconversion or exchange of Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if theBorrower in any manner issues or sells any Convertible Securities, whether or not immediatelyconvertible (other than where the same are issuable upon the exercise of Options), and the price pershare for which Common Stock is issuable upon such conversion or exchange is less than theConversion Price then in effect, then the Conversion Price shall be equal to such price per share.  Forthe purposes of the preceding sentence, the “price per share for which Common Stock is issuableupon such conversion or exchange” is determined by dividing (i) the total amount, if any, receivedor receivable by the Borrower as consideration for the issuance or sale of all such ConvertibleSecurities, plus the minimum aggregate amount of additional consideration, if any, payable to theBorrower upon the conversion or exchange thereof at the time such Convertible Securities firstbecome convertible or exchangeable, by (ii) the maximum total number of shares of Common Stockissuable upon the conversion or exchange of all such Convertible Securities.  No further adjustmentto the Conversion Price will be made upon the actual issuance of such Common Stock uponconversion or exchange of such Convertible Securities.
(e) Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issuesany convertible securities or rights to purchase stock, warrants, securities or other property (the“Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder ofthis Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregatePurchase Rights which such Holder could have acquired if such Holder had held the number ofshares of Common Stock acquirable upon complete conversion of this Note (without regard to anylimitations on conversion contained herein) immediately before the date on which a record is takenfor the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as ofwhich the record holders of Common Stock are to be determined for the grant, issue or sale of suchPurchase Rights.
(f) Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of theConversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense,shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder ofa certificate setting forth such adjustment or readjustment and showing in detail the facts upon whichsuch adjustment or readjustment is based.  The Borrower shall, upon the written request at any timeof the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment orreadjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares ofCommon Stock and the amount, if any, of other securities or property which at the time would bereceived upon conversion of the Note.
1.7 Trading Market Limitations.  Unless permitted by the applicable rules and regulations of theprincipal securities market on which the Common Stock is then listed or traded, in no event shall theBorrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issuedpursuant to the Purchase Agreement more than the maximum number of shares of Common Stockthat the Borrower can issue pursuant to any rule of the principal United States securities market onwhich the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% ofthe total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject toequitable adjustment from time to time for stock splits, stock dividends, combinations, capitalreorganizations and similar events relating to the Common Stock occurring after the date hereof.Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to asthe “Maximum Conversion Date”), if the Borrower fails to eliminate any prohibitions underapplicable law or the rules or regulations of any stock exchange, interdealer quotation system orother self-regulatory organization with jurisdiction over the Borrower or any of its securities on theBorrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount (a“Trading Market Prepayment Event”), in lieu of any further right to convert this Note, and in fullsatisfaction of the Borrower’s obligations under this Note, the Borrower shall pay to the Holder,within fifteen (15) business days of the Maximum Conversion Date (the “Trading MarketPrepayment Date”), an amount equal to 150% times the sum of (a) the then outstanding principalamount of this Note immediately following the Maximum Conversion Date, plus (b) accrued andunpaid interest on the unpaid principal amount of this Note to the Trading Market Prepayment Date,plus (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, plus (d)any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder inaccordance with the terms hereof (the then outstanding principal amount of this Note immediatelyfollowing the Maximum Conversion Date, plus the amounts referred to in clauses (b), (c) and (d)above shall collectively be referred to as the “Remaining Convertible Amount”).  In the event thatthe sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Noteand the other Notes issued pursuant to the Purchase Agreement plus (y) the aggregate number ofshares of Common Stock that remain issuable upon conversion of this Note and the other Notesissued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of theMaximum Share Amount (the “Triggering Event”), the Borrower will use its best efforts to seek andobtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder inexcess of the Maximum Share Amount) as soon as practicable following the Triggering Event andbefore the Maximum Conversion Date.  As used herein, “Shareholder Approval” means approvalby the shareholders of the Borrower to authorize the issuance of the full number of shares ofCommon Stock which would be issuable upon full conversion of the then outstanding Notes but forthe Maximum Share Amount.
1.8 Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the sharescovered thereby (other than the shares, if any, which cannot be issued because their issuance wouldexceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shallbe deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of suchconverted portion of this Note shall cease and terminate, excepting only the right to receivecertificates for such shares of Common Stock and to any remedies provided herein or otherwiseavailable at law or in equity to such Holder because of a failure by the Borrower to comply with theterms  of this Note.  Notwithstanding the foregoing, if a Holder has not received certificates for allshares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadlinewith respect to a conversion of any portion of this Note for any reason, then (unless the Holderotherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) theHolder shall regain the rights of a Holder of this Note with respect to such unconverted portions ofthis Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holderor, if the Note has not been surrendered, adjust its records to reflect that such portion of this Notehas not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including,without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 tothe extent required thereby for such Conversion Default and any subsequent Conversion Default and(ii) the right to have the Conversion Price with respect to subsequent conversions determined inaccordance with Section 1.3) for the Borrower’s failure to convert this Note.
