Document:

Lithium Exploration Group, Inc.: Exhibit 10.117- Filed by newsfilecorp.com

10.117

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS. 

LITHIUM EXPLORATION GROUP, INC. 
10% OID Convertible
Promissory Note 
Due September 9, 2016

	September 9, 2015 	USD $30,000  

For value received, Lithium
Exploration Group, Inc., a Nevada corporation (the "Company"), hereby
promises to pay to the order of JDF Capital Inc. (together with its
successors, representatives, and permitted assigns, the "Holder"), in accordance
with the terms hereinafter provided, up to an aggregate of $30,000 (thirty
thousand dollars) (the "Principal Amount"), which includes the aggregate
principal sum of $25,000 (twenty-five thousand dollars) advanced by the Holder,
$2,500 Original Issue Discount incurred by the Holder, and $2,500 legal fees.
The Principal Amount outstanding shall be due and payable on September 9,
2016.

The due dates of any outstanding
principal balance are referred to herein as the "Maturity Date", respectively.

All payments under or pursuant to
this Note refer to and shall be made in United States Dollars in immediately
available funds to the Holder at the address of the Holder first set forth above
or at such other place as the Holder may designate from time to time in writing
to the Company or by wire transfer of funds to the Holder's account,
instructions for which are attached hereto as Exhibit A. 

ARTICLE I 

Section
1.1      Purchase Agreement. This Note has
been executed and delivered pursuant to the Security Purchase Agreement dated as
of September 9, 2015 (the "Purchase Agreement'') by and among the Company and
the purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement. 

Section
1.2      Interest. 

(a)      Beginning
on the issuance date of this Note (the "Issuance Date"), the outstanding
principal balance of this Note shall bear interest at a rate per annum equal to
10 percent (10%) accruing on an 12 month basis, which shall consist of the
pre-paid interest referred to above, which may be converted to shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") at the
option of the Holder on the same terms as the Note. 

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10.117

Section
1.3      Payment on Non-Business Days. Whenever
any payment to be made shall be due on a Saturday, Sunday or a public holiday
under the laws of the State of Nevada, such payment may be due on the next
succeeding business day and such next succeeding day shall be included in the
calculation of the amount of accrued interest payable on such date. 

Section
1.4      Transfer. This Note may be
transferred or sold, subject to the provisions of Section 4.8 of this Note, or
pledged, hypothecated or otherwise granted as security by the Holder. 

Section
1.5      Replacement. Upon receipt of a duly
executed, notarized and unsecured written statement from the Holder with respect
to the loss, theft or destruction of this Note (or any replacement hereof), and
without requiring an indemnity bond or other security, or, in the case of a
mutilation of this Note, upon surrender and cancellation of such Note, the
Company shall issue a new Note, of like tenor and amount, in lieu of such lost,
stolen, destroyed or mutilated Note. 

ARTICLE II 

EVENTS OF DEFAULT; REMEDIES 

Section
2.1      Events of Default. The occurrence of
any of the following events shall be an "Event of Default" under this Note: 

(a)      the
Company shall fail to make the payment of any amount of principal outstanding on
the date such payment is due hereunder; 

(b)     
the Company shall fail to make any payment of interest in shares of Common Stock
for a period of three (3) days after the date such interest is due; 

(c)     
the suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq Small Cap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days; 

(d)      the
Company's notice to the Holder, including by way of public announcement, at any
time, of its inability to comply or its intention not to comply with proper
requests for conversion of this Note into shares of Common Stock;

(e)      the
Company shall fail to (i) timely deliver the shares of Common Stock upon
conversion of the Note or any accrued and unpaid interest, or (ii) make the
payment of any fees and/or liquidated damages under this Note or the Purchase
Agreement, which failure in the case of items (i) and (ii) of this Section
2.1(e) is not remedied within three (3) business days after the incurrence
thereof; 

(f)      default
shall be made in the performance or observance of (i) any material covenant,
condition or agreement contained in this Note (other than as set forth in clause
(e) of this Section 2.1) and such default is not fully cured within five (5)
business days after the occurrence thereof or (ii) any material covenant,
condition or agreement contained in the Purchase Agreement or any other
Transaction Document which is not covered by any other provisions of this
Section 2.1 and such default is not fully cured within five (5) business days
after the occurrence thereof; 

(g)      any
material representation or warranty made by the Company herein or in the
Purchase Agreement or any other Transaction Document shall prove to have been
false or incorrect or breached in a material respect on the date as of which made;

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10.117

(h)     
the Company shall (A) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$50,000 or (B) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to perm it the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; 

(i)     
the Company shall (i) apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; 

(j)      a
proceeding or case shall be commenced in respect of the Company, without its
application or consent, in any court of competent jurisdiction, seeking (i) the
l iquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or any substantial
part of its assets in connection with the liquidation or dissolution of the
Company or (iii) similar relief in respect of it under any law providing for the
relief of debtors, and such proceeding or case described in clause (i), (ii) or
(iii) shall continue undismissed, or unstayed and in effect, for a period of
sixty (60) days or any order for relief shall be entered in an involuntary case
under United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Company or
action under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to the Company and shall continue
undismissed, or unstayed and in effect for a period of sixty (60) days; or 

(k)      the
failure of the Company to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities Act
and issue such unlegended certificates to the Holder within five (5) business
days of the Holder's request so long as the Holder has provided reasonable
assurances and opinions of counsel to the Company that such shares of Common
Stock can be resold pursuant to Rule 144; or 

(I)      the
failure of the Company to pay any amounts due to the Holder herein within three
(3) business days of receipt of notice to the Company. 

Section
2.2      Remedies Upon An Event of Default.
If an Event of Default shall have occurred and shall be continuing, the Holder
of this Note may at any time at its option, (a) declare the entire unpaid
principal balance of this Note, together with all interest accrued hereon, due
and payable, and thereupon, the same shall be accelerated and so due and
payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Company;
provided, however, that upon the occurrence of an Event of Default described in
(i) Sections 2.1 (k) or (I), the outstanding principal balance and interest
hereunder shall be automatically due and payable and (ii) Sections 2.1 (a)-(j) and 2.l (m)-(n), demand
the prepayment of this Note pursuant to Section 3.6 hereof, (b) subject to
Section 3.4 hereof, demand that the principal amount of this Note then
outstanding shall be converted into shares of Common Stock at a Conversion Price
(as defined in Section 3.2(a) hereof) per share calculated pursuant to Section
3.1 hereof assuming that the date that the Event of Default occurs is the
Conversion Date and demand that all accrued and unpaid interest under this Note
shall be converted into shares of Common Stock in accordance with Section 1 .2
hereof, or (c) exercise or otherwise enforce any one or more of the Holder's
rights, powers, privileges, remedies and interests under this Note, the Purchase
Agreement, other Transaction Document or applicable law. No course of delay on
the part of the Holder shall operate as a waiver thereof or otherwise prejudice
the right of the Holder. No remedy conferred hereby shall be exclusive of any
other remedy referred to herein or now or hereafter available at law, in equity,
by statute or otherwise. 

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10.117

ARTICLE III

CONVERSION; ANTIDILUTION; PREPAYMENT

Section
3.1      Conversion Option. 

(a)      At
any time on or after the Issuance Date, this Note shall be convertible (in whole
or in part), at the option of the Holder (the "Conversion Option"), into
such number of fully paid and non-assessable shares of Common Stock (the
"Conversion Rate") as is determined by dividing that portion of the
outstanding principal balance under this Note as of such date that the Holder
elects to convert by the Conversion Price (as defined in Section 3.2(a) hereof)
then in effect on the date on which the Holder faxes a notice of conversion (the
"Conversion Notice"), duly executed, to the Company (the "Voluntary
Conversion Date"), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.5 below. The Holder shall
deliver this Note to the Company at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date. 

(b)      On
any Voluntary Conversion Date, the Holder may cause the any outstanding
Principal Amount of this Note plus all accrued and unpaid interest to convert
into a number of fully paid and non-assessable shares of Common Stock equal to
the quotient of the elected outstanding principal amount of this Note plus all
accrued interest on the elected outstanding on the Voluntary Conversion Date (as
described in this Section below) divided by the Conversion Price as described in
Section 3.2(a) below. 

Furthermore, upon the occurrence of an Event of Default (as
defined in Section 2.1 hereof), then to the extent permitted by law, the Company
will pay interest to the Holder, payable on demand, on the outstanding principal
balance of the Note from the date of the Event of Default until such Event of
Default is cured at the rate of the lesser of fifteen percent (15%) and the
maximum applicable legal rate per annum. 

(B)           Conversion
Limitations; Holder's Restriction on Conversion. The Company shall
not effect any conversion of this Note, and the Holder shall not have the right
to convert any portion of this Note, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Conversion Notice, would beneficially own in excess of
4.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its affiliates and (B)
Exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Notes or the
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section, beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act. To the extent that the limitation contained in this
section applies, the determination of whether this Note is convertible (in
relation to other securities owned by the Holder) and of which a portion of this
Note is convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to represent to the
Company each time it delivers a Conversion Notice that such Conversion Notice
has not violated the restrictions set forth in this paragraph and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most recent
Form 10-Q or Form 10-K (or such related form), as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the Company
or the Company's Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Note, by
the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this Section
may be waived by the Holder upon, at the election of the Holder, not less than
61 days' prior notice to the Company, and the provisions of this Section shall
continue to apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver). 

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10.117

Section
3.2      Conversion Price. 

(a)      The
term "Conversion Price" shall mean a 3 5 % discount to the lowest s a l e price
of the common stock for the 20 trading days immediately prior to (i) the date of
the Purchase Agreement, or (ii) the Voluntary Conversion Date.

Section
3.3      Mechanics of Conversion. 

(a)      Not
later than three (3) Trading Days after any Conversion Date, the Company or its
designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company ("DTC") account on the Holder's behalf via the Deposit
Withdrawal Agent Commission System ("DWAC") as specified in the Conversion
Notice, registered in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder shall be entitled. I n the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Company shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5. l of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the "Delivery Date"). Notwithstanding the
foregoing to the contrary, the Company or its transfer agent shall only be
obligated to issue and deliver the shares to the OTC on the Holder's behalf via
DWAC (or certificates free of restrictive legends) if such conversion is in
connection with a sale and the Holder has complied with the applicable
prospectus delivery requirements. lf in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the Delivery Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note if tendered for conversion, whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such notice of revocation, except that any
amounts described in Sections 3.3(b) and (c) shall be payable through the date
notice of rescission is given to the Company. 

(b)      The
Company understands that a delay in the delivery of the shares of Common Stock upon conversion of this Note beyond the Delivery Date
could result in economic loss to the Holder. If the Company fails to deliver to
the Holder such shares via DWAC or a certificate or certificates pursuant to
this Section hereunder by the Delivery Date, the Company shall pay to such
Holder, in cash, an amount per Trading Day for each Trading Day until such
shares are delivered via DWAC or certificates are delivered, together with
interest on such amount at a rate of l 0% per annum, accruing until such amount
and any accrued interest thereon is paid in full, equal to the greater of (A)
(i) 1% of the aggregate principal amount of the Note requested to be converted
for the first five (5) Trading Days after the Delivery Date and (ii) 2% of the
aggregate principal amount of the Note requested to be converted for each
Trading Day thereafter and (B) $2,000 per day (which amount shall be paid as
liquidated damages and not as a penalty). Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief). Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Company shall only be obligated to pay the
liquidated damages accrued in accordance with this Section 3.3(b) through the
date the Conversion Notice is withdrawn. 

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10.117

(c)                ln
addition to any other rights available to the Holder, if the Company fails
to cause its transfer agent to transmit to the Holder a certificate or
certificates representing the shares of Common Stock issuable upon conversion of
this Note on or before the Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
shares of Common Stock issuable upon conversion of this Note which the Holder
anticipated receiving upon such exercise (a "Buy-In"), then the Company
shall ( 1) pay in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multi plying (A)
the number of shares of Common Stock issuable upon conversion of this Note that
the Company was required to deliver to the Holder in connection with the
conversion at issue times (B) the price at which the sell order giving rise to
such purchase obligation was executed, and (2) at the option of the Holder,
either reinstate the portion of the Note and equivalent number of shares of
Common Stock for which such conversion was not honored or deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely complied with its conversion and delivery obligations hereunder. For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of shares of
Common Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately preceding sentence
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof. 

