Silver Dragon Resources Inc.: Exhibit 10.1 - Filed by newsfilecorp.com






EXHIBIT 10.1 

NOTE AND WARRANT PURCHASE AGREEMENT 

THIS NOTE AND WARRANT PURCHASE AGREEMENT, dated as of
February 15, 2011 (this “Agreement”), is entered into by and between
SILVER DRAGON RESOURCES INC., a Delaware corporation (the
“Company”), and TONAQUINT, INC., a Utah corporation, its
successors or assigns (the “Buyer”).

W I T N E S S E T H: 

WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded, inter
alia, under Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2)
of the 1933 Act; and 

WHEREAS, the Buyer wishes to acquire from the Company,
and the Company desires to issue and sell to the Buyer, the Warrant (as defined
below) and the Note (as defined below), which Note will be convertible into
shares of Common Stock of the Company, par value $0.001 per share (the
“Common Stock”), upon the terms and subject to the conditions of the
Note, the Warrant, this Agreement and the other Transaction Documents (as
defined below). 

NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows: 

1.           CERTAIN
DEFINITIONS. As used herein, each of the following terms has the meaning set
forth below, unless the context otherwise requires: 

“Affiliate” means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person. 

“Buyer’s Counsel” means Carmen Lehnhof and Israelsen
LLP. 

“Buyer Control Person” means each manager, executive
officer, promoter, and such other Persons as may be deemed in control of the
Buyer pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below). 

“Certificate of Incorporation” means the certificate of
incorporation, articles of incorporation or other charter document (howsoever
denominated) of the Company, as amended to date.

“Closing Date” means the date of the closing of the
purchase and sale of the Note and the Warrant. 

“Company Control Person” means each director, executive
officer, promoter, and such other Persons as may be deemed in control of the
Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.


“Company Counsel” means Dorsey & Whitney LLP. 

“Company’s SEC Documents” means the Company’s filings on
the SEC’s EDGAR system. 




“Conversion Date” means the date a Holder submits a
Notice of Conversion, as provided in the Note. 

“Conversion Shares” means the shares of Common Stock
issuable upon conversion of the Note and/or in payment of accrued interest, as
contemplated in the Note. 

“Delivery Date” has the meaning ascribed to it in the
Note (with respect to Conversion Shares) or the Warrant (with respect to Warrant
Shares). 

“Holder” means the Person holding the relevant
Securities at the relevant time. 

“Last Audited Date” means September 30, 2010. 

“Material Adverse Effect” means an event or combination
of events, which individually or in the aggregate, would reasonably be expected
to (x) adversely affect the legality, validity or enforceability of the Note,
the Warrant or any of the Transaction Documents, (y) have or result in a
material adverse effect on the results of operations, assets, or financial
condition of the Company and its subsidiaries, taken as a whole, or (z)
adversely impair the Company’s ability to perform fully on a timely basis its
material obligations under any of the Transaction Documents or the transactions
contemplated thereby. 

“Maturity Date” has the meaning ascribed to it in the
Note. 

“Person” means any living person or any entity, such as,
but not necessarily limited to, a corporation, partnership or trust. 

“Principal Trading Market” means (a) NYSE Amex, (b) the
New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital
Market, (e) the OTC Bulletin Board, or (f) such other market on which the Common
Stock is principally traded at the relevant time, but shall not include the
“pink sheets.” 

“Rule 144” means (i) Rule 144 promulgated under the 1933
Act or (ii) any other similar rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration under the 1933 Act. 

“Securities” means the Note, the Warrant and the Shares.


“Shares” means the shares of Common Stock representing
any or all of the Conversion Shares and the Warrant Shares. 

“State of Incorporation” means Delaware. 

“Subsidiary” means, as of the relevant date, any
subsidiary of the Company (whether or not included in the Company’s SEC
Documents) whether now existing or hereafter acquired or created. 

“Trading Day” means any day during which the Principal
Trading Market shall be open for business. 

“Transaction Documents” means this Agreement, the Note,
the Security Agreement (defined below), each of the Secured Buyer Notes (defined
below), the Trust Deed (defined below), the Request (defined below), the Escrow
Agreement (defined below), the Transfer Agent Letter (defined below), the 

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Warrant, and all other certificates, documents, agreements,
resolutions and instruments delivered to any party under or in connection with
this Agreement. 

“Transfer Agent” means, at any time, the transfer agent
for the Company’s Common Stock. 

“Warrant Shares” means the shares of Common Stock
issuable upon exercise of the Warrant. 

“Wire Instructions” means the wire instructions for the
Initial Cash Purchase Price (as defined hereafter), as provided by the Company,
set forth on Annex I. 

2.          
AGREEMENT TO PURCHASE; PURCHASE PRICE. 

a. Purchase. 

(i) Subject to the terms and conditions of this Agreement and
the other Transaction Documents, the undersigned Buyer hereby agrees to purchase
from the Company a Secured Convertible Promissory Note in principal amount of
$2,766,500.00 substantially in the form attached hereto as Annex II (the
“Note”). The Note shall be secured by a Security Agreement substantially
in the form attached hereto as Annex III listing each of the Secured
Buyer Notes as security for the Company’s obligations under the Transaction
Documents (the “Security Agreement”). In consideration thereof, the Buyer
shall (1) pay the principal amount set forth on the Buyer’s signature page to
this Agreement (the “Initial Cash Purchase Price”) and (2) issue to the
Company the Secured Buyer Notes (the sum of the initial principal amounts of the
Secured Buyer Notes, together with the Initial Cash Purchase Price, the
“Purchase Price”. Secured Buyer Notes #1 - #3 shall be secured by a Trust
Deed substantially in the form attached hereto as Annex IV (the “Trust
Deed”), which provides for collateral that has a value equal to or in excess
of the principal amount of such Secured Buyer Notes. Secured Buyer Notes #4 -
#10 shall be secured by such collateral as the Buyer determines in its sole
discretion, provided that such collateral has a value equal to or in excess of
the principal amount of such Secured Buyer Notes. Upon such determination, the
Buyer and the Company shall enter into such additional agreements as shall be
reasonably necessary, as determined in the Buyer’s sole discretion, to provide
evidence of such security interest. The Initial Cash Purchase Price shall be
paid in accordance with the Wire Instructions. The Initial Cash Purchase Price
is allocated to the Note, the OID (as defined below) and the Warrant as set
forth in the table in Annex V attached hereto. 

(ii) In consideration for the Initial Cash Purchase Price, the
Company will also issue to the Buyer a Warrant to Purchase Shares of Common
Stock in the form attached hereto as Annex VI (the “Warrant”).


(iii) The Company shall also execute and deliver to the Buyer a
Request for Full Reconveyance (the “Request”) substantially in the form
attached hereto as Annex VII. 

(iv) The Request shall be held in escrow in accordance with the
terms of the Escrow Agreement substantially in the form attached hereto as
Annex VIII (the “Escrow Agreement”). 

(v) The Company shall also execute and deliver to the Transfer
Agent, and the Transfer Agent shall execute to indicate its acceptance thereof,
the irrevocable transfer agent instruction letter substantially in the form
attached hereto as Annex IX (the “Transfer Agent Letter”). 