ARTICLE II.  CERTAIN COVENANTS
2.1 Distributions on Capital Stock.  So long as the Borrower shall have any obligation under thisNote, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart forsuch payment, any dividend or other distribution (whether in cash, property or other securities) onshares of capital stock other than dividends on shares of Common Stock solely in the form ofadditional shares of Common Stock or (b) directly or indirectly or through any subsidiary make anyother payment or distribution in respect of its capital stock except for distributions pursuant to anyshareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
2.2 Restriction on Stock Repurchases.  So long as the Borrower shall have any obligation under thisNote, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwiseacquire (whether for cash or in exchange for property or other securities or otherwise) in any onetransaction or series of related transactions any shares of capital stock of the Borrower or anywarrants, rights or options to purchase or acquire any such shares.
2.3 Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrowershall not, without the Holder’s written consent, create, incur, assume or suffer to exist any liabilityfor borrowed money, except (a) borrowings in existence or committed on the date hereof and ofwhich the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to tradecreditors or financial institutions incurred in the ordinary course of business or (c) borrowings, theproceeds of which shall be used to repay this Note.
2.4 Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrowershall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significantportion of its assets outside the ordinary course of business.  Any consent to the disposition of anyassets may be conditioned on a specified use of the proceeds of disposition.
2.5 Advances and Loans.  So long as the Borrower shall have any obligation under this Note, theBorrower shall not, without the Holder’s written consent, lend money, give credit or make advancesto any person, firm, joint venture or corporation, including, without limitation, officers, directors,employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) inexistence or committed on the date hereof and which the Borrower has informed Holder in writingprior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000.
2.6 Contingent Liabilities.  So long as the Borrower shall have any obligation under this Note, theBorrower shall not, without the Holder’s written consent, which shall not be unreasonably withheld,assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon theobligation of any person, firm, partnership, joint venture or corporation, except by the endorsementof negotiable instruments for deposit or collection and except assumptions, guarantees, endorsementsand contingencies (a) in existence or committed on the date hereof and which the Borrower hasinformed Holder in writing prior to the date hereof, and (b) similar transactions in the ordinarycourse of business.
  
ARTICLE III.  EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interestthereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Eventpursuant to Section 1.7, upon acceleration or otherwise;
3.2 Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder(or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holderof the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer orcause its transfer agent to transfer (electronically or in certificated form) any certificate for sharesof Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as andwhen required by this Note, or fails to remove any restrictive legend (or to withdraw any stoptransfer instructions in respect thereof) on any certificate for any shares of Common Stock issued tothe Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note(or makes any announcement, statement or threat that it does not intend to honor the obligationsdescribed in this paragraph) and any such failure shall continue uncured (or any announcement,statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) daysafter the Borrower shall have been notified thereof in writing by the Holder;
3.3 Breach of Covenants.  The Borrower breaches any material covenant or other material term orcondition contained in this Note and any collateral documents including but not limited to thePurchase Agreement and such breach continues for a period of ten (10) days after written noticethereof to the Borrower from the Holder;
3.4 Breach of Representations and Warranties.  Any representation or warranty of the Borrowermade herein or in any agreement, statement or certificate given in writing pursuant hereto or inconnection herewith (including, without limitation, the Purchase Agreement), shall be false ormisleading in any material respect when made and the breach of which has (or with the passage oftime will have) a material adverse effect on the rights of the Holder with respect to this Note or thePurchase Agreement;
3.5 Receiver or Trustee.  The Borrower or any subsidiary of the Borrower shall make an assignmentfor the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for itor for a substantial part of its property or business, or such a receiver or trustee shall otherwise beappointed;
3.6 Judgments.  Any money judgment, writ or similar process shall be entered or filed against theBorrower or any subsidiary of the Borrower or any of its property or other assets for more than$50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unlessotherwise consented to by the Holder, which consent will not be unreasonably withheld;
3.7 Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or otherproceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the reliefof debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower;
3.8 Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the CommonStock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq NationalMarket, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American StockExchange; 
3.9 Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reportingrequirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reportingrequirements of the Exchange Act; or
3.10 Liquidation.        Any dissolution, liquidation, or winding up of Borrower or any substantialportion of its business.
3.11 Cessation of Operations.             Any cessation of operations by Borrower or Borrower admitsit is otherwise generally unable to pay its debts as such debts become due, provided, however, thatany disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admissionthat the Borrower cannot pay its debts as they become due.
3.12 Maintenance of Assets.   The failure by Borrower to maintain any material intellectual propertyrights, personal, real property or other assets which are necessary to conduct its business (whethernow or in the future).