Section
3.4      Ownershi p Cap and Certain Conversion
Restrictions.

Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may the
Holder convert all or a portion of this Note if the number of shares of Common
Stock to be issued pursuant to such conversion would exceed, when aggregated
with all other shares of Common Stock owned by the Holder at such time, the
number of shares of Common Stock which would result in the Holder beneficially
owning (as determined in accordance with Section l3(d) of the Exchange Act and
the rules thereunder) more than 9.9% of all of the Common Stock outstanding at
such time; provided, however, that upon the Holder providing the Company with
sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the "Waiver Notice") that the Holder would
like to waive this Section 3.4 with regard to any or all shares of Common Stock
issuable upon conversion of this Note, this Section 3.4 will be of no force or
effect with regard to all or a portion of the Note referenced in the Waiver
Notice; provided, further, that this provision shall be of no further force or
effect during the sixty-one (61) days immediately preceding the Maturity Date. 

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10.117

Section
3.5      Adjustment of Conversion Price.

(a)      The
Conversion Price shall be subject to adjustment from time to time as follows:

(i)      Adjustments
for Stock Splits and Combinations. If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the outstanding
Common Stock, the applicable Conversion Price in effect immediately prior to the
stock split shall be proportionately decreased. If the Company shall at any time
or from time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination shall be proportionately increased. Any adjustments u nder this
Section 3.5(a)(i) shall be effective at the close of business on the date the
stock split or combination occurs. 

(ii)      Adjustments
for Certain Dividends and Distributions. If the Company shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in shares of Common Stock, then, and in each
event, the applicable Conversion Price in effect immediately prior to such event
shall be decreased as of the time of such issuance or, in the event such record
date shall have been fixed, as of the close of business on such record date, by
multiplying, the applicable Conversion Price then in effect by a fraction: 

(1
)      the numerator of which shall be the total n
umber of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date; and 

(2)      the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; plus the number of shares of Common Stock issuable
in payment of such dividend or distribution. 

(iii)      Adjustment
for Other Dividends and Distributions. If the Company shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in other than shares of Common Stock, then, and in
each event, an appropriate revision to the applicable Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of this Note shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Company which they would have received had this
Note been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 3.5(a)(iii ) with respect to
the rights of the holders of this Note; provided, however, that if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions. 

(iv)      Adjustments
for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different n umber of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.5(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.5(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert this Note into the kind and amount of
shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein. 

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10.117

(v)    Adjustments
for Reorganization, Merger, Consolidation or Sales of Assets. If at any time
or from time to time after the Issuance Date there shall be a capital
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in Section 3.5(a)(i),
(ii) and (iii), or a reclassification, exchange or substitution of shares
provided for in Section 3.5(a)(iv)), or a merger or consolidation of the Company
with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over fifty percent
(50%) of the outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or the sale of all or
substantially all of the Company's properties or assets to any other person (an
"Organic Change"), then as a part of such Organic Change an appropriate
revision to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holder shall have
the right thereafter to convert such Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
3.5(a)(v) with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.5(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of this Note) shall be
applied after that event in as nearly an equivalent manner as may be
practicable. 

(vi)     
Issuance of Common Stock Equivalents. If the Company, at any time after
the Issuance Date, shall issue any securities convertible into or exchangeable
for, directly or indirectly, Common Stock ("Convertible Securities"),
other than the Note, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold (collectively,
the "Common Stock Equivalents") and the aggregate of the price per share
for which Additional Shares of Common Stock may be issuable thereafter pursuant
to such Common Stock Equivalent, plus the consideration received by the Company
for issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the
"Aggregate Per Common Share Price") shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall make the Aggregate Per Share Common Price be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then the
applicable Conversion Price upon each such issuance or amendment shall be
adjusted as provided in the first sentence of subsection (vi) of this Section
3.5(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are actually then
exercisable, convertible or exchangeable in whole or in part) as of the earlier
of (A) the date on which the Company shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent. No adjustment of the applicable Conversion Price
shall be made under this subsection (vii) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefor, if any adjustment shall
previously have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights pursuant to this subsection
(vii). No adjustment shall be made to the Conversion Price upon the issuance of
Common Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent. 

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10.117

(vii)     
Consideration for Stock. In case any shares of Common Stock or any Common
Stock Equivalents shall be issued or sold: 

(1)     
in connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or 

(2)      in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on The basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Note, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Note immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Note. In the event Common Stock is
issued with other shares or securities or other assets of the Company for
consideration which covers both, the consideration computed as provided in this
Section 3.5(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Company. 

(b)     
Record Date. In case the Company shall take record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date. 

(c)     
Certain Issues Excepted Anything herein to the contrary notwithstanding,
the Company shall not be required to make any adjustment to the Conversion Price
in connection with (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to the Purchase Agreement, (iv) the shares of Common Stock issuable upon the exercise of Warrants, (v)
securities issued i n connection with strategic license agreements or other
partnering arrangements so long as such issuances are not for the purpose of
raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company's stock option plans and employee
stock purchase plans as they now exist, (vii) the payment of any accrued
interest in shares of Common Stock pursuant to this Note. 

9

10.117

(d)      No
Impairment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 3.5 and
in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the Holder against impairment. In the event a
Holder shall elect to convert any Note as provided herein, the Company cannot
refuse conversion based on any claim that such Holder or anyo ne associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining
conversion of all or of said Note shall have issued and the Company posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
thirty percent ( 130%) of the amount of the Note the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment. 

(e)     
Certificates as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or n umber of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.5, the Company
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing i n detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the
Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least one percent
(1%) of such adjusted amount. 

(f)      Issue
Taxes. The Company shall pay any and all issue and other taxes, excluding
federal, state or local income taxes, that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of this Note pursuant
thereto; provided, however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by the Holder in connection
with any such conversion. 

(g)     
Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of this Note. In lieu of any fractional shares to which the
Holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date. 

(h)      Reservation
of Common Stock. The Company shall at all times when this Note shall be
outstanding, reserve and keep available out of its authorized but unissued
Common Stock, such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of this Note and all interest accrued
thereon; provided that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent ( 120%) of the number
of shares of Common Stock for which this Note and all interest accrued thereon
are at any time convertible. The Company shall, from time to time in accordance
with Nevada corporate law, increase the authorized number of shares of Common Stock if at any time the unissued
number of authorized shares shall not be sufficient to satisfy the Company's
obligations under this Section 3.5(h) . 

10

10.117

(i)      Regulatory
Compliance. If any shares of Common Stock to be reserved for the purpose of
conversion of this Note or any interest accrued thereon require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, i n good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the case
may be. 

Section
3.6      Prepayment. 

(a)      Prepayment
Upon an Event of Default. Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default described i n Sections 2.1
(a)-(j)) and 2.1 (m)- (o) hereof, the Holder shall have the right, at such
Holder's option, to require the Company to prepay in cash all or a portion of
this Note at a price equal to one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at
the time of such request (the "Event of Default Prepayment Price").
Nothing i n this Section 3.6(a) shall limit the Holder's rights under Section
2.2 hereof. 

(b)     
Prepayment Option Upon Major Transaction. In addition to all other rights
of the Holder contained herein, simultaneous with the occurrence of a Major
Transaction (as defined in Section 3.6(e) hereof), the Holder shall have the
right, at the Holder's option, to require the Company to prepay all or a portion
of the Holder's Note at a price equal to one hundred ten percent (110%) of the
aggregate principal amount of this Note plus all accrued and unpaid interest
(the "Major Transaction Prepayment Price"). 

(c)      Prepayment
Option Upon Triggering Event. In addition to all other rights of the Holder
contained herein, after a Triggering Event (as defined below), the Holder shall
have the right, at the Holder's option, to require the Company to prepay all or
a portion of this Note in cash at a price equal to the sum of (i) the greater of
(A) one hundred twenty percent (120%) of the aggregate principal amount of this
Note plus all accrued and un paid interest and (B) in the event at such time the
Holder is unable to obtain the benefit of its conversion rights through the
conversion of this Note and resale of the shares of Common Stock issuable upon
conversion hereof in accordance with the terms of this Note and the other
Transaction Documents, the aggregate principal amount of this Note plus all
accrued but unpaid interest hereon, divided by the Conversion Price on (x) the
date the Prepayment Price (as defined below) is demanded or otherwise due or (y)
the date the Prepayment Price is paid in full, whichever is less, multiplied by
the VWAP on (x) the date the Prepayment Price is demanded or otherwise due, and
(y) the date the Prepayment Price is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
this Note and the other Transaction Documents (the "Triggering Event Prepayment
Price," and, collectively with the "Major Transaction Prepayment Price," the
"Prepayment Price"). 

(d)      Major
Transaction. A "Major Transaction" shall be deemed to have occurred at such
time as any of the following events: 

(i)      the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities); or 

11

10.117

(ii)     
the sale or transfer of more than fifty percent (50%) of the Company's assets
(based on the fair market value as determined in good faith by the Company's
Board of Directors) other than inventory in the ordinary course of business in
one or a related series of transactions; or 

(iii)      closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted. 

(e)      Triggering
Event. A "Triggering Event" shall be deemed to have occurred at such time as
any of the following events: 

(i)      the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days; 

(ii)      the
Company's notice to any holder of the Note, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8) or its intention not to comply with proper
requests for conversion of any Note into shares of Common Stock; or 

(iii)     
the Company's failure to comply with a Conversion Notice tendered in accordance
with the provisions of this Note within ten (10) business days after the receipt
by the Company of the Conversion Notice; or 

(iv)      the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or 

(v)      the
Company consummates a ''going private" transaction and as a result the Common
Stock is no longer registered under Sections l 2(b) or 12(g) of the Exchange
Act. 

(f)      Mechanics
of Prepayment at Option of Holder Upon Major Transaction. No sooner than
fifteen (15) days nor later than ten (10) days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Major Transaction") to the Holder of this Note. At
any time after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least ten (10) days prior to a
Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Company
to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Holder Upon Major Transaction") to the Company, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.6(b)
above. 

(g)      Mechanics
of Prepayment at Option of Holder Upon Triggering Event. Within one (1)
business day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of the Notes. At any time after the earlier of
a holder's receipt of a Notice of Triggering Event and such holder becoming
aware of a Triggering Event, any holder of this Note may require the Company to
prepay all of the Notes on a pro rata basis by delivering written notice thereof
via facsimile and overnight courier ("Notice of Prepayment at Option of
Holder Upon Triggering Event") to the Company, which Notice of Prepayment at
Option of Holder Upon Triggering Event shall indicate (i) the amount of the Note
that such holder is electing to have prepaid and (ii) the applicable Triggering
Event Prepayment Price, as calculated pursuant to Section 3.6(c) above. A holder
shall only be permitted to require the Company to prepay the Note pursuant to
Section 3.6 hereof for the greater of a period of ten (10) days after receipt by
such holder of a Notice of Triggering Event or for so long as such Triggering
Event is continuing. 