(vi) At the Closing, the Buyer shall
deliver to the Company the following: 

(1) The Initial Cash Purchase Price; 

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(2) A Buyer Trust Deed Note in the principal amount of
$200,000.00 substantially in the form attached hereto as Annex X
(“Secured Buyer Note #1”); 

(3) A Buyer Trust Deed Note in the principal amount of
$200,000.00 substantially in the form attached hereto as Annex XI
(“Secured Buyer Note #2”); 

(4) A Buyer Trust Deed Note in the principal amount of
$200,000.00 substantially in the form attached hereto as Annex XII
(“Secured Buyer Note #3”); 

(5) A Secured Buyer Note in the principal amount of $200,000.00
substantially in the form attached hereto as Annex XIII (“Secured
Buyer Note #4”); 

(6) A Secured Buyer Note in the principal amount of $200,000.00
substantially in the form attached hereto as Annex XIV (“Secured Buyer
Note #5”); 

(7) A Secured Buyer Note in the principal amount of $200,000.00
substantially in the form attached hereto as Annex XV (“Secured Buyer
Note #6”); 

(8) A Secured Buyer Note in the principal amount of $200,000.00
substantially in the form attached hereto as Annex XVI (“Secured Buyer
Note #7”); 

(9) A Secured Buyer Note in the principal amount of $200,000.00
substantially in the form attached hereto as Annex XVII (“Secured
Buyer Note #8”); 

(10) A Secured Buyer Note in the principal amount of
$200,000.00 substantially in the form attached hereto as Annex XVIII
(“Secured Buyer Note #9”); 

(11) A Secured Buyer Note in the principal amount of
$200,000.00 substantially in the form attached hereto as Annex XIX
(“Secured Buyer Note #10,” and together with Secured Buyer Note #1,
Secured Buyer Note #2, Secured Buyer Note #3, Secured Buyer Note #4, Secured
Buyer Note #5, Secured Buyer Note #6, Secured Buyer Note #7, Secured Buyer Note
#8, and Secured Buyer Note #9, the “Secured Buyer Notes”); and 

(12) The Trust Deed. 

(vii) The tender of the Initial Cash Purchase Price and the
issuance and sale of the Note and the Warrant to the Buyer are sometimes
referred to herein and in the other Transaction Documents as the purchase and
sale of the Note and Warrant.

b. Form of Payment; Delivery of Note and Warrant. The
purchase and sale of the Note and the Warrant shall take place at a closing (the
“Closing”) to be held at the offices of the Buyer on the Closing Date. At
the Closing, the Company will deliver to the Buyer the Transaction Documents
against receipt by the Company of the Initial Cash Purchase Price and the
Secured Buyer Notes. 

c. Initial Cash Purchase Price. The Note carries an
original issue discount of $251,500.00 (the “OID”). In addition, the
Company agrees to pay $15,000.00 to the Buyer and issue to the Buyer 50,000
shares of Common Stock (which shares the Buyer acknowledges having already
received) to cover the Buyer’s legal fees, accounting costs, due diligence,
monitoring and other transaction costs incurred in connection with the purchase
and sale of the Securities (the “Transaction Expenses”), $15,000 of which
is included in the initial principal balance of the Note. The Initial Cash
Purchase Price, therefore, shall be $500,000.00, computed as follows:
$2,766,500.00 less the OID less $15,000.00 of the Transaction
Expenses less the sum of initial principal amounts of the Secured Buyer
Notes.  

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3.         
 BUYER REPRESENTATIONS AND WARRANTIES. 

The Buyer represents and warrants to, and covenants and agrees
with, the Company, as of the date hereof and as of the Closing Date, as follows:


a. Binding Obligation. The Transaction Documents
to which the Buyer is a party, and the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Buyer. This Agreement has
been executed and delivered by the Buyer, and this Agreement is, and each of the
other Transaction Documents to which the Buyer is a party, when executed and
delivered by the Buyer (if necessary), will be valid and binding obligations of
the Buyer enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors’ rights
generally. 

b. Accredited Investor Status. The Buyer is an
“accredited investor” as that term is defined in Rule 501 of the General Rules
and Regulations under the 1933 Act.

4.          
COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the Buyer as of the date hereof and as of the Closing Date that: 

a. Rights of Others Affecting the Transactions. There
are no preemptive rights of any stockholder of the Company, as such, to acquire
the Securities. No other party has a currently exercisable right of first
refusal which would be applicable to any or all of the transactions contemplated
by the Transaction Documents. 

b. Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Incorporation and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock under Section 12(g) of the Securities Exchange Act of
1934, as amended (the “1934 Act”), and is obligated to file reports
pursuant to Section 13 or Section 15(d) of the 1934 Act. The Company has taken
no action designed to terminate, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the 1934 Act,
nor has the Company received any notification that the SEC is contemplating
terminating such registration. The Common Stock is quoted on the Principal
Trading Market. The Company has received no notice, either oral or written, with
respect to the continued eligibility of the Common Stock for quotation on the
Principal Trading Market, and the Company has maintained all requirements on its
part for the continuation of such quotation. The Company has not, in the twelve
(12) months preceding the date hereof, received notice from the Principal
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Principal Trading Market. The Company is, and has no reason
to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements. 

c. Authorized Shares. 

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(i) The authorized capital stock of the Company consists of
20,000,000 shares of Preferred Stock, $0.0001 par value per share, no shares of
which have been issued, 150,000,000 shares of Common Stock, $0.0001 par value
per share, of which approximately 109,433,370 are undiluted shares outstanding
and approximately 125,808,036 (fully diluted) are outstanding. Of the
outstanding shares of Common Stock, approximately 28,860,000 shares are
beneficially owned by Affiliates of the Company. 

(ii) Other than as set forth in the Company’s SEC Documents,
there are no outstanding securities which are convertible into or exchangeable
for shares of Common Stock, whether such conversion is currently exercisable or
exercisable only upon some future date or the occurrence of some event in the
future. 

(iii) All issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and non-assessable.
After considering all other commitments that may require the issuance of Common
Stock, the Company has sufficient authorized and unissued shares of Common Stock
as may be necessary to effect the issuance of the Shares on the Closing Date,
were (1) each Conversion Eligible Tranche (as defined in the Note) fully
converted on that date and (2) the Warrant issued and fully exercised on that
date.

(iv) The Shares have been duly authorized by all necessary
corporate action on the part of the Company, and, when issued (1) on conversion
of, or in payment of interest on the Note, or (2) upon exercise of the Warrant,
in each case in accordance with their respective terms, will have been duly and
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, and will not subject the
Holder thereof to personal liability by reason of being a Holder. 

(v) The Conversion Shares and Warrant Shares are enforceable
against the Company and the Company presently has no claims or defenses of any
nature whatsoever with respect to the Conversion Shares or the Warrant Shares.


d. Transaction Documents and Stock. This Agreement and
each of the other Transaction Documents, and the transactions contemplated
hereby and thereby, have been duly and validly authorized by the Company. This
Agreement has been duly executed and delivered by the Company and this Agreement
is, and the Note, the Security Agreement, the Warrant, the Request, the Trust
Deed, the Escrow Agreement and each of the other Transaction Documents, when
executed and delivered by the Company (if necessary), will be, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors’ rights generally. 

e. Non-contravention. The execution and delivery of this
Agreement and each of the other Transaction Documents by the Company, the
issuance of the Securities in accordance with the terms hereof and thereof, and
the consummation by the Company of the other transactions contemplated by this
Agreement, the Note, the Security Agreement, the Warrant, the Request, the Trust
Deed, the Escrow Agreement and the other Transaction Documents do not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the Certificate of
Incorporation or bylaws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, or (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, except such conflict, breach or default which would not
have or result in a Material Adverse Effect. 