3.13 Financial Statement Restatement.          The restatement of any financial statements filed by theBorrower with the SEC for any date or period from two years prior to the Issue Date of this Note anduntil this Note is no longer outstanding, if the result of such restatement would, by comparison tothe unrestated financial statement, have constituted a material adverse effect on the rights of theHolder with respect to this Note or the Purchase Agreement.
3.14 Reverse Splits.                The Borrower effectuates a reverse split of its Common Stock withouttwenty (20) days prior written notice to the Holder.
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1(solely with respect to failure to pay the principal hereof or interest thereon when due at the MaturityDate), the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, anamount equal to the Default Sum (as defined herein).  Upon the occurrence and during thecontinuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to paythe principal hereof or interest thereon when due on this Note upon a Trading Market PrepaymentEvent pursuant to Section 1.7 or upon acceleration), 3.2, 3.3, 3.4, 3.6, 3.8, or 3.8 exercisable throughthe delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon theoccurrence of an Event of Default specified the remaining sections of Articles III (other than failureto pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof),the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in fullsatisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sumof (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on theunpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”)plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) anyamounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstandingprincipal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y)and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the DefaultSum to be prepaid, where parity value means (a) the highest number of shares of Common Stockissuable upon conversion of or otherwise pursuant to such Default Sum in accordance with ArticleI, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the“Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless theDefault Event arises as a result of a breach in respect of a specific Conversion Date in which casesuch Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price forthe Common Stock during the period beginning on the date of first occurrence of the Event ofDefault and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) andall other amounts payable hereunder shall immediately become due and payable, all without demand,presentment or notice, all of which hereby are expressly waived, together with all costs, including,without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exerciseall other rights and remedies available at law or in equity.  
If the Borrower fails to pay the Default Amount within five (5) business days of written notice thatsuch amount is due and payable, then the Holder shall have the right at any time, so long as theBorrower remains in default (and so long and to the extent that there are sufficient authorizedshares), to require the Borrower, upon written notice, to immediately issue, in lieu of the DefaultAmount, the number of shares of Common Stock of the Borrower equal to the Default Amountdivided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exerciseof any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single orpartial exercise of any such power, right or privilege preclude other or further exercise thereof or ofany other right, power or privileges.  All rights and remedies existing hereunder are cumulative to,and not exclusive of, any rights or remedies otherwise available.
4.2 Notices.  All notices, demands, requests, consents, approvals, and other communications requiredor permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i)personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postageprepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted byhand delivery, telegram, or facsimile, addressed as set forth below or to such other address as suchparty shall have specified most recently by written notice.  Any notice or other communicationrequired or permitted to be given hereunder shall be deemed effective (a) upon hand delivery ordelivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine,at the address or number designated below (if delivered on a business day during normal businesshours where such notice is to be received), or the first business day following such delivery (ifdelivered other than on a business day during normal business hours where such notice is to bereceived) or (b) on the second business day following the date of mailing by express courier service,fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall firstoccur.  The addresses for such communications shall be:  
If to the Borrower, to: 
ALL FUELS & ENERGY COMPANY
6165 N.W. 86th Street
Johnston, Iowa 50131
Attn: Dean E. Sukowatey, President and Chief Executive Officer  
facsimile: [enter fax number]   
With a copy by fax only to (which copy shall not constitute notice): 
[enter name of law firm]
Attn: [attorney name]
[enter address line 1]
[enter city, state, zip]
facsimile: [enter fax number]
If to the Holder:
                        ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY. 11021
                        Attn: Curt Kramer, President 
facsimile: [enter fax number]
With a copy by fax only to (which copy shall not constitute notice):
            Naidich Wurman Birnbaum & Mayday LLP
            80 Cuttermill Road, Suite 410
            Great Neck, NY 11021
            Attn: Bernard S. Feldman, Esq.
facsimile: [enter fax number]
4.3 Amendments.  This Note and any provision hereof may only be amended by an instrument inwriting signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as usedthroughout this instrument, shall mean this instrument (and the other Notes issued pursuant to thePurchase Agreement) as originally executed, or if later amended or supplemented, then as soamended or supplemented.
4.4 Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, andshall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Notemust be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act).  Notwithstandinganything in this Note to the contrary, this Note may be pledged as collateral in connection with abona fide margin account or other lending arrangement.