12

10.117

(h)                     Payment
of Prepayment Price. Upon the Company's receipt of a Notice(s) of Prepayment
at Option of Holder Upon Triggering Event or a Notice(s) of Prepayment at Option
of Holder Upon Major Transaction from any holder of the Notes, the Company shall
immediately notify each holder of the Notes by facsimile of the Company's
receipt of such Notice(s) of Prepayment at Option of Holder Upon Triggering
Event or Notice(s) of Prepayment at Option of Holder Upon Major Transaction and
each holder which has sent such a notice shall promptly submit to the Company
such holder's certificates representing the Notes which such holder has elected
to have prepaid. The Company shall deliver the applicable Triggering Event
Prepayment Price, in the case of a prepayment pursuant to Section 3.6(i), to
such holder within five (5) business days after the Company's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.6(f), the Company shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Company; provided further that if the
Company is u nable to prepay all of the Notes to be prepaid, the Company shall
prepay an amount from each holder of the Notes being prepaid equal to such
holder's pro-rata amount (based on the number of Notes held by such holder
relative to the number of Notes outstanding) of all Notes being prepaid. If the
Company shall fail to prepay all of the Notes submitted for prepayment (other
than pursuant to a dispute as to the arithmetic calculation of the Prepayment
Price), in addition to any remedy such holder of the Notes may have under this
Note and the Purchase Agreement, the applicable Prepayment Price payable in
respect of such Notes not prepaid shall bear interest at the rate of two percent
(2%) per month (prorated for partial months) until paid in full. Until the
Company pays such unpaid applicable Prepayment Price in full to a holder of the
Notes submitted for prepayment, such holder shall have the option (the "Void
Optional Prepayment Option") to, in lieu of prepayment, require the Company to
promptly return to such holder(s) all of the Notes that were submitted for
prepayment by such holder(s) under this Section 3.6 and for which the applicable
Prepayment Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "Void Optional Prepayment Notice"). Upon the
Company's receipt of such Void Optional Prepayment Notice(s) and prior to
payment of the full applicable Prepayment Price to such holder, (i) the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii)
the Company shall immediately return any Notes submitted to the Company by each
holder for prepayment under this Section 3.6(h) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Company and (B) the lowest Closing Bid Price during the period beginning
on the date on which the Notice(s) of Prepayment of Option of Holder Upon Major
Transaction or the Notice(s) of Prepayment at Option of Holder Upon Triggering
Event, as the case may be, is delivered to the Company and ending on the date on
which the Void Optional Prepayment Notice(s) is delivered to the Company;
provided that no adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect. A holder's delivery of a Void
Optional Prepayment Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this Section
3.6 shall have priority to payments to other stockholders in connection with a Major Transaction.

13

10.117

(i)     
Company Prepayment Option upon Major Transaction. Upon the consummation
of a Major Transaction, the Company may prepay in cash all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon upon at least thirty (30) days prior written notice to the
Holder (the "Company's Prepayment Notice") at a price equal to one
hundred twenty percent (120%) of the aggregate principal amount of this Note
plus any accrued but unpaid interest (the "Company's Prepayment Price");
provided, however, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Company's Prepayment Notice, the principal amount of
the Notes plus any accrued but unpaid interest designated to be converted may
not be prepaid by the Company and shall be converted in accordance with Section
3.3 hereof; provided further that if during the period between delivery of the
Company's Prepayment Notice and the Company's Prepayment Date (as defined
below), a holder shall become entitled and elects to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then such rights of the holders shall
take precedence over the previously delivered Company Prepayment Notice if the
holder so elects. The Company's Prepayment Notice shall state the date of
prepayment which date shall be the date of the consummation of the Major
Transaction (the "Company's Prepayment Date"), the Company's Prepayment Price
and the principal amount of Notes plus any accrued but unpaid interest to be
prepaid by the Company. The Company shall deliver the Company's Prepayment Price
on the Company's Prepayment Date, provided, that if the holder(s) delivers a
Conversion Notice before the Company's Prepayment Date, then the portion of the
Company's Prepayment Price which would be paid to prepay the Notes covered by
such Conversion Notice shall be returned to the Company upon delivery of the
Common Stock issuable i n connection with such Conversion Notice to the
holder(s). On the Company's Prepayment Date, the Company shall pay the Company's
Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis. If the Company fails
to pay the Company's Prepayment Price by the third (3rd) business day after the
Company's Prepayment Date, the prepayment will be declared null and void and the
Company shall lose its right to serve a Company's Prepayment Notice pursuant to
this Section 3.6(i) in the future. Notwithstanding the foregoing to the
contrary, the Company may effect a prepayment pursuant to this Section 3.6(i)
only if trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the Nasdaq SmallCap Market (or other
exchange or market on which the Common Stock is trading), and and the Company is
in material compliance with the terms and conditions of this Note and the other
Transaction Documents. 

Section
3.7      Inability to Fully Convert. 

(a)     
Holder's Option if Company Cannot Fully Convert. If, upon the Company's
receipt of a Conversion Notice, the Company cannot issue shares of Common Stock
for any reason, including, without limitation, because the Company (w) does not
have a sufficient number of shares of Common Stock authorized and available, or
(x) is otherwise prohibited by applicable law or by the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities from
issuing all of the Common Stock which is to be issued to the Holder pursuant to
a Conversion Notice, then the Company shall issue as many shares of Common Stock
as it is able to issue in accordance with the Holder's Conversion Notice and,
with respect to the unconverted portion of this Note, the Holder, solely at
Holder's option, can elect to: 

(i)      require
the Company to prepay that portion of this Note for which the Company is unable
to issue Common Stock in accordance with the Holder's Conversion Notice (the
"Mandatory Prepayment") at a price per share equal to the
Triggering Event Prepayment Price as of such Conversion Date (the "Mandatory
Prepayment Price"); 

(ii)     
void its Conversion Notice and retain or have returned, as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice). 

14

10.117

In the event a Holder shall elect to convert any portion of its
Notes as provided herein, the Company cannot refuse conversion based on any
claim that such Holder or anyone associated or affiliated with such Holder has
been engaged in any violation of law, violation of an agreement to which such
Holder is a party or for any reason whatsoever, unless, an injunction from a
court, on notice, restraining and or adjoining conversion of all or of said
Notes shall have been issued and the Company posts a surety bond for the benefit
of such Holder in an amount equal to 130% of the principal amount of the Notes
the Holder has elected to convert, which bond shall remain i n effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment. 

(b)     
Mechanics of Fulfilling Holder's Election. The Company shall immediately
send via facsimile to the Holder, upon receipt of a facsimile copy of a
Conversion Notice from the Holder which cannot be fully satisfied as described
in Section 3.7(a) above, a notice of the Company's inability to fully satisfy
the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Company
is unable to fully satisfy such holder's Conversion Notice, (ii) the amount of
this Note which cannot be converted and (iii) the applicable Mandatory
Prepayment Price. The Holder shall notify the Company of its election pursuant
to Section 3.7(a) above by delivering written notice via facsimile to the
Company ("Notice in Response to Inability to Convert"). 

(c)      Payment
of Prepayment Price. If the Holder shall elect to have its Notes prepaid
pursuant to Section 3.7(a)(i) above, the Company shall pay the Mandatory
Prepayment Price to the Holder within thirty (30) days of the Company's receipt
of the Holder's Notice in Response to Inability to Convert, provided that prior
to the Company's receipt of the Holder's Notice in Response to Inability to
Convert the Company has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting i n the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Company shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.7(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory Prepayment. 

(d)      Pro-rata
Conversion and Prepayment. In the event the Company receives a Conversion
Notice from more than one holder of the Notes on the same day and the Company
can convert and prepay some, but not all, of the Notes pursuant to this Section
3.7, the Company shall convert and prepay from each holder of the Notes electing
to have its Notes converted and prepaid at such time an amount equal to such
holder's pro-rata amount (based on the principal amount of the Notes held by
such holder relative to the principal amount of the Notes outstanding) of all
the Notes being converted and prepaid at such time. 

Section
3.8      No Rights as Shareholder. Nothing
contained in this Note shall be construed as conferring upon the Holder, prior
to the conversion of this Note, the right to vote orto receive dividends or to consent or to receive notice as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Company or of any other matter, or any other rights as a
shareholder of the Company.  

15

10.117

ARTICLE IV 
MISCELLANEOUS

Section
4.1      Notices. Any notice, demand,
request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery by
telex (with correct answer back received), telecopy or facsimile at the address
or number designated in the Purchase Agreement (if delivered on a business day
during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) 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 first occur. The Company will give written notice to
the Holder at least ten (10) days prior to the date on which the Company takes a
record (x) with respect to any dividend or distribution upon the Common Stock,
(y) with respect to any pro rata subscription offer to holders of Common Stock
or (z) for determining rights to vote with respect to any Organic Change,
dissolution, liquidation or winding-up and in no event shall such notice be
provided to such holder prior to such information being made known to the
public. The Company will also give written notice to the Holder at least ten
(10) days prior to the date on which any Organic Change, dissolution,
liquidation or winding-up will take place and in no event shall such notice be
provided to the Holder prior to such information being made known to the public.

Section
4.2      Governing Law. This Note shall be
governed by and construed in accordance with the internal laws of the State of
Nevada, without giving effect to any of the conflicts of law principles which
would result in the application of the substantive law of another jurisdiction.
This Note shall not be interpreted or construed with any presumption against the
party causing this Note to be drafted. 

Section
4.3      Headings. Article and section headings
in this Note are included herein for purposes of convenience of reference only
and shall not constitute a part of this Note for any other purpose. 

Section
4.4      Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies provided in this
Note shall be cumulative and in addition to all other remedies available under
this Note, at law or in equity (including, without limitation, a decree of
specific performance and/or other injunctive relief), no remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a holder's right to pursue actual damages
for any failure by the Company to comply with the terms of this Note. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
holder thereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable and material harm to the Holder and that the remedy at law for any
such breach may be inadequate. Therefore the Company agrees that, in the event
of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available rights and remedies, at law or in equity, to
seek and obtain such equitable relief, including but not limited to an
injunction restraining any such breach or threatened breach, without the
necessity of showing economic loss and without any bond or other security being
required. 

Section
4.5      Enforcement Expenses. The Company
agrees to pay all costs and expenses of enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses. 

16

10.117

Section
4.6      Binding Effect. The obligations of
the Company and the Holder set forth herein shall be binding upon the successors
and assigns of each such party, whether or not such successors or assigns are
permitted by the terms hereof. 

Section
4.7      Amendments. This Note may not be
modified or amended many manner except in writing executed by the Company and
the Holder. 

Section
4.8      Compliance with Securities Laws.
The Holder of this Note acknowledges that this Note is being acquired solely for
the Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Note. This Note and any Note issued in substitution or replacement therefor
shall be stamped or imprinted with a legend in substantially the following form:

"THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS." 

Section
4.9      Consent to Jurisdiction. Each of
the Company and the Holder (i) hereby irrevocably submits to the exclusive
jurisdiction of the State of Nevada for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Holder
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under the Purchase Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
4.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Company and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party. 

Section
4.10      Parties in Interest. This Note
shall be binding upon, inure to the benefit of and be enforceable by the
Company, the Holder and their respective successors and permitted assigns. 

Section
4.1 1      Failure or Indulgence Not
Waiver. No failure or delay on the part of the Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.

17

10.117

Section
4.12      Company Waivers. Except as
otherwise specifically provided herein, the Company and all others that may
become liable for all or any part of the obligations evidenced by this Note,
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands' and notices in connection with the delivery, acceptance, performance
and enforcement of this Note, and do hereby consent to any number of renewals of
extensions of the time or payment hereof and agree that any such renewals or
extensions may be made without notice to any such persons and without affecting
their liability herein and do further consent to the release of any person
liable hereon, all without affecting the liability of the other persons, firms
or Company liable for the payment of this Note, AND DO HEREBY WAIVE TRlAL BY
JURY. 

(a)      No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, nor shall any waiver by the Holder of
any such right or rights on any one occasion be deemed a waiver of the same
right or rights on any future occasion. 

(b)      THE
COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICA BLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AN D HEA R ING 

18

10.117

WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS
SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. 

	LITHIUM EXPLORATION GROUP, INC. 
	  	  
	By: 	     
	          	Name: Alexander Walsh 
	          	Title: Chief Executive Officer

10.117

FORM OF 

NOTICE OF CONVERSION 

(To be Executed by the Registered Holder in order to Convert the
Note) 

The undersigned hereby irrevocably elects to convert $                          of the
principal amount of the above Note No. ___ into shares of Common Stock of Lithium
Exploration Group, Inc. (the "Company") according to the conditions hereof, as
of the date written below. 