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f. Approvals. No authorization, approval or consent of
any court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained. 

g. Filings; Financial Statements. None of the Company’s
SEC Documents contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by the Company with the SEC under the 1934 Act on a timely basis or has
received a valid extension of such time of filing and has filed any such report,
schedule, form, statement or other document prior to the expiration of any such
extension. As of their respective dates, the financial statements of the Company
included in the Company’s SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the Company’s SEC Documents, including,
without limitation, information referred to in this Agreement, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. 

h. Absence of Certain Changes. Since the Last Audited
Date, there has been no Material Adverse Effect, except as disclosed in the
Company’s SEC Documents. Since the Last Audited Date, except as provided in the
Company’s SEC Documents, the Company has not (i) incurred or become subject to
any material liabilities (absolute or contingent) except liabilities incurred in
the ordinary course of business consistent with past practices; (ii) discharged
or satisfied any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to stockholders with
respect to its capital stock, or purchased or redeemed, or made any agreements
to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other material tangible assets, or canceled any material debts
owed to the Company by any third party or material claims of the Company against
any third party, except in the ordinary course of business consistent with past
practices; (v) waived any rights of material value, whether or not in the
ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any increases in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment. 

i. Full Disclosure. There is no fact known to the
Company or that the Company should know after having made all reasonable
inquiries (other than conditions known to the public generally or as disclosed in the Company’s SEC Documents) that has not been
disclosed in writing to the Buyer that would reasonably be expected to have or
result in a Material Adverse Effect. 

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j. Absence of Litigation. Except as set forth in the
Compan y’s SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company before or
by any governmental authority or non-governmental department, commission, board,
bureau, agency or instrumentality or any other person, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Documents. Except as set forth in the Compan y’s SEC Documents, the Company is
not aware of any valid basis for any such claim that (either individually or in
the aggregate with all other such events and circumstances) could reasonably be
expected to have a Material Adverse Effect. Except as set forth in the Compan
y’s SEC Documents, there are no outstanding or unsatisfied judgments, orders,
decrees, writs, injunctions or stipulations to which the Company is a party or
by which it or any of its properties is bound, that involve the transaction
contemplated herein or that, alone or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. 

k. Absence of Events of Default. Neither the Company nor
any of its Subsidiaries is in violation of or in default with respect to (i) its
Certificate of Incorporation or bylaws or other organizational documents, each
as currently in effect, or any material judgment, order, writ, decree, statute,
rule or regulation applicable to such entity; or (ii) any material mortgage,
indenture, agreement, instrument or contract to which such entity is a party or
by which it or any of its properties or assets are bound (nor is there any
waiver in effect which, if not in effect, would result in such a violation or
default), except such breach or default which would not have or result in a
Material Adverse Effect. 

l. Absence of Certain Company Control Person Actions or
Events. Other than as set forth in the Company’s SEC Documents, none of the
following has occurred during the past five (5) years with respect to a Company
Control Person: 

(i) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such Company
Control Person, or any partnership in which he or she was a general partner at
or within two years before the time of such filing, or any corporation or
business association of which he or she was an executive officer at or within
two years before the time of such filing; 

(ii) Such Company Control Person was convicted in a criminal
proceeding or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses); 

(iii) Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining him or her
from, or otherwise limiting, the following activities: 

A. acting, as an investment advisor,
underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker, any
other Person regulated by the Commodity Futures Trading Commission
(“CFTC”) or engaging in or continuing any conduct or practice in
connection with such activity; 

8 




B. engaging in any type of business
practice; or 

C. engaging in any activity in
connection with the purchase or sale of any security or commodity or in
connection with any violation of federal or state securities laws or federal
commodities laws; 

(iv) Such Company Control Person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
federal or state authority barring, suspending or otherwise limiting for more
than sixty (60) days the right of such Company Control Person to engage in any
activity described in subsection (iii) immediately above, or to be associated
with Persons engaged in any such activity; or 

(v) Such Company Control Person was found by a court of
competent jurisdiction in a civil action or by the CFTC or SEC to have violated
any federal or state securities law, and the judgment in such civil action or
finding by the CFTC or SEC has not been subsequently reversed, suspended, or
vacated. 

m. No Undisclosed Liabilities or Events. The
Company has no liabilities or obligations other than those disclosed in the
Transaction Documents or the Company’s SEC Documents or those incurred in the
ordinary course of the Company’s business since the Last Audited Date, or which
individually or in the aggregate, do not or would not have a Material Adverse
Effect. No event or circumstance has occurred or exists with respect to the
Company or its properties, business, operations, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. Except
for future potential financings, there are no proposals currently under
consideration or currently anticipated to be under consideration by the Board of
Directors or the executive officers of the Company which proposal would (i)
change the Certificate of Incorporation or bylaws of the Company, each as
currently in effect, with or without stockholder approval, which change would
reduce or otherwise adversely affect the rights and powers of the stockholders
of the Common Stock or (ii) materially or substantially change the business,
assets or capital of the Company, including its interests in Subsidiaries. 

n. No Integrated Offering. Neither the Company nor any
of its Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, made any offer or sales of any security or solicited any offers to
buy any security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D in connection with the offer
and sale of the Securities as contemplated hereby. 

o. Dilution. Each of the Company and its executive
officers and directors is aware that the number of shares issuable upon
conversion of the Note and exercise of the Warrant, or pursuant to the other
terms of the Transaction Documents may have a dilutive effect on the ownership
interests of the other stockholders (and Persons having the right to become
stockholders) of the Company. The Company specifically acknowledges that its
obligation to issue (i) the Conversion Shares upon conversion of the Note and
(ii) the Warrant Shares upon exercise of the Warrant, is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other stockholders of the Company, and the Company will
honor such obligations, including honoring every Notice of Conversion (or
“Conversion Notice” as contemplated by the Note), unless the Company is
subject to an injunction (which injunction was not sought by the Company or any
of its directors or executive officers) prohibiting the Company from doing so.


9 




p. Fees to Brokers, Placement Agents and Others. The
Company has taken no action which would give rise to any claim by any Person for
a brokerage commission, placement agent or finder’s fees or similar payments by
the Buyer relating to this Agreement or the transactions contemplated hereby.
Except for such fees arising as a result of any agreement or arrangement entered
into by the Buyer without the knowledge of the Company (a “Buyer’s Fee”),
the Buyer shall have no obligation with respect to such fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this subsection that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless each of the
Buyer, its employees, officers, directors, stockholders, managers, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorneys’ fees) and
expenses suffered in respect of any such claimed or existing fees (other than a
Buyer’s Fee, if any).

q. Disclosure. All information relating to or concerning
the Company set forth in the Transaction Documents or in the Company’s public
filings with the SEC or otherwise provided by or on behalf of the Company to the
Buyer is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
No event or circumstance has occurred or exists with respect to the Company or
its business, properties, prospects, operations or financial conditions, which
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company. 

r. Confirmation. The Company agrees that, if, to the
knowledge of the Company, any events occur or circumstances exist prior to the
payment of the Purchase Price to the Company which would make any of the
Company’s representations or warranties set forth herein materially untrue or
materially inaccurate as of such date, the Company shall immediately notify the
Buyer in writing prior to such date of such fact, specifying which
representation, warranty or covenant is affected and the reasons therefor. 

s. Title. The Company and the Subsidiaries, if
applicable, own and have good and marketable title in fee simple absolute to, or
a valid leasehold interest in, all their respective real properties and good
title to their other respective assets and properties, subject to no liens,
claims or encumbrances except as have been disclosed to the Buyer.

t. Intellectual Property.