4.5 Cost of Collection.  If default is made in the payment of this Note, the Borrower shall pay theHolder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law.  This Note shall be governed by and construed in accordance with the laws ofthe State of New York without regard to principles of conflicts of laws.  Any action brought by eitherparty against the other concerning the transactions contemplated by this Note shall be brought onlyin the state courts of New York or in the federal courts located in the state and county of Nassau.The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of anyaction instituted hereunder and shall not assert any defense based on lack of jurisdiction or venueor based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailingparty shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In theevent that any provision of this Note or any other agreement delivered in connection herewith isinvalid or unenforceable under any applicable statute or rule of law, then such provision shall bedeemed inoperative to the extent that it may conflict therewith and shall be deemed modified toconform with such statute or rule of law.  Any such provision which may prove invalid orunenforceable under any law shall not affect the validity or enforceability of any other provision ofany agreement.   Each party hereby irrevocably waives personal service of process and consents toprocess being served in any suit, action or proceeding in connection with this Agreement or any otherTransaction Document by mailing a copy thereof via registered or certified mail or overnight delivery(with evidence of delivery) to such party at the address in effect for notices to it under thisAgreement and agrees that such service shall constitute good and sufficient service of process andnotice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serveprocess in any other manner permitted by law.
4.7 Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amountin excess of the outstanding principal amount (or the portion thereof required to be paid at that time)plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holderagree that the actual damages to the Holder from the receipt of cash payment on this Note may bedifficult to determine and the amount to be so paid by the Borrower represents stipulated damagesand not a penalty and is intended to compensate the Holder in part for loss of the opportunity toconvert this Note and to earn a return from the sale of shares of Common Stock acquired uponconversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainlydisproportionate to the possible loss to the Holder from the receipt of a cash payment without theopportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement.  By its acceptance of this Note, each party agrees to be bound by theapplicable terms of the Purchase Agreement.
4.9 Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shallhave no rights as a Holder of Common Stock unless and only to the extent that it converts this Noteinto Common Stock. The Borrower shall provide the Holder with prior notification of any meetingof the Borrower’s shareholders (and copies of proxy materials and other information sent toshareholders).  In the event of any taking by the Borrower of a record of its shareholders for thepurpose of determining shareholders who are entitled to receive payment of any dividend or otherdistribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger,consolidation, reclassification or recapitalization) any share of any class or any other securities orproperty, or to receive any other right, or for the purpose of determining shareholders who areentitled to vote in connection with any proposed sale, lease or conveyance of all or substantially allof the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower,the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record datespecified therein (or thirty (30) days prior to the consummation of the transaction or event,whichever is earlier), of the date on which any such record is to be taken for the purpose of suchdividend, distribution, right or other event, and a brief statement regarding the amount and characterof such dividend, distribution, right or other event to the extent known at such time.  The Borrowershall make a public announcement of any event requiring notification to the Holder hereundersubstantially simultaneously with the notification to the Holder in accordance with the terms of thisSection 4.9.
4.10 Remedies.  The Borrower acknowledges that a breach by it of its obligations hereunder willcause irreparable harm to the Holder, by vitiating the intent and purpose of the transactioncontemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breachof its obligations under this Note will be inadequate and agrees, in the event of a breach or threatenedbreach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in additionto all other available remedies at law or in equity, and in addition to the penalties assessable herein,to an injunction or injunctions restraining, preventing or curing any breach of this Note and toenforce specifically the terms and provisions thereof, without the necessity of showing economic lossand without any bond or other security being required.
 IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its dulyauthorized officer this January 16, 2010.
ALL FUELS & ENERGY COMPANY
By: /s/
Dean E. Sukowatey
President and Chief Executive Officer
 EXHIBIT A
NOTICE OF CONVERSION 
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert $__________ principal amount of the Note(defined below) into shares of common stock, $0.01 par value per share (“Common Stock”), of ALLFUELS & ENERGY COMPANY, a Delaware corporation (the “Borrower”) according to theconditions of the convertible note of the Borrower dated as of ___________ (the “Notes”), as of thedate written below.  If securities are to be issued in the name of a person other than the undersigned,the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewithsuch certificates.  No fee will be charged to the Holder for any conversion, except for transfer taxes,if any.  A copy of each Note is attached hereto (or evidence of loss, theft or destruction thereof).
The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice ofConversion to the account of the undersigned or its nominee with DTC through its DepositWithdrawal Agent Commission system (“DWAC Transfer”).
Name of DTC Prime Broker: 
Account Number: 
In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by wayof a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate orcertificates for the number of shares of Common Stock set forth below (which numbers are basedon the Holder’s calculation attached hereto) in the name(s) specified immediately below or, ifadditional space is necessary, on an attachment hereto:
Name: 
Address: 
The undersigned represents and warrants that all offers and sales by the undersigned of the securitiesissuable to the undersigned upon conversion of the Notes shall be made pursuant to registration ofthe securities under the Securities Act of 1933, as amended (the “Act”), or pursuant to an exemptionfrom registration under the Act.
Date of Conversion: ___________________________
Applicable Conversion Price: ____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes: ______________
Signature: ___________________________________
Name: ______________________________________
Address: ____________________________________
 The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later thanthree business days following receipt of the original Note(s) to be converted, and shall makepayments pursuant to the Notes for the number of business days such issuance and delivery is late.