	Date of Conversion 	 
	Applicable Conversion Price: 	 
	Number of shares of Common Stock beneficially owned or
      deemed beneficially owned by the Holder on the Date of Conversion: ______________________________
	Signature: 	   
	Print Name: 	   
	Address:Exhibit

Exhibit 10.1
	
		
	Authorization ID:  ELD508901
	FS-2700-5b (8/99)

	Contact ID:  HEAVENLY
	OMB No 0596 - 0082

	Expiration Date:  05/01/2042
	 

	Use Code:  161
	 

U.S. DEPARTMENT OF AGRICULTURE
Forest Service
SKI AREA TERM SPECIAL USE PERMIT
AUTHORITY:  
SKI AREA PERMIT ACT October 22, 1986
HEAVENLY VALLEY, LIMITED PARTNERSHIP, a Nevada limited partnership, P.O. BOX 2180, STATELINE, NV, 89449 (hereafter called the holder) is hereby authorized to use National Forest System lands, on the Lake Tahoe Basin Management Unit, for the purposes of constructing, operating, and maintaining a winter sports resort including food service, retail sales, and other ancillary facilities, described herein, known as the Heavenly ski area and subject to the provisions of this term permit.  This permit covers 7,050 acres described here as National Forest lands within T.13N., R.19E., Sections 28, 29, 30, 31, 32, T.13N., R.18E., Sections 25, 26, 35 and 36, T.12N., R.18E., Section 1, and 650 within the Toyiabe National Forest described as T.12N., R.19E., a portion of Sections 6 and 7, as shown on the attached map (Exhibit B) dated April 29, 2002.
The following improvements, whether on or off the site, are authorized:  
See Exhibit A
Attached Clauses.  This term permit is accepted subject to the conditions set forth herein on pages 2 through 17 and to exhibits A to B attached or referenced hereto and made a part of this permit.
The Heavenly Ski Resort Master Plan dated June 1996, adopted by the Tahoe Regional Planning Agency on June 26, 1996 and Approved by the Forest Service Record of Decision on August 20, 1996 is continued under this permit.
THIS PERMIT IS ACCEPTED SUBJECT TO ALL OF ITS TERMS AND CONDITIONS:  
ACCEPTED:  
	
			
	/s/ Martha D. Rehm
	 
	May 7, 2002

	HEAVENLY VALLEY, LIMITED PARTNERSHIP
By:  VR Heavenly I, Inc., Its General Partner
By:  Martha D. Rehm, Vice President

	 
	DATE

APPROVED:  

	
			
	/s/ Maribeth Gustafson
	 
	May 7, 2002

	MARIBETH GUSTAFSON, Forest Supervisor

	 
	DATE

TERMS AND CONDITIONS
I.    AUTHORITY AND USE AND TERM AUTHORIZED
A.    Authority.  This term permit is issued under the authority of the Act of October 22, 1986, (Title 16, United States Code, Section 497b), and Title 36, Code of Federal Regulations, Sections 251.50-251.64.
B.    Authorized Officer.  The authorized officer is the Forest Supervisor.  The authorized officer may designate a representative for administration of specific portions of this authorization.
C.    Rules Laws and Ordinances.  The holder, in exercising the privileges granted by this term permit, shall comply with all present and future regulations of the Secretary of Agriculture and federal laws; and all present and future, state, county, and municipal laws, ordinances, or regulations which are applicable to the area or operations covered by this permit to the extent they are not in conflict with federal law, policy or regulation.  The Forest Service assumes no responsibility for enforcing laws, regulations, ordinances and the like which are under the jurisdiction of other government bodies.
D.    Term.  Unless sooner terminated or revoked by the authorized officer, in accordance with the provisions of the authorization, this permit shall terminate on 05/01/2042, but a new special-use authorization to occupy and use the same National Forest land may be granted provided the holder shall comply with the then-existing laws and regulations governing the occupancy and use of National Forest lands.  The holder shall notify the authorized officer in writing not less than six (6) months prior to said date that such new authorization is desired.
E.    Nonexclusive Use.  This permit is not exclusive.  The Forest Service reserves the right to use or permit others to use any part of the permitted area for any purpose, provided such use does not materially interfere with the rights and privileges hereby authorized.
F.    Area Access.  Except for any restrictions as the holder and the authorized officer may agree to be necessary to protect the installation and operation of authorized structures and developments, the lands and waters covered by this permit shall remain open to the public for all lawful purposes.  To facilitate public use of this area, all existing roads or roads as may be constructed by the holder, shall remain open to the public, except for roads as may be closed by joint agreement of the holder and the authorized officer.
G.    Master Development Plan.  In consideration of the privileges authorized by this permit, the holder agrees to prepare and submit changes in the Master Development Plan encompassing the entire winter sports resort presently envisioned for development in connection with the National Forest lands authorized by this permit, and in a form acceptable to the Forest Service.  Additional construction beyond maintenance of existing Improvements shall not be authorized until this plan has been amended.  Planning should encompass all the area authorized for use by this permit.  The accepted Master Development Plan shall become a part of this permit.  For planning purposes, a capacity for the ski area in people-at-one time shall be established in the Master Development Plan and appropriate National Environmental Policy Act (NEPA) document.  The overall development shall not exceed that capacity without further environmental analysis documentation through the appropriate NEPA process.

H.    Periodic Revision.
1.    The terms and conditions of this authorization shall be subject to revision to reflect changing times and conditions so that land use allocation decisions made as a result of revision to Forest Land and Resource Management Plan may be incorporated.
2.    At the sole discretion of the authorized officer this term permit may be amended to remove authorization to use any National Forest System lands not specifically covered in the Master Development Plan and/or needed for use and occupancy under this authorization.
II.    IMPROVEMENTS
A.    Permission.  Nothing in this permit shall be construed to imply permission to build or maintain any improvement not specifically named in the Master Development Plan and approved in the annual operating plan, or further authorized in writing by the authorized officer.
B.    Site Development Schedule.  As part of this permit, a schedule for the progressive development of the permitted area and installation of facilities shall be prepared jointly by the holder and the Forest Service.  Such a schedule shall be prepared by April 1, and shall set forth an itemized priority list of planned improvements and the due date for completion.  This schedule shall be made a part of this permit.  The holder may accelerate the scheduled date for installation of any improvement authorized, provided the other scheduled priorities are met; and provided further, that all priority installations authorized are completed to the satisfaction of the Forest Service and ready for public use prior to the scheduled due date.
1.    All required plans and specifications for site improvements, and structures included in the development schedule shall be properly certified and submitted to the Forest Service at least forty-five (45) days before the construction date stipulated in the development schedule.
2.    In the event there is agreement with the Forest Service to expand the facilities and services provided on the areas covered by this permit, the holder shall jointly prepare with the Forest Service a development schedule for the added facilities prior to any construction and meet requirements of paragraph II.D of this section.  Such schedule shall be made a part of this permit.
C.    Plans.  All plans for development, layout, construction, reconstruction or alteration of improvements on the site, as well as revisions of such plans, must be prepared by a licensed engineer, architect, and/or landscape architect (in those states in which such licensing is required) or other qualified individual acceptable to the authorized officer. Such plans must be accepted by the authorized officer before the commencement of any work.  A holder may be required to furnish as-built plans, maps, or surveys upon the completion of construction.
D.    Amendment.  This authorization may be amended to cover new, changed, or additional use(s) or area not previously considered in the approved Master Development plan. In approving or denying changes or modifications, the authorized officer shall consider among other things, the findings or recommendations of other involved agencies and whether their terms and conditions of the existing authorization may be continued or revised, or a new authorization issued.

E.    Ski Lift Plans and Specifications.  All plans for uphill equipment and systems shall be properly certified as being in accordance with the American National Standard Safety Requirements for Aerial Passenger Tramways (677.1).  A complete set of drawings, specifications, and records for each lift shall be maintained by the holder and made available to the Forest Service upon request.  These documents shall be retained by the holder for a period of three (3) years after the removal of the system from National Forest land.
III.    OPERATIONS AND MAINTENANCE
A.    Conditions of Operations.  The holder shall maintain the improvements and premises to standards of repair, orderliness, neatness, sanitation, and safety acceptable to the authorized officer.  Standards are subject to periodic change by the authorized officer.  This use shall normally be exercised at least 200 days each year or season.  Failure of the holder to exercise this minimum use may result in termination pursuant to VIII.B.
B.    Ski Lift Holder Inspection.  The holder shall have all passenger tramways inspected by a qualified engineer or tramway specialist.  Inspections shall be made in accordance with the American National Standard Safety Requirements for Aerial Passenger Tramways (B77.1). A certificate of inspection, signed by an officer of the holder’s company, attesting to the adequacy and safety of the installations and equipment for public use shall be received by the Forest Service prior to public operation stating as a minimum:  
“Pursuant to our special use permit, we have had an inspection to determine our compliance with the American National Standard B77.1.  We have received the results of that inspection and have made corrections of all deficiencies noted.  The facilities are ready for public use.”
C.    Operating Plan.  The holder or designated representative shall prepare and annually revise by September 1 an Operating Plan.  The Plan shall be prepared in consultation with the authorized officer or designated representative and cover winter and summer operations as appropriate.  The provisions of the Operating Plan and the annual revisions shall become a part of this permit and shall be submitted by the holder and approved by the authorized officer or their designated representatives.  This plan shall consist of at least the following sections:  

1.    Ski patrol and first aid.
2.    Communications.
3.    Signs.
4.    General safety and sanitation.
5.    Erosion control.
6.    Accident reporting.
7.    Avalanche control.
8.    Search and rescue.
9.    Boundary management.
10.    Vegetation management.
11.    Designation of representatives.
12.    Trail routes for nordic skiing.
The authorized officer may require a joint annual business meeting agenda to:  

a.    Update Gross Fixed Assets and lift-line proration when the fee is calculated by the Graduated Rate Fee System.
b.    Determine need for performance bond for construction projects, and amount of bond.
c.    Provide annual use reports.
D.    Cutting of Trees.  Trees or shrubbery on the permitted area may be removed or destroyed only after the authorized officer has approved and marked, or otherwise designated, that which may be removed or destroyed.  Timber cut or destroyed shall be paid for by the holder at appraised value, provided that the Forest Service reserves the right to dispose of the merchantable timber to others than the holder at no stumpage cost to the holder.
E.    Signs. Signs or advertising devices erected on National Forest lands, shall have prior approval by the Forest Service as to location, design, size, color, and message. Erected signs shall be maintained or renewed as necessary to neat and presentable standards, as determined by the Forest Service.
F.    Temporary Suspension. Immediate temporary suspension of the operation, in whole or in part, may be required when the authorized officer, or designated representative, determines it to be necessary to protect the public health or safety, or the environment.  The order for suspension may be given verbally or in writing.  In any such case, the superior of the authorized officer, or designated representative, shall, within ten (10) days of the request of the holder, arrange for an on-the-ground review of the adverse conditions with the holder.  Following this review the superior shall take prompt action to affirm, modify or cancel the temporary suspension.
IV.    NONDISCRIMINATION.  During the performance of this permit, the holder agrees:  
A.    In connection with the performance of work under this permit, including construction, maintenance, and operation of the facility, the holder shall not discriminate against any employee or applicant for employment because of race, color, religion, sex, national origin, age, or handicap.  (Ref. Title VII of the Civil Rights Act of 1964 as amended).
B.    The holder and employees shall not discriminate by segregation or otherwise against any person on the basis of race, color, religion, sex, national origin, age or handicap, by curtailing or refusing to furnish accommodations, facilities, services, or use privileges offered to the public generally.  (Ref. Title VI of the Civil Rights Act of 1964 as amended, Section 504 of the Rehabilitation Act of 1973, Title IX of the Education Amendments, and the Age Discrimination Act of 1975).
C.    The holder shall include and require compliance with the above nondiscrimination provisions in any subcontract made with respect to the operations under this permit.
D.    Signs setting forth this policy of nondiscrimination to be furnished by the Forest Service will be conspicuously displayed at the public entrance to the premises, and at other exterior or interior locations as directed by the Forest Service.
E.    The Forest Service shall have the right to enforce the foregoing nondiscrimination provisions by suit for specific performance or by any other available remedy under the laws of the United States of the State in which the breach or violation occurs.