(i) Ownership. The Company owns or possesses or can
obtain on commercially reasonable terms sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses
(software or otherwise), information, know-how, inventions, discoveries,
published and unpublished works of authorship, processes and any and all other
proprietary rights (“Intellectual Property”) necessary to the business of
the Company as presently conducted, the lack of which could reasonably be
expected to have a Material Adverse Effect. Except for agreements with its own
employees or consultants, standard end-user license agreements,
support/maintenance agreements and agreements entered in the ordinary course of
the Company’s business, all of which have been made available for review by the
Buyer, there are no outstanding options, licenses or agreements relating to the
Intellectual Property of the Company, and the Company is not bound by or a party
to any options, licenses or agreements with respect to the Intellectual Property
of any other person or entity. The Company has not received any written
communication alleging that the Company has violated or, by conducting its
business as currently conducted, would violate any of the Intellectual Property
of any other person or entity, nor is the Company aware of any basis therefor.
The Company is not obligated to make any payments by way of royalties, fees or
otherwise to any owner or licensor of or claimant to any Intellectual Property
with respect to the use thereof in connection with the present conduct of its
business other than in the ordinary course of its business. There are no
agreements, understandings, instruments, contracts, judgments, orders or decrees
to which the Company is a party or by which it is bound which involve
indemnification by the Company with respect to infringements of Intellectual
Property, other than in the ordinary course of its business. 

10 




(ii) No Breach by Employees. The Company is not aware
that any of its employees is obligated under any contract or other agreement, or
subject to any judgment, decree or order of any court or administrative agency,
that would materially interfere with the use of his or her efforts to promote
the interests of the Company or that would conflict with the Company’s business
as presently conducted. Neither the execution nor delivery of this Agreement,
nor the carrying on of the Company’s business by the employees of the Company,
nor the conduct of the Company’s business as presently conducted, will, to the
Company’s knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees made prior to their employment by the Company of which it is
aware. 

5.         
CERTAIN COVENANTS AND ACKNOWLEDGMENTS. 

a. Covenants and Acknowledgements of the Buyer. 

(i) Transfer Restrictions. The Buyer acknowledges
that (1) the Securities have not been and are not being registered under the
provisions of the 1933 Act and, except as included in an effective registration
statement, the Shares have not been and are not being registered under the 1933
Act, and may not be transferred unless (A) subsequently registered thereunder,
or (B) the Buyer shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (2) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
such Rule and further, if such Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
under the 1933 Act or to comply with the terms and conditions of any exemption
thereunder. 

(ii) Restrictive Legend. The Buyer acknowledges and
agrees that, until such time as the relevant Shares have been registered under
the 1933 Act, and may be sold in accordance with an effective registration
statement, or until such Shares can otherwise be sold without restriction,
whichever is earlier, the certificates and other instruments representing any of
the Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of any such
Securities): 

THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.


b. Covenants, Acknowledgements and Agreements of the
Company. As a condition to the Buyer’s obligation to purchase the Securities
contemplated by this Agreement, and as a material inducement for the Buyer to
enter into this Agreement and the other Transaction Documents, until all of the Company’s obligations hereunder and the Note are paid and
performed in full and the Warrant is exercised in full, or within the timeframes
otherwise specifically set forth below, the Company shall comply with the
following covenants: 

11 




(i) Filings. From the date hereof until the date
that is six (6) months after all the Conversion Shares and Warrant Shares either
have been sold by the Buyer, or may permanently be sold by the Buyer without any
restrictions pursuant to Rule 144 (the “Registration Period”), the
Company shall timely make all filings required to be made by it under the 1933
Act, the 1934 Act, Rule 144 or any United States state securities laws and
regulations thereof applicable to the Company or by the rules and regulations of
the Principal Trading Market, and such reports shall conform to the requirement
of the applicable laws, regulations and government agencies, and, unless such
filing is publicly available on the SEC’s EDGAR system (via the SEC’s web site
at no additional charge), the Company shall provide a copy thereof to the Buyer
promptly after such filing. Additionally, within four (4) business days
following the date of this Agreement, the Company shall file a current report on
Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and approved by the
Buyer and attaching the material transaction documents as exhibits to such
filing. The Company further agrees to redact all confidential information from
such Form 8-K. Additionally, the Company shall furnish to the Buyer, so long as
the Buyer owns any Securities or Common Stock, promptly upon request, (1) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (2) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Buyer to sell such securities pursuant to
Rule 144 without registration. 

(ii) Listing. The Company’s Common Stock shall be listed
or quoted for trading on any of (a) NYSE Amex, (b) the New York Stock Exchange,
(c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the OTC
Bulletin Board. The Company shall promptly secure the listing of all of the
Conversion Shares and Warrant Shares 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. The Company will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Trading Market and/or the Financial Industry Regulatory Authority,
Inc. (“FINRA”) or any successor thereto, as the case may be, applicable
to it at least through the date which is sixty (60) days after the later of (x)
the date on which the Note has been converted or have been paid in full, or (y)
the date on which the Warrant has been exercised in full. 

(iii) Publicity, Filings, Releases, Etc. Each of the
parties agrees that it will not disseminate any information relating to the
Transaction Documents or the transactions contemplated thereby, including
issuing any press releases, holding any press conferences or other forums, or
filing any reports (collectively, “Publicity”), without giving the other
party reasonable advance notice and an opportunity to comment on the contents
thereof. Neither party will include in any such Publicity any statement or
statements or other material to which the other party reasonably objects, unless
in the reasonable opinion of counsel to the party proposing such statement, such
statement is legally required to be included. In furtherance of the foregoing,
the Company will provide to the Buyer’s Counsel drafts of the applicable text of
the first filing of a current report on Form 8-K or a Quarterly or Annual Report
on Form 10-Q or 10-K (or equivalent SB forms), as the case may be, intended to
be made with the SEC which refers to the Transaction Documents or the
transactions contemplated thereby as soon as practicable (but at least two (2)
Trading Days before such filing will be made) and will not include in such
filing (or any other filing filed before then) any statement or statements or
other material to which the other party reasonably objects, unless in the
reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included.
Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Documents in filings made with the SEC
(but any descriptive text accompanying or part of such filing shall be subject
to the other provisions of this subsection). Notwithstanding, but subject to,
the foregoing provisions of this subsection, the Company will, within four (4)
business days after the Closing Date, promptly issue a press release and file a
current report on Form 8-K or, if appropriate, a quarterly or annual report on
the appropriate form, describing the terms of the transactions contemplated by
the Transaction Documents in the form required by the 1934 Act and approved by
the Buyer and attaching the material Transaction Documents as exhibits to such
filing. The Company further agrees to redact all confidential information from
such Form 8-K. 