V.    LIABILITIES
A.    Third Party Rights.  This permit is subject to all valid existing rights and claims outstanding in third parties. The United States is not liable to the holder for the exercise of any such right or claim.
B.    Indemnification of the United States. The holder shall hold harmless the United States from any liability from damage to life or property arising from the holder’s occupancy or use of National Forest lands under this permit.
C.    Damage to United States Property. The holder shall exercise diligence in protecting from damage the land and property of the United States covered by and used in connection with this permit.  The holder shall pay the United States the full cost of any damage resulting from negligence or activities occurring under the terms of this permit or under any law or regulation applicable to the national forests, whether caused by the holder, or by any agents or employees of the holder.
D.    Risks.  The holder assumes all risk of loss to the improvements resulting from natural or catastrophic events, including but not limited to, avalanches, rising waters, high winds, falling limbs or trees, and other hazardous events.  If the improvements authorized by this permit are destroyed or substantially damaged by natural or catastrophic events, the authorized officer shall conduct an analysis to determine whether the improvements can be safely occupied in the future and whether rebuilding should be allowed.  The analysis shall be provided to the holder within six (6) months of the event.
E.    Hazards.  The holder has the responsibility of inspecting the area authorized for use under this permit for evidence of hazardous conditions which could affect the improvements or pose a risk of injury to individuals.
F.    Insurance.  The holder shall have in force public liability insurance covering:  (1) property damage in the amount of Five Hundred Thousand Dollars ($500,000.), and (2) damage to persons in the minimum amount of Five Hundred Thousand Dollars ($500,000.) in the event of death or injury to one individual, and the minimum amount of Five Hundred Thousand Dollars ($500,000.) in the event of death or injury to more than one individual.  These minimum amounts and terms are subject to change at the sole discretion of the authorized officer at the five-year anniversary date of this authorization.  The coverage shall extend to property damage, bodily Injury, or death arising out of the holder’s activities under the permit including, but not limited to, occupancy or use of the land and the construction, maintenance, and operation of the structures, facilities, or equipment authorized by this permit. Such insurance shall also name the United States as an additionally insured.  The holder shall send an authenticated copy of its insurance policy to the Forest Service immediately upon issuance of the policy.  The policy shall also contain a specific provision or rider to the effect that the policy shall not be cancelled or its provisions changed or deleted before thirty (30) days written notice to the Forest Supervisor, 870 Emerald Bay Road, South Lake Tahoe, CA 96150, by the insurance company.
Rider Clause (for insurance companies)
“It is understood and agreed that the coverage provided under this policy shall not be cancelled or its provisions changed or deleted before thirty (30) days of receipt of written 

notice to the Forest Supervisor, 870 Emerald Bay Road, South Lake Tahoe, CA 96150, by the insurance company.”
VI.    FEES
Ski Area Permit Fees.  The Forest Service shall adjust and calculate permit fees authorized by this permit to reflect any revisions to permit fee provisions in 16 U.S.C. 497c or to comply with any new permit fee system based on fair market value that may be adopted by statute or otherwise after issuance of this permit.
A.    Fee Calculation.  The annual fee due the United States for the activities authorized by this permit shall be calculated using the following formula:  
SAPF    =    (.015 x AGR in bracket 1) + (.025 x AGR in bracket 2) + (.0275 x AGR in bracket 3) + (.04 x AGR in bracket 4)
Where:  
AGR    =    [(LT + SS) x (proration %)] + GRAF
AGR         is adjusted gross revenue;
LT         is revenue from sales of alpine and nordic lift tickets and passes;
GRAF         is gross year-round revenue from ancillary facilities;
Proration %     is the factor to apportion revenue attributable to use of National Forest System lands; 
SAPF         is the ski area permit fee for use of National Forest System lands; and
SS         is revenue from alpine and nordic ski school operations.
1.    SAPF shall be calculated by summing the results of multiplying the indicated percentage rates by the amount of the holder’s adjusted gross revenue (AGR), which falls into each of the four brackets.  Follow direction in paragraph 2 to determine AGR.  The permit fee shall be calculated based on the holder’s fiscal year, unless mutually agreed otherwise by the holder and the authorized officer.
The four revenue brackets shall be adjusted annually by the consumer price index issued in FSH 2709.11, chapter 30.  The revenue brackets shall be indexed for the previous calendar year.  The holder’s AGR for any fiscal year shall not be split into more than one set of indexed brackets.  Only the levels of AGR defined in each bracket are updated annually. The percentage rates do not change.
The revenue brackets and percentages displayed in Exhibit 01 shall be used as shown in the preceding formula to calculate the permit fee.

Adjusted Gross Revenue (AGR) Brackets and Associated Percentage Rates
for Use in Determining Ski Area Permit Fee (SAPF)

Revenue Brackets (updated annually by CPI*)
and Percentage Rates
	
					
	Holder FY
	Bracket 1 (1.5%)
	Bracket 2 (2.5%)
	Bracket 3 (2.75%)
	Bracket 4 (4%)

	FY 1996
	All revenue
	$ 3,000,000
	$15,000,000
	All revenue

	CPI:  
	below
	to
	to
	over

	N/A
	$3,000,000
	<$15,000,000
	$50,000,000
	$50,000,000

	FY 1997
	All revenue
	$ 3,090,000
	$15,450,000
	All revenue

	CPI:  
	below
	to
	to
	over

	1.030
	$3,090,000
	<$15,450,000
	$51,500,000
	$51,500,000

	FY 1998
	All revenue
	$ 3,158,000
	$15,790,000
	All revenue

	CPI:  
	below
	to
	to
	over

	1.022
	$3,158,000
	<$15,790,000
	$52,633,000
	$52,633,000

	FY 1999
	All revenue
	$ 3,212,000
	$16,058,000
	All revenue

	CPI:  
	below
	to
	to
	over

	1.017
	$3,212,000
	<$16,058,000
	$53,528,000
	$53,528,000

	FY 2000
	BRACKETS WILL BE UPDATED ANNUALLY BY CPI*

	and beyond 
	 
	 
	 
	 

*The authorized officer shall notify the holder of the updated revenue brackets based on the Consumer Price Index (CPI) which is revised and issued annually in FSH 2709.11, chapter 30.
2.    AGR shall be calculated by summing the revenue from lift tickets and ski school operations prorated for use of National Forest System lands and from ancillary facility operations conducted on National Forest System lands.
Revenue inclusions shall be income from sales of alpine and nordic tickets and ski area passes; alpine and nordic ski school operations; gross revenue from ancillary facilities; the value of bartered goods and complimentary lift tickets (such as lift tickets provided free of charge to the holder’s friends or relatives); and special event revenue. Discriminatory pricing, a rate based solely on race, color, religion, sex, national origin, age, disability, or place of residence, is not allowed, but if it occurs, include the amount that would have been received had the discriminatory pricing transaction been made at the market price, the price generally available to an informed public, excluding special promotions.
Revenue exclusions shall be income from sales of operating equipment; refunds; rent paid to the holder by subholders; sponsor contributions to special events; any amount attributable to employee gratuities or employee lift tickets; discounts; ski area tickets or passes provided for a public safety or public service purpose (such as for National Ski Patrol or for volunteers to assist on the slope in the Special Olympics); and other goods or services (except for bartered goods and complimentary lift tickets) for which the holder does not receive money.
Include the following in AGR:  
a.    Revenue from sales of year-round alpine and nordic ski area passes and tickets and revenue from alpine and nordic ski school operations prorated according to the percentage of use between National Forest System lands and private land in the ski area;
b.    Gross year-round revenue from temporary and permanent ancillary facilities located on National Forest System lands;

c.    The value of bartered goods and complimentary lift tickets, which are goods, services, or privileges that are not available to the general public (except for employee gratuities, employee lift tickets, and discounts, and except for ski area tickets and passes provided for a public safety or public service purpose) and that are donated or provided without charge in exchange for something of value to organizations or individuals (for example, ski area product discounts, service discounts, or lift tickets that are provided free of charge in exchange for advertising).
Bartered goods and complimentary lift tickets (except for employee gratuities, employee lift tickets, discounts, and except for ski area tickets and passes provided for a public safety or public service purpose) valued at market price shall be included in the AGR formula as revenue under LT, SS, or GRAF, depending on the type of goods, services, or privileges donated or bartered; and
d.    Special event revenue from events, such as food festivals, foot races, and concerts. Special event revenue shall be included in the AGR formula as revenue under LT, SS, or GRAF, as applicable. Prorate revenue according to the percentage of use between National Forest System lands and private land as described in the following paragraphs 5 and 6.
3.    LT is the revenue from sales of alpine and nordic lift tickets and passes purchased for the purpose of using a ski area during any time of the year, including revenue that is generated on private land (such as from tickets sold on private land).
4.    SS is the revenue from lessons provided to teach alpine or nordic skiing or other winter sports activities, such as racing, snowboarding, or snowshoeing, including revenue that is generated on private land (such as from tickets sold on private land).
5.    Proration % is the method used to prorate revenue from the sale of ski area passes and lift tickets and revenue from ski school operations between National Forest System lands and private land in the ski area.  Separately prorate alpine and nordic revenue with an appropriate proration factor.  Add prorated revenues together; then sum them with GRAF to arrive at AGR.  Use one or both of the following methods, as appropriate:  
a.    STFP shall be the method used to prorate alpine revenue.  The STFP direction contained in FSM 2715.11c effective in 1992 shall be used.  Include in the calculation only uphill devices (lifts, tows, and tramways) that are fundamental to the winter sports operation (usually those located on both Federal and private land).  Do not include people movers whose primary purpose is to shuttle people between parking areas or between parking areas and lodges and offices.
b.    Nordic trail length is the method used to prorate nordic revenue. Use the percentage of trail length on National Forest System lands to total trail length.
6.    GRAF is the revenue from ancillary facilities, including all of the holder’s or subholder’s lodging, food service, rental shops, parking, and other ancillary operations located on National Forest System lands. Do not include revenue that is generated on private land. For facilities that are partially located on National Forest System lands, calculate the ratio of the facility square footage located on National Forest System lands to the total facility square footage.  Special event revenue allocatable to GRAF shall be prorated by the ratio of use on National Forest System lands to the total use.

7.    In cases when the holder has no AGR for a given fiscal year, the holder shall pay a permit fee of $2 per acre for National Forest System lands under permit or a percentage of the appraised value of National Forest System lands under permit, at the discretion of the authorized officer.
B.    Fee Payments.  Reports and deposits shall be tendered in accordance with the following schedule. They shall be sent or delivered to the collection officer, USDA, Forest Service, at the address furnished by the authorized officer. Checks or money orders shall be made payable to:  USDA, Forest Service.
1.    The holder shall calculate and submit an advance payment which is due by the beginning of the holder’s payment cycle.  The advance payment shall equal 20 percent of the holder’s average permit fee for 3 operating years, when available.  When past permit fee information is not available, the advance payment shall equal 20 percent of the permit fee, based on the prior holder’s average fee or projected AGR.  For ski areas not expected to generate AGR for a given payment cycle, advance payment of the permit fee as calculated in item A, paragraph 7 ($2 per acre for National Forest System lands under permit or a percentage of the appraised value of National Forest System lands under permit, at the discretion of the authorized officer) shall be made.  The advance payment shall be credited (item B, paragraph 3) toward the total ski area permit fee for the payment cycle.
2.    The holder shall report sales, calculate fees due based on a tentative percentage rate, and make interim payments each calendar Month except for periods in which no sales take place and the holder has notified the authorized officer that the operation has entered a seasonal shutdown for a specific period.  Reports and payments shall be made by the end of the month following the end of each reportable period.  Interim payments shall be credited (item B, paragraph 3) toward the total ski area permit fee for the payment cycle.
3.    Within 90 days after the close of the ski area’s payment cycle, the holder shall provide a financial statement, including a completed permit fee information form, Form FS-2700-19a, representing the ski area’s financial condition at the close of its business year and an annual operating statement reporting the results of operations, including a final payment which includes year-end adjustments for the holder and each subholder for the same period.  Any balance that exists may be credited and applied against the next payment due or refunded, at the discretion of the permit holder.
4.    Within 30 days of receipt of a statement from the Forest Service, the holder shall make any additional payment required to ensure that the correct ski area permit fee is paid for the past year’s operation.
5.    Payments shall be credited on the date received by the designated collection officer.  If the due date for the fee or fee calculation financial statement falls on a non-workday, the charges shall not accrue until the close of business on the next workday.
6.    All permit fee calculations and records of sales are subject to review or periodic audit as determined by the authorized officer.  Errors in calculation or payment shall be corrected as needed for conformance with those reviews or audits.  In accordance with the Late Payment Interest, Administrative Costs and Penalties clause contained in this authorization, interest and penalties shall be assessed on additional fees due as a result of reviews or audits.

C.    Correcting Errors.  Correction of errors includes any action necessary to calculate the holder’s sales or slope transport fee percentage or to make any other determination required to calculate permit fees accurately.  For fee calculation purposes, an error may include:  

a.    Misreporting or misrepresentation of amounts;
b.    Arithmetic mistakes;
c.    Typographic mistakes; or
d.    Variation from generally accepted accounting principles (GAAP), when such variations are inconsistent with the terms of this permit.
Correction of errors shall be made retroactively to the date the error was made or to the previous audit period, whichever is more recent, and past fees shall be adjusted accordingly.
D.    Late Payment Interest, Administrative Costs and Penalties.  Pursuant to 31 U.S.C.  3717, et seq., interest shall be charged on any fee amount not paid within 30 days from the date the fee or fee calculation financial statement specified in this authorization becomes due.  The rate of interest assessed shall be the higher of the rate of the current value of funds to the U.S. Treasury (i.e., Treasury tax and loan account rate), as prescribed and published by the Secretary of the Treasury In the Federal Register and the Treasury Fiscal Requirements Manual Bulletins annually or quarterly or at the Prompt Payment Act rate.  Interest on the principal shall accrue from the date the fee or fee calculation financial statement is due.
In the event the account becomes delinquent, administrative costs to cover processing and handling of the delinquency will be assessed.
A penalty of 6 percent per annum shall be assessed on the total amount delinquent in excess of 90 days and shall accrue from the same date on which interest charges begin to accrue.
Payments will be credited on the date received by the designated collection officer or deposit location.  If the due date for the fee or fee calculation statement falls on a non-workday, the charges shall not apply until the close of business on the next workday.
Disputed fees are due and payable by the due date.  No appeal of fees will be considered by the Forest Service without full payment of the disputed amount.  Adjustments, if necessary, will be made in accordance with settlement terms or the appeal decision.
If the fees become delinquent, the Forest Service will:  
Liquidate any security or collateral provided by the authorization.
If no security or collateral is provided, the authorization will terminate and the holder will be responsible for delinquent fees as well as any other costs of restoring the site to it’s original condition including hazardous waste cleanup.
Upon termination or revocation of the authorization, delinquent fees and other charges associated with the authorization will be subject to all rights and remedies afforded the United States pursuant to 31 U.S.C. 3711 et seq.  Delinquencies may be subject to any or all of the following conditions:  
Administrative offset of payments due the holder from the Forest Service.

Delinquencies in excess of 60 days shall be referred to United States Department of Treasury for appropriate collection action as provided by 31 U.S.C. 3711 (g), (1).
The Secretary of the Treasury may offset an amount due the debtor for any delinquency as provided by 31 U.S.C. 3720, et seq.)
E.    Nonpayment.  Failure of the holder to make timely payments, pay interest charges or any other charges when due, constitutes breach and shall be grounds for termination of this authorization.  This permit terminates for nonpayment of any monies owed the United States when more than 90 days in arrears.
F.    Access to Records.  For the purpose of administering this permit (including ascertaining that fees paid were correct and evaluating the propriety of the fee base), the holder agrees to make all of the accounting books and supporting records to the business activities, as well as those of sublessees operating within the authority of this permit, available for analysis by qualified representatives of the Forest Service or other Federal agencies authorized to review the Forest Service activities.  Review of accounting books and supporting records shall be made at dates convenient to the holder and reviewers.  Financial information so obtained shall be treated as confidential as provided in regulations issued by the Secretary of Agriculture.
The holder shall retain the above records and keep them available for review for 5 years after the end of the year involved, unless disposition is otherwise approved by the authorized officer in writing.
G.    Accounting Records.  The holder shall follow Generally Accepted Accounting Principles or Other Comprehensive Bases of Accounting acceptable to the Forest Service in recording financial transactions and in reporting results to the authorized officer.  When requested by the authorized officer, the holder at its own expense, shall have the annual accounting reports audited or prepared by a licensed independent accountant acceptable to the Forest Service.  The holder shall require sublessees to comply with these same requirements.  The minimum acceptable accounting system shall include:  
1.    Systematic internal controls and recording by kind of business the gross receipts derived from all sources of business conducted under this permit.  Receipts should be recorded daily and, if possible, deposited into a bank account without reduction by disbursements.  Receipt entries shall be supported by source documents such as cash-register tapes, sale invoices, rental records, and cash accounts from other sources.
2.    A permanent record of investments in facilities (depreciation schedule), and current source documents for acquisition costs of capital items.
3.    Preparation and maintenance of such special records and accounts as may be specified by the authorized officer.
VII.    TRANSFER AND SALE
A.    Subleasing.  The holder may sublease the use of land and improvements covered under this permit and the operation of concessions and facilities authorized upon prior written notice to the authorized officer.  The Forest Service reserves the right to disapprove subleasees.  In any circumstance, only those facilities and activities authorized by this permit may be subleased.  The holder shall continue to be responsible for compliance with all conditions of this permit by persons 

to whom such premises may be sublet.  The holder may not sublease direct management responsibility without prior written approval by the authorized officer.
B.    Notification of Sale.  The holder shall immediately notify the authorized officer when a sale and transfer of ownership of the permitted improvements is planned.
C.    Divestiture of Ownership.  Upon change in ownership of the facilities authorized by this permit, the rights granted under this authorization may be transferred to the new owner upon application to and approval by the authorized officer.  The new owner must qualify and agree to comply with, and be bound by the terms and conditions of the authorization.  In granting approval, the authorized officer may modify the terms, conditions, and special stipulations to reflect any new requirements imposed by current Federal and state land use plans, laws, regulations or other management decisions.
VIII.    TERMINATION
A.    Termination for Higher Public Purpose.  If, during the term of this permit or any extension thereof, the Secretary of Agriculture or any official of the Forest Service acting by or under his or her authority shall determine by his or her planning for the uses of the National Forest that the public interest requires termination of this permit, this permit shall terminate upon one hundred-eighty (180) day’s written notice to the holder of such determination, and the United States shall have the right thereupon, subject to Congressional authorization and appropriation, to purchase the holder’s improvements, to remove them, or to require the holder to remove them, at the option of the United States.  The United States shall be obligated to pay an equitable consideration for the improvements or for removal of the improvements and damages to the improvements resulting from their removal.  The amount of the consideration shall be fixed by mutual agreement between the United States and the holder and shall be accepted by the holder in full satisfaction of all claims against the United States under this clause:  Provided, that if mutual agreement is not reached, the Forest Service shall determine the amount, and if the holder is dissatisfied with the amount thus determined to be due him may appeal the determination in accordance with the Appeal Regulations, and the amount as determined on appeal shall be final and conclusive on the parties hereto; Provided further, that upon the payment to the holder of 75% of the amount fixed by the Forest Service, the right of the United States to remove or require the removal of the improvements shall not be stayed pending the final decision on appeal.
B.    Termination, Revocation and Suspension.  The authorized officer may suspend, revoke, or terminate this permit for (1) noncompliance with applicable statutes, regulations, or terms and conditions of the authorization; (2) for failure of the holder to exercise the rights and privileges granted; (3) with the consent of the holder; or (4) when, by its terms, a fixed agreed upon condition, event, or time occurs.  Prior to suspension, revocation, or termination, the authorized officer shall give the holder written notice of the grounds for such action and reasonable time to correct curable noncompliance.
IX.    RENEWAL
A.    Renewal.  The authorized use may be renewed.  Renewal requires the following conditions:  (1) the land use allocation is compatible with the Forest Land and Resource Management Plan; (2) the site is being used for the purposes previously authorized and; (3) the enterprise is being continually operated and maintained in accordance with all the provisions of the permit.  In 

making a renewal, the authorized officer may modify the terms, conditions, and special stipulations.
X.    RIGHTS AND RESPONSIBILITIES UPON TERMINATION OR NONRENEWAL
A.    Removal of Improvements.  Except as provided in Clause VIII.  A, upon termination or revocation of this special use permit by the Forest Service, the holder shall remove within a reasonable time as established by the authorized officer, the structures and improvements, and shall restore the site to a condition satisfactory to the authorized officer, unless otherwise waived in writing or in the authorization.  If the holder fails to remove the structures or improvements within a reasonable period, as determined by the authorized officer, they shall become the property of the United States without compensation to the holder, but that shall not relieve the holder’s liability for the removal and site restoration costs.
XI.    MISCELLANEOUS PROVISIONS
A.    Members of Congress.  No Member of or Delegate to Congress, or Resident Commissioner shall be admitted to any share or part of this agreement or to any benefit that may arise herefrom unless it is made with a corporation for its general benefit.
B.    Inspection, Forest Service.  The Forest Service shall monitor the holder’s operations and reserves the right to inspect the permitted facilities and improvements at any time for compliance with the terms of this permit.  Inspections by the Forest Service do not relieve the holder of responsibilities under other terms of this permit.
C.    Regulating Services and Rates.  The Forest Service shall have the authority to check and regulate the adequacy and type of services provided the public and to require that such services conform to satisfactory standards.  The holder may be required to furnish a schedule of prices for sales and services authorized by the permit.  Such prices and services may be regulated by the Forest Service:  Provided, that the holder shall not be required to charge prices significantly different than those charged by comparable or competing enterprises.
D.    Advertising.  The holder, in advertisements, signs, circulars, brochures, letterheads, and like materials, as well as orally, shall not misrepresent in any way either the accommodations provided, the status of the permit, or the area covered by it or the vicinity.  The fact that the permitted area is located on the National Forest shall be made readily apparent in all of the holder’s brochures and print advertising regarding use and management of the area and facilities under permit.
E.    Bonding.  The authorized officer may require the holder to furnish a bond or other security to secure all or any of the obligations imposed by the terms of the authorization or any applicable law, regulation, or order.
Bonds, Performance.  Use the following text, when bonding is called for:  As a further guarantee of the faithful performance of the provisions of terms and conditions N/A of this permit, the holder agrees to deliver and maintain a surety bond or other acceptable security in the amount of N/A.  Should the sureties or the bonds delivered under this permit become unsatisfactory to the Forest Service, the holder shall, within thirty (30) days of demand, furnish a new bond with surety, solvent and satisfactory to the Forest Service.  In lieu of a surety bond, the holder may deposit into a Federal depository, as directed by the Forest Service, and maintain therein, cash in the amounts 

provided for above, or negotiable securities of the United States having a market value at the time of deposit of not less than the dollar amounts provided above.
The holder’s surety bond shall be released, or deposits in lieu of a bond, shall be returned thirty (30) days after certification by the Forest Service that priority installations under the development plan are complete, and upon furnishing by the holder of proof satisfactory to the Forest Service that all claims for labor and material on said installations have been paid or released and satisfied.  The holder agrees that all moneys deposited under this permit may, upon failure on his or her part to fulfill all and singular the requirements herein set forth or made a part hereof, be retained by the United States to be applied to satisfy obligations assumed hereunder, without prejudice whatever to any rights and remedies of the United States.
Prior to undertaking additional construction or alteration work not provided for in the above terms and conditions or when the improvements are to be removed and the area restored, the holder shall deliver and maintain a surety bond in an amount set by the Forest Service, which amount shall not be in excess of the estimated loss which the Government would suffer upon default in performance of this work.
F.    Water Rights.  This authorization confers no rights to the use of water by the holder.  Such rights must be acquired under State law.
G.    Current Addresses.  The holder and the Forest Service shall keep each informed of current mailing addresses including those necessary for billing and payment of fees.
H.    Identification of Holder.  Identification of the holder shall remain sufficient so that the Forest Service shall know the true identity of the entity.
Corporation Status Notification:  
1.    The holder shall notify the authorized officer within fifteen (15) days of the following changes:  
a.    Names of officers appointed or terminated.
b.    Names of stockholders who acquire stock shares causing their ownership to exceed 50 percent of shares issued or otherwise acquired, resulting in gaining controlling interest in the corporation.
2.    The holder shall furnish the authorized officer:  

a.    A copy of the articles of incorporation and bylaws.
b.    An authenticated copy of a resolution of the board of directors specifically authorizing a certain individual or individuals to represent the holder in dealing with the Forest Service.
c.    A list of officers and directors of the corporation and their addresses.
d.    Upon request, a certified list of stockholders and amount of stock owned by each.
e.    The authorized officer may require the holder to furnish additional information as set forth in 36 CFR 251.54(e)(1)(iv).