12 




(iv) FINRA Rule 5110. In the event that the
Corporate Financing Rule 5110 of FINRA is or becomes applicable to the
transactions contemplated by the Transaction Documents or to the sale by a
Holder of any of the Securities, then the Company shall, to the extent required
by such rule, timely make any filings and cooperate with any broker or selling
stockholder in respect of any consents, authorizations or approvals that may be
necessary for FINRA to timely and expeditiously permit the Holder to sell the
Securities. 

(v) Keeping of Records and Books of Account. The
Company shall keep and cause each Subsidiary, if any, to keep adequate records
and books of account, in which complete entries will be made in accordance with
GAAP consistently applied, reflecting all financial transactions of the Company
and such Subsidiaries, and in which, for each fiscal year, all proper reserves
for depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made. 

(vi) Corporate Existence. The Company shall (a) do all
things necessary to preserve and keep in full force and effect its corporate
existence, including, without limitation, preserving and keeping in full force
and effect 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; (b)
continue to engage in business of the same general type as conducted as of the
date hereof; and (c) continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder. 

(vii) Taxes. The Company 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 Company has
maintained adequate reserves with respect thereto in accordance with GAAP. 

(viii) Compliance. The Company 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, insurers, departments, commissions, boards, courts,
authorities, officials or officers which are applicable to the Company, its
business, operations, or any of its properties, except where the failure to so
comply would not have a Material Adverse Effect on the Company or any of its
properties; provided, however, that nothing provided herein shall prevent
the Company from contesting in good faith the validity or the application of any
Requirements. 

(ix) Litigation. From and after the date hereof and
until all of the Company’s obligations hereunder and the Note is paid and
performed in full and the Warrant is exercised in full, the Company shall notify
the Buyer in writing, promptly upon learning thereof, of any litigation or
administrative proceeding commenced or threatened against the Company involving
a claim in excess of $100,000.00; provided that the Buyer shall keep such
information confidential until the Company publicly discloses such information. 

13 




(x) Performance of Obligations. The Company shall
promptly and in a timely fashion perform and honor all demands, notices,
requests and obligations that exist or may arise under the Transaction
Documents. 

(xi) Failure to Make Timely Filings. The Company agrees
that, if (1) the Company fails to timely file on the SEC’s EDGAR system any
information required to be filed by it, whether on a Form 10-K, Form 10-Q, Form
8-K, Proxy Statement or otherwise so as to not be deemed current in its filings
under the 1934 Act, and (2) the Holder attempts to sell Shares pursuant to Rule
144 of the Securities Act, but is precluded from doing so because of the
Company’s failure to be timely in such filings, then the Company shall be liable
to pay to the Holder an amount based on the following schedule (where “No.
Business Days Late” refers to each Trading Day after the latest due date for
the relevant filing):

	
      
	
    Late Filing Payment For 

	
      
	
    Each $10,000.00 of 

	
    No. Business Days Late 
	
    Outstanding Principal of the Note 

	
      
	
      

	
    1 
	
               
                         
             $100.00 

	
    2 
	
               
                         
             $200.00 

	
    3 
	
               
                         
             $300.00 

	
    4 
	
               
                         
             $400.00 

	
    5 
	
               
                         
             $500.00 

	
    6 
	
               
                         
             $600.00 

	
    7 
	
               
                         
             $700.00 

	
    8 
	
               
                         
             $800.00 

	
    9 
	
               
                         
             $900.00 

	
    10 
	
               
                         
             $1,000.00 

	
    >10 
	
               
                         
             $1,000.00 + $200.00 for each Trading 

	
      
	
               
                         
                         
             Day Late beyond 10 days 



The Company shall pay any payments incurred under this
subsection in immediately available funds upon demand by the Holder;
provided, however, that the Holder making the demand may specify that the
payment shall be made in shares of Common Stock at the Conversion Price (as
defined in the Note) applicable to the date of such demand. If the payment is to
be made in shares of Common Stock, such shares shall be considered Conversion
Shares under the Note, with the “Delivery Date” for such shares being
determined from the date of such demand. The demand for payment of such amount
in shares shall be considered a “Conversion Notice” (but the delivery of
such shares shall be in payment of the amount contemplated by this subsection
and not in payment of any principal or interest on the Note). 

(xii) Authorized Shares. The Company shall take all
action 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 each Conversion Eligible Tranche (as defined in
the Note) and exercise of the Warrant (the “Share Reserve”). If at any
time the Share Reserve is insufficient to effect the full conversion of any
Conversion Eligible Tranche and exercise of the Warrant, the Company shall
immediately increase the Share Reserve accordingly. If the Company does not have
sufficient authorized and unissued shares of Common Stock available to increase
the Share Reserve, the Company 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 shares authorized. The Company’s board of
directors shall recommend to the Company’s stockholders to vote in favor of increasing the number of authorized shares of Common Stock. The Company shall uses its best efforts to cause such additional shares of Common Stock to be authorized so
as to comply with the requirements of this Section. 

14 









  (xiii) DWAC Eligibility. The Company shall take all action necessary to achieve DWAC eligibility no later than the Closing Date (the “DWAC Eligibility Date”). Thereafter, for so long as (A) any portion of any of the Note
remains outstanding, or (B) any portion of the Warrant remains unexercised, the Company shall use best efforts to maintain such DWAC eligibility. 


  (xiv) Security for Secured Buyer Notes #4 - #10. Upon reasonable notice from the Buyer that the Buyer has determined the collateral it will provide to secure Secured Buyer Notes #4 - #10, the Company shall enter into all such documents as
the Buyer shall reasonably determine are necessary to provide for the security of such Secured Buyer Notes, including an escrow agreement, line of credit agreement, and any other such documents, all in forms reasonably acceptable to the Buyer. 


6.           TRANSFER AGENT INSTRUCTIONS. 


 a. The Company warrants that, with respect to the Securities, other than the stop transfer instructions to give effect to Section 5(a)(i) hereof, it will give the Transfer Agent no instructions inconsistent with instructions to issue Common
Stock upon conversion of the Note and/or exercise of the Warrant, as may be applicable from time to time, in such amounts as specified from time to time by the Company to the Transfer Agent, bearing the restrictive legend specified in Section
5(a)(ii) of this Agreement prior to registration of the Shares under the 1933 Act, registered in the name of the Buyer or its nominee and in such denominations to be specified by the Holder in connection therewith. Except as so provided, the Shares
shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Documents.  Nothing in this Section shall affect in any way the Buyer’s obligations and
agreement to comply with all applicable securities laws upon resale of the Securities.  If the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the
Securities in accordance with clause (1)(B) of Section 5(a)(i) of this Agreement is not required under the 1933 Act or upon request from a Holder while an applicable registration statement is effective, the Company shall (except as provided in
clause (2) of Section 5(a)(i) of this Agreement) permit the transfer of the Securities and, in the case of the Conversion Shares and the Warrant Shares, as may be applicable, use its best efforts to cause the Transfer Agent to promptly
electronically transmit to the Holder via DWAC such Conversion Shares or Warrant Shares. The Company specifically covenants that, as of the DWAC Eligibility Date, the Company’s Transfer Agent shall be (a) participating in the DWAC program, and
(b) DWAC eligible. Moreover, the Company shall notify the Buyer in writing if the Company at any time while the Holder holds Securities becomes aware of any plans of the Transfer Agent to terminate such DWAC participation or eligibility.  While any
Holder holds Securities, the Company shall at all times after the DWAC Eligibility Date maintain a transfer agent which participates in the DWAC program and is DWAC eligible, and the Company will not appoint any transfer agent which does not both
participate in the DWAC program and maintain DWAC eligibility. Nevertheless, if at any time that the Company receives a Conversion Notice the Transfer Agent is not participating in the DWAC program or the Conversion Shares or Warrant Shares are not
otherwise transferable via the DWAC program, then the Company shall instruct the Transfer Agent (assuming the Company received an opinion of counsel as described above) to issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer. In the event the Company’s transfer agent is not DWAC eligible on any Conversion Date or Exercise Date (as defined in the Warrant), and because the Company’s transfer agent is not DWAC
eligible at such time, the Company issues Conversion Shares or Warrant Shares pursuant to a Notice of Conversion or Notice of Exercise in certificated rather than electronic form, then in such event if the closing bid price of the Common Stock on
the Principal Trading Market is lower on the date of delivery of the certificates to
the Buyer than on the Conversion Date or Exercise Date, as the case may be, then
such difference in the closing bid prices, multiplied by the number of
Conversion Shares or Warrant Shares, as applicable, shall be added to the
principal balance of the applicable Note.


15 






b. (i) The Company understands that a delay in the
delivery of Conversion Shares or Warrant Shares, whether on conversion of any of
the Note and/or in payment of accrued interest, or exercise of the Warrant,
beyond the relevant Delivery Date (as defined in the Note or the Warrant, as
applicable) could result in economic loss to the Holder. As compensation to the
Holder for such loss, in addition to any other available remedies at law or
equity, the Company agrees to pay late payments to the Holder for late delivery
of the Shares in accordance with the following schedule (where “No. Business
Days Late” is defined as the number of Trading Days beyond five (5) Trading
Days after the Delivery Date): 

	
      
	
    Late Payment for Each $10,000,00 

	
    No. Business Days Late 
	
    of Principal or Interest Being Converted 

	
      
	
    (or amount of Warrant exercise) 

	
      
	
      

	
    1 
	
               
             $100.00 

	
    2 
	
               
             $200.00 

	
    3 
	
               
             $300.00 

	
    4 
	
               
             $400.00 

	
    5 
	
               
             $500.00 

	
    6 
	
               
             $600.00 

	
    7 
	
               
             $700.00 

	
    8 
	
               
             $800.00 

	
    9 
	
               
             $900.00 

	
    10 
	
               
             $1,000.00 

	
    >10 
	
               
             $1,000.00 + $200.00 for each 

	
      
	
               
             Business Day Late beyond 10 days 



As elected by the Holder, the amount of any payments incurred
under this Section 6(b)(i) shall either be automatically added to the principal
balance of the applicable Note or otherwise paid by the Company in immediately
available funds upon demand. Nothing herein shall limit the Holder’s right to
pursue additional damages for the Company’s failure to issue and deliver the
Shares to the Holder within a reasonable time. Furthermore, in addition to any
other remedies which may be available to a Holder, in the event that the Company
fails for any reason to effect delivery of such Shares within five (5) Trading
Days after the Delivery Date, the Holder will be entitled to revoke the relevant
Notice of Conversion or Notice of Exercise by delivering a notice to such effect
to the Company prior to such Holder’s receipt of the relevant Shares, whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Notice of
Exercise, as the case may be; provided, however, that any payments
contemplated by this Section 6(b)(i) which have accrued through the date of such
revocation notice shall remain due and owing to the Holder notwithstanding such
revocation. 

(ii) If, by the fifth Trading Day after the relevant Delivery
Date, the Company fails for any reason to deliver the Shares, but at any time
after the Delivery Date, the Holder purchases, in an arm’s-length open market
transaction or otherwise, shares of Common Stock (the “Covering Shares”)
in order to make delivery in satisfaction of a sale of Common Stock by the
Holder (the “Sold Shares”), which delivery such Holder anticipated to make using the shares
to be issued upon such conversion or exercise (a “Buy-In”), the Holder
shall have the right to require the Company to pay to the Holder, in addition to
and not in lieu of the amounts contemplated in other provisions of the
Transaction Documents, including, but not limited to, the provisions of the
immediately preceding Section 6(b)(i)), the Buy-In Adjustment Amount (as defined
below). The “Buy-In Adjustment Amount” is the amount equal to the number
of Sold Shares multiplied by the excess, if any, of (x) the Holder’s total
purchase price per share (including brokerage commissions, if any) for the
Covering Shares over (y) the net proceeds per share (after brokerage
commissions, if any) received by the Holder from the sale of the Sold Shares.
The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately
available funds immediately upon demand by the Holder. By way of illustration
and not in limitation of the foregoing, if the Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of
$11,000.00 to cover a Buy-In with respect to shares of Common Stock the Holder
sold for net proceeds of $10,000.00, the Buy-In Adjustment Amount which Company
will be required to pay to the Holder will be $1,000.00. 

16 




c. The Company shall assume any fees or charges of the
Transfer Agent or Company Counsel regarding (i) the removal of a legend or stop
transfer instructions with respect to the Securities, and (ii) the issuance of
certificates or DWAC registration to or in the name of the Holder or the
Holder’s designee or to a transferee as contemplated by an effective
registration statement. Notwithstanding the foregoing, it shall be the Holder’s
responsibility to obtain all needed formal requirements (specifically: medallion
guarantee and prospectus delivery compliance) in connection with any electronic
issuance of shares of Common Stock. 

d. To the extent permitted under applicable law, the Holder of
any Note shall be entitled to exercise its conversion privilege with respect to
such Note, as the case may be, notwithstanding the commencement of any case
under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives, to the fullest extent permitted, any rights to relief it may have under
11 U.S.C. §362 in respect of such Holder’s exercise privilege. The Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. §362 in respect of the conversion of such Note. 

7.          
CLOSING DATE. 

a. The Closing Date shall occur on the date which is the
first Trading Day after each of the conditions contemplated by Sections 8 and 9
hereof shall have either been satisfied or been waived by the party in whose
favor such conditions run, or on such day or such other time as is mutually
agreed upon by the Company and the Buyer. 

b. Closing of the purchase and sale of the Note and the
Warrant, which the parties anticipate shall occur concurrently with the
execution of this Agreement, shall occur at the offices of the Buyer and shall
take place no later than 3:00 P.M., Eastern Time, or on such day or such other
time as is mutually agreed upon by the Company and the Buyer.