Partnership Status Notification:  
The holder shall notify the authorized officer within fifteen (15) days of the following changes.  Names of the individuals involved shall be included with the notification.
1.    Partnership makeup changes due to death, withdrawal, or addition of a partner.
2.    Party or parties assigned financed interest in the partnership by existing partner(s).
3.    Termination, reformation, or revision of the partnership agreement.
		
	4.
	The acquisition of partnership interest, either through purchase of an interest from an existing partner or partners, or contribution of assets, that exceeds 50 percent of the partnership permanent investment.

I.    Archaeological-Paleontological Discoveries.  The holder shall immediately notify the authorized officer of any and all antiquities or other objects of historic or scientific interest.  These include, but are not limited to, historic or prehistoric ruins, fossils, or artifacts discovered as the result of operations under this permit, and shall leave such discoveries intact until authorized to proceed by the authorized officer.  Protective and mitigation measures specified by the authorized officer shall be the responsibility of the permit holder.
J.    Protection of Habitat of Endangered, Threatened, and Sensitive Species.  Location of areas needing special measures for protection of plants or animals listed as threatened or endangered under the Endangered Species Act (ESA) of 1973, as amended, or listed as sensitive by the Regional Forester under authority of FSM 2670, derived from ESA Section 7 consultation, may be shown on a separate map, hereby made a part of this permit, or identified on the ground.  Protective and mitigation measures specified by the authorized officer shall be the responsibility of the permit holder.
If protection measures prove inadequate, if other such areas are discovered, or if new species are listed as Federally threatened or endangered or as sensitive by the Regional Forester, the authorized officer may specify additional protection regardless of when such facts become known Discovery of such areas by either party shall be promptly reported to the other party.
K.    Superior Clauses.  In the event of any conflict between any of the preceding printed clauses or any provision thereof, and any of the following clauses or any provision thereof, the preceding clauses shall control.
L.    Superseded Permit.  This permit replaces a special use permit issued to Heavenly Valley, Limited Partnership on November 12, 1997...
M.    Disputes.  Appeal of any provisions of this authorization or any requirements thereof shall be subject to the appeal regulations at 36 CFR 251, Subpart C, or revisions thereto.  The procedures for these appeals are set forth in 36 CFR 251 published in the Federal Register at 54 FR 3362, January 23, 1989.
O.    Water Rights acquired in the Name of the United States.  All water rights obtained by the holder from water diversions directly from National Forest System lands for use on the area authorized must be acquired in the name of the United States.

P.    Liquor Sales Authorized.  The sale of intoxicating beverages is allowed by this authorization, contingent upon a valid State license for the sale or serving of alcoholic beverages.
Q.    Revegetation of Ground Cover and Surface Restoration.  The holder shall be responsible for prevention and control of soil erosion and gullying on lands covered by this authorization and adjacent thereto, resulting from construction, operation, maintenance, and termination of the authorized use.  The holder shall so construct permitted improvements to avoid the accumulation of excessive heads of water and to avoid encroachment on streams.  The holder shall vegetate or otherwise stabilize all ground where the soil has been exposed as a result of the holder’s construction, maintenance, operation, or termination of the authorized use and shall construct and maintain necessary preventive measures to supplement the vegetation.
R.    Drinking Water Systems.
1.    The holder, as the water supplier and owner or operator of the drinking water system, is responsible for compliance with all applicable Federal, State, and local drinking water laws and regulations for the operation and maintenance of a public water system.  This includes, but is not limited to, developing, operating, and maintaining the system, and conducting drinking water testing and taking the appropriate corrective and follow-up actions in accordance with Federal, State, and any other applicable requirements.  For the purposes of this authorization, public water systems are defined in the Safe Drinking Water Act, as amended (42 U.S.C. 300f et seq.), and in the National Primary Drinking Water Regulations, Title 40, Code of Federal Regulations, part 141 (40 CFR part 141), or by State regulations if more stringent.
2.    When the permit holder operates Federally owned systems (for example, when the permit is authorized under the Granger-Thye Act), the holder shall meet additional requirements for public and nonpublic water systems consistent with FSM 7420.  Requirements under FSM 7420 applicable to the permit holder are set forth in an appendix to the permit entitled “Operation of Federally Owned Drinking Water Systems” (Form FS-2700-4h-Appendix F).
3.    For Federally owned systems, the holder shall notify and consult with the Forest Service within 24 hours or on the next business day after notification by the laboratory of a sample that tests positive for microbiological contamination.  The holder shall notify and consult with the Forest Service within 48 hours of notification of a maximum contaminant level violation or an acute violation.
4.    The holder shall retain all records as required by applicable laws and regulations.  The holder agrees to make the records available to the Forest Service and to any other regulatory agency authorized to review Forest Service activities.  Copies of microbiological test results for Federally owned water systems shall be forwarded monthly to the Forest Service by the 15th of the month following the sampling date.  Copies of other required records for Federally owned systems shall be forwarded annually to the Forest Service within 15 days of the end of the operating season for seasonal sites or within 15 days of the end of the calendar year for year-round operations.  The holder shall surrender all records for a Federally owned system to the Forest Service upon permit termination or revocation.
5.    For Federally owned systems, the holder shall provide the name of the water system operator in writing to the Forest Service and notify the authorized officer within 72 hours of a change in personnel.

S.    Dam Safety.
1.    Definitions.  The following definitions apply to this clause:  
a.    Qualified Engineer.  An engineer authorized to practice engineering in the field of dams in the State where the dam is located, either by professional registration as provided by State law or by reason of employment by the State or Federal Government.
b.    Dam Failure.  Catastrophic event characterized by the sudden, rapid, and uncontrolled release of impounded water.  It Is recognized that there are lesser degrees of failure and that any malfunction or abnormality outside the design assumptions and parameters which adversely affect a dam’s primary function of impounding water may also be considered a failure.
c.    Rehabilitation or Modification.  Repair of major structure deterioration to restore original condition; alteration of structures to meet current design criteria, improve dam stability, enlarge reservoir capacity, or increase spillway and outlet works capacity; replacement of equipment.
d.    Hazard Potential.  The classification of a dam based on the potential for loss of life or property damage that could occur if the structure failed (FSM 7500).
e.    Emergency Action Plan.  Formal plan of procedures to prevent or reduce loss of life and property that could occur if the structure failed.  The plan does not include flood plain management for the controlled release of floodwaters for which the project is designed.
2.    Dam Classification.  The dam constructed pursuant to this authorization shall be classified according to its height and storage capacity (water debris or both) as well as its hazard potential as follows:  

Height and Storage Capacity (A, B, C, or D)
East Peak - C
Sky Meadows - D

Hazard Potential (Low, Moderate, High):  
East Peak Dam - High
Sky Meadows Dam - Low 
Classification criteria are contained in FSM 7511, which the Forest Service may amend from time to time.
The provisions of sections 5 and 8 of this clause apply only to dams classified as high hazard, or as otherwise may be specifically provided for in this authorization to address special or unique circumstances.
The hazard potential of the dam shall be reassessed at least every ten years by a qualified engineer retained by the holder, and this information made available to the authorized officer.  The Forest 

Service may change the hazard potential at any time based on changed conditions or new information.
3.    Construction, Inspection, Certification, and Project Files.  For construction, rehabilitation or improvement, the holder shall provide for inspection by a qualified engineer to ensure adequate control of the work being performed.  At a minimum, the qualified engineer shall maintain a daily inspection diary, descriptions of design changes, and records of construction material and foundation tests.
Upon completion of construction, rehabilitation, or improvement, the holder shall forward to the Forest Service a statement from the qualified engineer responsible for inspection certifying that the works were built in accordance with the approved plans and specifications, or approved revisions thereto.  No water shall be impounded until approval is given by the authorized officer.
All design notes, as-built plans, and the aforementioned diaries and records shall be maintained in a project file by the holder for the duration of this authorization, and shall be available to the Forest Service or other inspection personnel (not applicable to debris retention dams).
4.    Dam Operation and Maintenance Plans.  Prior to the storage of water, the holder shall have an approved plan for the operation and maintenance of the dam and appurtenant structures.  The plan(s) shall, as a minimum, describe operating requirements and procedures to be followed for the operation of the structure; routine or recurring maintenance required; record keeping to be performed for operation and maintenance; and individuals responsible for implementing the plans.  At the time of the operation and maintenance inspection, the plan shall be reviewed and amended as needed by the individual responsible for implementation and the engineer performing any inspection.  No plans or amendments thereto shall be valid until approved by the authorized officer.
5.    Dam Emergency Action Plan.  The following provisions are required for certain hazard classifications identified in section 2.  The holder shall, prior to storage of water, prepare an emergency action plan which will include, but not be limited to:  
a.    Actions to be taken upon discovery of an unsafe condition or impending failure situation to prevent or delay dam failure, and reduce damage or loss of life from subsequent failure.
b.    Procedures for notification of law enforcement, civil preparedness, and Forest Service personnel.
c.    Procedures for notifying persons in immediate danger of losing life or property.
d.    Maps delineating the area which would be inundated by water, debris, or both in the event of dam failure.
e.    The names of those individuals responsible for activating the plan and carrying out the identified actions.
In preparing the emergency action plan, the holder shall consult and cooperate with appropriate law enforcement and civil preparedness personnel, who may be responsible for implementing all or part of the plan. Emergency action plans shall be reviewed and updated annually, and tested at intervals not exceeding five years.

6.    Inspection and Maintenance of Dams.  The holder shall have the dam and appurtenant structures inspected by a qualified engineer to determine the state of operation and maintenance at least every year.  An inspection shall also be made following earthquakes, major storms, or overflow of spillways other than the service spillway.  Two copies of the inspection report shall be provided to the authorized officer within 30 days of the date of inspection.
Repairs or operational changes recommended by the inspecting engineer shall be made by the holder within a reasonable period of time following the inspection, but in no event later than one year from the inspection (unless a longer period of repairs is authorized in writing, or a shorter period is required when such repairs are deemed by the authorized officer as immediately required for reasons of public safety).  Upon request by the authorized officer, the holder shall provide a plan of action outlining planned time and methods for performing said repairs or operational changes, and notify the authorized officer when actions are completed.  The authorized officer shall specify a completion date for corrective work.  If corrective action Is not taken by the date specified by the authorized officer, the Forest Service shall have corrective action taken and the holder shall be responsible for all costs including legal and court costs.
7.    Forest Service Inspection of Dams.  The holder shall allow inspection of the dam and appurtenant structures at any time by the authorized officer.  Any condition adversely affecting or which could adversely affect the operation of the facility; safety of the structure or the public, or surrounding lands and resources shall, upon written notice, be corrected or changed by the holder at the holder’s expense.  The authorized officer shall specify a completion date for corrective work.  If corrective action is not taken by the date specified by the authorized officer, the Forest Service shall have corrective action taken and the holder shall be responsible for all costs including legal and court costs.  A copy of the Forest Service inspection report shall be provided to the holder.
An inspection performed by the Forest Service does not relieve the holder of the responsibility of ensuring that inspections are made in accordance with section 6 of this clause.
8.    Dam Safety Evaluations.  This provision is required for certain hazard classifications identified in section 2.
Beginning in 2002 and at 5-year intervals thereafter, the holder shall have a formal dam safety evaluation performed by a qualified engineer to verify the safety and integrity of the dam and appurtenant structures.  The evaluation will include, but is not limited to, a detailed field inspection of the dam and appurtenant structures and a review of all pertinent documents, such as investigation, design, construction, instrumentation, operation, maintenance, and inspection records.  The evaluation shall be based on current accepted design criteria and practices.  The holder shall provide two copies of the evaluation report to the authorized officer and Regional Engineer.  Based on this report, the authorized officer may require the holder to perform additional evaluations pursuant to such standards as the officer may define and may require rehabilitation or modification of the structure within a reasonable time.
9.    Right of Action To Abate Emergency Situations.  In situations where the authorized officer determines on the available facts that there is danger of a dam failure for any reason, such officer may exercise discretionary authority to enter upon the structure and appurtenances authorized herein and take such actions as are necessary to abate or otherwise prevent a failure.  Such actions include, but are not limited to, lowering the level of the impounded waters utilizing existing structures or by artificial breach of the dam.  In the event that such actions are taken, the United States shall not indemnify or otherwise be liable to the holder for losses or damages, including 