8.          
CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL. The Buyer understands that
the Company’s obligation to sell the Note and the Warrant to the Buyer pursuant
to this Agreement on the Closing Date is conditioned upon all of the following
conditions, any of which may be waived in whole or in part by the Company: 

a. The execution and delivery of this Agreement and, as
applicable, the other Transaction Documents by the Buyer on or before the
Closing Date; 

17 




b. Delivery by the Buyer by or on the Closing Date of
good funds as payment in full of an amount equal to the Initial Cash Purchase
Price in accordance with this Agreement; 

c. Delivery by the Buyer to the Company of executed
copies of the Secured Buyer Notes on or before the Closing Date; 

d. The accuracy on the Closing Date of the
representations and warranties of the Buyer contained in this Agreement, each as
if made on such date, and the performance by the Buyer on or before such date of
all covenants and agreements of the Buyer required to be performed on or before
such date; and 

e. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained. 

9.          
CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE. The Buyer’s obligation to
purchase the Note and the Warrant is conditioned upon and subject to the
fulfillment, on or prior to the Closing Date, of all of the following
conditions, any of which may be waived in whole or in part by the Buyer: 

a. The execution and delivery of this Agreement, the
Security Agreement, the Escrow Agreement, the Transfer Agent Letter and, as
applicable, the other Transaction Documents by the Company on or before the
Closing Date; 

b. The delivery by the Company to the Buyer of the Note
and the Warrant, each in original form, duly executed by the Company, in
accordance with this Agreement; 

c. The delivery by the Company of the Request, in
original form, duly executed by the Company, in accordance with this Agreement;


d. On the Closing Date, each of the Transaction
Documents executed by the Company on or before such date shall be in full force
and effect and the Company shall not be in default thereunder; 

e. On or prior to the Closing Date, the Share Reserve
shall be sufficient to effect the full conversion of each Conversion Eligible
Tranche and exercise of the Warrant as of the Closing Date; 

f. The accuracy in all material respects on the Closing
Date of the representations and warranties of the Company contained in this
Agreement and the other Transaction Documents, each as if made on such date, and
the performance by the Company on or before such date of all covenants and
agreements of the Company required to be performed on or before such date; 

g. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained;

h. From and after the date hereof up to and including
the Closing Date, each of the following conditions will remain in effect: (i)
the trading of the Common Stock shall not have been suspended by the SEC or on
the Principal Trading Market; (ii) trading in securities generally on the
Principal Trading Market shall not have been suspended or limited; (iii) no
minimum prices shall been established for securities traded on the Principal
Trading Market; (iv) there shall not have been any material adverse change in any financial market; and (v) there
shall not have occurred any Material Adverse Effect;

18 




i. Except for any notices required or permitted to be
filed after the Closing Date with certain federal and state securities
commissions, the Company shall have obtained (i) all governmental approvals
required in connection with the lawful sale and issuance of the Securities, and
(ii) all third party approvals required to be obtained by the Company in
connection with the execution and delivery of the Transaction Documents by the
Company or the performance of the Company’s obligations thereunder; and 

j. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Buyer. 

10.           
INDEMNIFICATION. 

a. The Company agrees to defend, indemnify and forever
hold harmless the Buyer and its stockholders, directors, officers, managers,
partners, Affiliates, employees, and agents, and each Buyer Control Person
(collectively, the “Buyer Parties”) from and against any losses, claims,
damages, liabilities or expenses incurred (collectively, “Damages”),
joint or several, and any action in respect thereof to which the Buyer or any of
the other Buyer Parties becomes subject, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of the Company
contained in this Agreement or any of the other Transaction Documents, as such
Damages are incurred. The Buyer Parties with the right to be indemnified under
this Section (the “Indemnified Parties”) shall have the right to defend
any such action or proceeding with attorneys of their own selection, and the
Company shall be solely responsible for all costs and expenses related thereto.
If the Indemnified Parties opt not to retain their own counsel, the Company
shall defend any such action or proceeding with attorneys of its choosing at its
sole cost and expense, provided that such attorneys have been pre-approved by
the Indemnified Parties, which approval shall not be unreasonably withheld, and
provided further that the Company may not settle any such action or proceeding
without first obtaining the written consent of the Indemnified Parties. 

b. The indemnity agreements contained in this Agreement
shall be in addition to (i) any cause of action or similar rights of the Buyer
Parties against the Company or others, and (ii) any other liabilities the
Company may be subject to. 

11.           
SPECIFIC PERFORMANCE. The Company and the Buyer acknowledge and agree that
irreparable damage would occur in the event that any provision of this Agreement
or any of the other Transaction Documents were not performed in accordance with
its specific terms or were otherwise breached. It is accordingly agreed that the
parties (including any Holder) shall be entitled to an injunction or
injunctions, without (except as specified below) the necessity to post a bond,
to prevent or cure breaches of the provisions of this Agreement or such other
Transaction Document and to enforce specifically the terms and provisions hereof
or thereof, this being in addition to any other remedy to which any of them may
be entitled by law or equity; provided, however that the Company, upon
receipt of a Notice of Conversion or a Notice of Exercise, may not fail or
refuse to deliver the stock certificates. 

19 




12.           
OWNERSHIP LIMITATION. If at any time after the Closing, the Buyer shall or
would receive shares of the Company’s Common Stock in payment of interest or
principal under the Note or upon conversion of the Note or exercise of the
Warrant, so that the Buyer would, together with other shares of Common Stock
held by it or its Affiliates beneficially own (as described under Section 13(d)
of the 1934 Act or its related rules) 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 the Company’s Common Stock outstanding on such date (the
“9.99% Cap”), the Company shall not be obligated and shall not issue to
the Buyer shares of its 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 Buyer. The foregoing limitations are
enforceable, unconditional and non-waivable. 

13.           
MISCELLANEOUS. The Company and the Buyer hereby agree that the
provisions of this Section 13 shall apply to all of the Transaction Documents.


a. Governing Law and Venue. This Agreement shall
be governed by and interpreted in accordance with the laws of the State of Utah
for contracts to be wholly performed in such state and without giving effect to
the principles thereof regarding the conflict of laws. Each of the parties
consents to the exclusive personal jurisdiction of the federal courts whose
districts encompass any part of the County of Salt Lake or the state courts of
the State of Utah sitting in the County of Salt Lake in connection with any
dispute arising under this Agreement or any of the other Transaction Documents,
and hereby waives, 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 jurisdictions or to any claim that such venue of the
suit, action or proceeding is improper. Nothing in this subsection shall affect
or limit any right to serve process in any other manner permitted by law. 

b. No Waiver. Failure of any party to exercise
any right or remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver thereof. 

c. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of each of the parties hereto. 

d. Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may permit or require. 

e. Counterparts. This Agreement may be signed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall be deemed to constitute one instrument. Facsimile and email
copies of signed signature pages will be deemed binding originals. 

f. Headings. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. 

g. Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such provision shall be
modified to achieve the objective of the parties to the fullest extent permitted
and such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

h. Amendment. This Agreement may be amended only
by an instrument in writing signed by the party to be charged with enforcement
thereof.

20 




i. Entire Agreement. This Agreement together with
the other Transaction Documents constitute and contain the entire agreement
between the Company and the Buyer and supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. 

j. Currency. All dollar amounts referred to or
contemplated by this Agreement or any other Transaction Document shall be deemed
to refer to US Dollars, unless otherwise explicitly stated to the contrary. 

k. Buyer’s Expenses. In the event the Company or
the Buyer elects not to effect the Closing for any reason, the Company shall pay
$15,000 in cash to the Buyer and deliver to the Buyer 50,000 shares of Common
Stock for the Buyer’s legal, administrative and due diligence expenses (which
shares the Buyer acknowledges having already received). Except as provided in
the immediately preceding sentence, and except for $15,000 which has been added
to and included in the principal amount of the Note and 50,000 shares of Common
Stock which shall be delivered to the Buyer for the Buyer’s legal,
administrative and due diligence expenses, the Company and the Buyer shall be
responsible for paying such party’s own fees and expenses (including legal
expenses) incurred in connection with the preparation and negotiation of this
Agreement and the other Transaction Documents and the closing of the
transactions contemplated hereby and thereby. 

l. Assignment by the Company. Notwithstanding anything
to the contrary herein, the rights, interests or obligations of the Company
hereunder may not be assigned, by operation of law or otherwise, in whole or in
part, by the Company without the prior written consent of the Buyer, which
consent may be withheld at the sole discretion of the Buyer; provided,
however, that in the case of a merger, sale of substantially all of the
Company’s assets or other corporate reorganization, the Buyer shall not
unreasonably withhold, condition or delay such consent.

m. Advice of Counsel. In connection with the preparation
of this Agreement and all other Transaction Documents, each of the Company, its
stockholders, officers, agents, and representatives acknowledges and agrees that
the attorney that prepared this Agreement and all of the other Transaction
Documents acted as legal counsel to the Buyer only. Each of the Company, its
stockholders, officers, agents, and representatives (i) hereby acknowledges that
he/she/it has been, and hereby is, advised to seek legal counsel and to review
this Agreement and all of the other Transaction Documents with legal counsel of
his/her/its choice, and (ii) either has sought such legal counsel or hereby
waives the right to do so.

n. No Strict Construction. The language used in this
Agreement is the language chosen mutually by the parties hereto and no doctrine
of construction shall be applied for or against any party. 

o. Attorney’s Fees. In the event of any action at law or
in equity to enforce or interpret the terms of this Agreement or any of the
other Transaction Documents, the Prevailing Party (as defined hereafter) shall
be entitled to reasonable attorneys’ fees, court costs and collection costs in
addition to any other relief to which such party may be entitled. “Prevailing
Party” shall mean the party in any litigation or enforcement action that
prevails in the highest number of final rulings, counts or judgments adjudicated
by a court of competent jurisdiction. 

p. Replacement of the Note. Subject to any restrictions
on or conditions to transfer set forth in the Note, the Holder of the Note, at
its option, may in person or by duly authorized attorney surrender the same for
exchange at the Company’s chief executive office, and promptly thereafter and at
the Company’s expense, except as provided below, receive in exchange therefor
one or more new convertible secured promissory note(s), registered in the name
of such person or persons as shall have been designated in writing by such
Holder or its attorney for the same principal amount as the then unpaid
principal amount of the Note so surrendered. As applicable, upon receipt by the
Company of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of the Note and (i) in the case of loss, theft
or destruction, of indemnity reasonably satisfactory to it; or (ii) in the case
of mutilation, upon surrender thereof, the Company, at its expense, will execute
and deliver in lieu thereof a new convertible secured promissory note executed
in the same manner as the Note being replaced, in the same principal amount as
the unpaid principal amount of such Note. 

21 




q. Notices. Any notice required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall be
deemed effectively given on the earliest of

(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile or electronic mail
transmission, 

(ii) the fifth Trading Day after deposit, postage prepaid, in
the United States Postal Service by registered or certified mail, or 

(iii) the third Trading Day after mailing by domestic or
international express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto
entitled at the following addresses (or at such other addresses as such party
may designate by ten (10) days’ advance written notice similarly given to each
of the other parties hereto): 

If to the Company: 

Silver Dragon Resources Inc. 
Attn:
Marc Hazout 
5160 Yonge Street, Suite 803 
Toronto, Ontario 
Canada M2N
6L9 


with a copy to (which shall not
constitute notice): 

Dorsey & Whitney LLP 
Attn:
Chris Doerksen 
Columbia Center 
701 Fifth Avenue, Suite 6100 
Seattle,
Washington 98104 


If to the Buyer: 

Tonaquint, Inc. 
Attn: John M. Fife

303 East Wacker Drive, Suite 1200
Chicago, Illinois 60601 


with a copy to (which shall not
constitute notice): 

Jonathan K. Hansen 
Carman Lehnhof
Israelsen LLP 
4626 North 300 West, Suite 160 
Provo, Utah 84604 


22 




14.          SURVIVAL OF COVENANTS, REPRESENTATIONS AND
WARRANTIES. The Company’s and the Buyer’s covenants, agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the other Transaction Documents and the Closing
hereunder, and shall inure to the benefit of the Buyer and the Company and their
respective successors and permitted assigns. 

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 

23 




IN WITNESS WHEREOF, each of the undersigned represents
that the foregoing statements made by it above are true and correct and that it
has caused this Agreement to be duly executed on its behalf (if an entity, by
one of its officers thereunto duly authorized) as of the date first above
written. 

	TOTAL PURCHASE PRICE: 	$2,500,000.00 	 
	 	 	 
	INITIAL CASH PURCHASE PRICE: 	$500,000.00 	 
	  	  	  	 
	  	THE BUYER: 	 
	 	 	 
	  	TONAQUINT, INC. 	 
	  	  	  	 
	  	By: 	/s/
      John M. Fife 	 
	  		John M. Fife, President  	 
	  	  	  	 
	  	THE COMPANY: 	 
	 	 	 
	  	SILVER DRAGON RESOURCES INC. 	 
	  	  	  	 
	  	By: 	 
                       /s/ Marc
      Hazout 	 
	  	Name: 	 
                       Marc Hazout
    	 
	  	Title: 	 
                       President
      and CEO 	 


[SIGNATURE PAGE TO NOTE AND WARRANT PURCHASE AGREEMENT]






	
    ANNEX I 
	
    WIRE INSTRUCTIONS 

	
    ANNEX II 
	
    NOTE 

	
    ANNEX III 
	
    SECURITY AGREEMENT 

	
    ANNEX IV 
	
    TRUST DEED 

	
    ANNEX V 
	
    ALLOCATION OF PURCHASE PRICE 

	
    ANNEX VI 
	
    WARRANT 

	
    ANNEX VII 
	
    REQUEST 

	
    ANNEX VIII 
	
    ESCROW AGREEMENT 

	
    ANNEX IX 
	
    TRANSFER AGENT LETTER 

	
    ANNEX X 
	
    SECURED BUYER NOTE #1 

	
    ANNEX XI 
	
    SECURED BUYER NOTE #2 

	
    ANNEX XII 
	
    SECURED BUYER NOTE #3 

	
    ANNEX XIII 
	
    SECURED BUYER NOTE #4 

	
    ANNEX XIV 
	
    SECURED BUYER NOTE #5 

	
    ANNEX XV 
	
    SECURED BUYER NOTE #6 

	
    ANNEX XVI 
	
    SECURED BUYER NOTE #7 

	
    ANNEX XVII 
	
    SECURED BUYER NOTE #8 

	
    ANNEX XVIII 
	
    SECURED BUYER NOTE #9 

	
    ANNEX XIX 
	
    SECURED BUYER NOTE #10