losses or damages to the structure or the value of impounded waters.  The holder shall be responsible for all costs including legal and court costs.  The failure of the Forest Service to exercise any discretion under this provision shall not be a violation of any duty by the United States, and shall not relieve the holder of any and all liability for damages in the event of a dam failure.
10.    Liability.  The activities permitted by this authorization shall be deemed a high-risk use and occupancy.  Sole responsibility for the safety of the dam and associated facilities and any liability resulting therefrom shall be on the holder and his successors, agents, or assigns.  Pursuant to 36 CFR 251.56(d), or its replacement, the holder shall be liable for injury, loss, or damage resulting from this authorization regardless of the holder’s fault or negligence.  Maximum strict liability shall not exceed $1,000,000.00 except as that amount may be changed in the aforementioned regulations.
In addition to all waivers and limitations on liability of the United States under this authorization, the provisions of 33 U.S.C. 702(c) shall apply to any damages from or by floods or floodwaters at any place.
According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of information unless It displays a valid OMB control number.  The valid OMB control number for this information collection is 0596-0082.
This information is needed by the Forest Service to evaluate requests to use National Forest System lands and manage those lands to protect natural resources, administer the use, and ensure public health and safety.  This information is required to obtain or retain a benefit.  The authority for that requirement is provided by the Organic Act of 1897 and the Federal Land Policy and Management Act of 1976, which authorize the Secretary of Agriculture to promulgate rules and regulations for authorizing and managing National Forest System lands.  These statutes, along with the Term Permit Act, National Forest Ski Area Permit Act, Granger-Thye Act, Mineral Leasing Act, Alaska Term Permit Act, Act of September 3, 1954, Wilderness Act, National Forest Roads and Trails Act, Act of November 16, 1973, Archaeological Resources Protection Act, and Alaska National Interest Lands Conservation Act, authorize the Secretary of Agriculture to issue authorizations for the use and occupancy of National Forest System lands, The Secretary of Agriculture’s regulations at 36 CFR Part 251, Subpart B, establish procedures for issuing those authorizations.
The Privacy Act of 1974 (5 U.S.C. 552a) and the Freedom of Information Act (5 U.S.C. 552) govern the confidentiality to be provided for information received by the Forest Service.
Public reporting burden for this collection of information is estimated to average 12 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Exhibit A
Improvements - California and Nevada
Authorized uphill systems on National Forest and Private land (existing):  
1.    Tramways California

a.    Heavenly Tram
b.    Von Schmidt’s Gondola
2.    Chair Lifts California

a.    Gunbarrel Express
b.    World Cup
c.    Patsy’s
d.    Waterfall
e.    Powder Bowl
f.    Groove
g.    Ridge
h.    Canyon
i.    Sky Express
j.    Tamarack Express
k.    Perfect Ride (Private)
3.    Surface Lifts California
a.    Pioneer Mitey Mite
b.    Von Schmidt’s Mitey Mite (snow-play)
c.    Magic Carpet (Private)
d.    Enchanted Forest Mitey Mite (2 - Private)
e.    Mitey Mite Development Zone (Private)

4.    Chair Lifts Nevada

a.    Dipper Express
b.    Olympic
c.    Stagecoach Express
d.    Galaxy
e.    Boulder
f.    Comet Express
g.    North Bowl

5.    Surface lifts Nevada

a.    Boulder Mitey Mite (Private)
b.    Boulder Magic Carpet (private)

6.    Buildings and Improvements in California

a.    Top of the Tram Restaurant

b.    Top of the Tram Maintenance Building, Yard, Fuel Storage
c.    Top of the Tram Ski School
d.    Patsy’s Hut
e.    Powder Magazine (Creek Station)
f.    Sky Meadow Food Service/Deck
g.    Sky Meadow restrooms
h.    Face Ski Patrol Building
i.    Sky Dam/Reservoir
1.    Water Rights Permits #10921, and 11153 include the right to store and divert the waters of Heavenly Valley Creek into the Heavenly Meadow Reservoir for the purpose of snow making.
2.    Water Rights Permits #10920 and #10919, include the right to store and divert waters of Heavenly Valley Creek into Heavenly Meadow reservoir for the purposes of domestic use and erosion control.
3.    Additional water rights applied for #’s 30227 and 30228 to be used for snow-pack augmentation.
j.    Sky Pump House/Snowmaking Equipment Building
k.    Sky Ski Patrol Building
1.    Observation Picnic (Top of Sky Chair)
m.    Snowmaking lines
n.    Holding tanks and sewer lines
o.    Fuel Storage and Fueling site
p.    Power and phone lines
q.    Gondola Mid Station Deck
r.    Sewer lines - Sky to STPUD
s.    Gondola Pump House
t.    Water storage and transmission system (base of Sky Express)
u.    Well location NW ‘A, NE ‘A, of Section 1, T.12N., R.18E., MDBM
v.    Water supply and transmission system Top of Tram
w.    Pump house Pistol Corner
x.    Well (1) located in SW ‘A, NE’ , of Section 1, T.12N., R.18E., MDBM

7.    Buildings and Improvements in Nevada

a.    East Peak Lodge
b.    East Peak Patrol and Radio Facility
c.    Von Schmidt’s Water storage tank and transmission
d.    Dipper Patrol Hut 
e.     East Peak Deck and Food Service
f.    Timing Building Olympic Downhill
g.    Snowmaking It Holding tanks and sewer lines
i.    Fuel Storage Tanks/Fueling (100 Dollar Saddle)
j.    Heavenly Sign corner of Jack’s and S. Benjamin
k.    Power and phone lines
1.    Supplemental Septic system - East Peak Lodge
m.    Water system East Peak Lodge
n.    Heli-spots (as identified in operations plan)
o.    East Peak Dam and Reservoir

1.    Water Rights Permits #45348 for a Domestic well, 58345 and #50525 for snowmaking and erosion control.
p.    East Peak Lake Pump House
q.    Well Permit #’s 35556, 5436

(Private) - indicates facilities that are located solely on private land

	
		
	Authorization ID:  ELD508901
	FS-2700-23 (4/97)

	Contact ID:  HEAVENLY
	0MB 0596-0082

	Use Code:  161
	 

U.S. DEPARTMENT OF AGRICULTURE
Forest Service
AMENDMENT FOR
SPECIAL USE AUTHORIZATION
AMENDMENT NUMBER 1
This amendment is attached to and made a part of the special use authorization (identified above) issued to HEAVENLY VALLEY, LIMITED PARTNERSHIP on 05/07/2002 which is hereby amended as follows:  

Remove the following clauses:  

III. F.        Temporary Suspension
VI. A.        Termination for Higher Public Purpose
VIII, B.    Termination, Revocation and Suspension
Xl. F.        Water Rights.
Revise the heading of section VIII.  TERMINATION to read REVOCATION AND SUSPENSION.  In section VIII, add clauses A.  Revocation and Suspension, B.  Opportunity to Take Corrective Action, C.  Revocation for Reasons in the Public Interest, and D. Suspension below:  
A.    Revocation and Suspension.  The Forest Service may suspend or revoke this permit in whole or part:  

1.    For noncompliance with Federal, State, or local laws and regulations;
2.    For noncompliance with the terms of this permit;
3.    For failure of the holder to exercise the privileges granted by this permit;
4.    With the consent of the holder; or
5.    At the discretion of the authorized officer for specific and compelling reasons in the public interest.
B.    Opportunity to Take Corrective Action.  Prior to revocation or suspension under clause VIII.A, the authorized officer shall give the holder written notice of the grounds for each action and a reasonable time, not to exceed 90 days, to complete the corrective action prescribed, by the authorized officer.
C.    Revocation for Reasons in the Public Interest.  If, during the term of this permit or any extension’ thereof, the Secretary of Agriculture or any official of the Forest Service with delegated authority determines in planning for the uses of the National Forest System that the public interest requires revocation of this permit, this permit shall be revoked after one hundred-eighty (180) day’s written notice to the holder.  The United States shall then have the right to purchase the, holders Improvements, to remove them, or to require the holder to remove them, and the United States shall be obligated to pay an equitable consideration for the improvements or for removal of the improvements and damages resulting from their removal.  If the amount of consideration is fixed by mutual agreement between the United States and the holder, that amount shall be accepted 

by the holder in full satisfaction of all claims against the United States under this clause.  If mutual agreement is not reached, the Forest Service shall determine the amount of consideration.  If the holder is dissatisfied with the amount determined by the Forest Service, the holder may appeal the determination under the agency’s administrative appeal regulations.
D.    Suspension.  The authorized officer may immediately suspend this permit, in whole or in part, when necessary to protect public health safety or the environment.  The suspension decision must be in writing.  Within 48 hours of the request of the holder, the superior of the authorized officer shall arrange for an on-the-ground review of the adverse conditions with the holder.  Following this review the superior shall take prompt action to affirm, modify, or cancel the suspension.
Under section XI.  MISCELLANEOUS PROVISIONS, revise the heading for clause F. Water Rights to read Water Use Facilities.  Replace the existing clause with the clause below:  
F.    Water Use Facilities.
1.    Water Use Facilities.  The National Forest System (NFS) land which is the subject of this permit is hereinafter referred to as the permitted NFS land.  The authorization of facilities to divert, store, or convey water on the permitted National Forest System (NFS) land (water facilities) in conjunction with water rights acquired by the holder is for the purpose of operating a winter or year-round resort and related facilities under this permit.  If use of the water or the water facilities ceases, the authorization to use the permitted NFS land for such water facilities will also cease.  The United States reserves the right to place conditions on the installation, operation and maintenance and removal of these water facilities necessary to protect public property, public safety, and natural resources on the permitted NFS land in compliance with applicable laws, provided, however, such conditions shall not permit the Imposition of bypass flows on water transported to the permitted NFS land from points of diversion of storage that arise off of the permitted NFS land.
2.    Water Rights.  This permit does not confer any water rights on the holder.  Water rights must be acquired by the holder under state law.
3.    Future Applications and Revocation.  After June 2004, any right to divert water from the permitted NFS land where the use of such water is on the same permitted NFS land shall be applied for and held in the name of the United States and the holder (hereinafter called the joint water rights).  This provision shall not apply to water rights that are acquired by the permit holder from a source off of the permitted NFS land and transferred to a point of diversion or storage on the permitted NFS land.  During the term of the permit and any reissuance thereafter, the permit holder shall be responsible for maintaining such joint water rights, and shall have the right to make any applications or other filings as may be necessary to maintain and protect such joint water rights.  In the event of revocation of this permit, the United States shall succeed to the sole ownership of such joint water rights.  All joint water rights subject to this clause are listed below.
	
				
	State ID#
	Owner
	Type or Basis
	Purpose of Use

	None
	 
	 
	 

This amendment is accepted subject to the conditions set forth herein and to conditions _____ N/A _____ to _____ N/A _____ attached hereto and made a part of the Amendment

	
			
	/s/ Blaise Carrig
	 
	/s/ Terri Marceron

	(Holder Signature)
	 
	(Authorized Officer Signature)

	Blaise Carrig, Chief Operating Officer
VR HEAVENLY I, Inc., general partner
	 
	TERRI MARCERON, LTBMU FOREST SUPERVISOR

	(Name and Title)
	 
	(Name and Title)

	HEAVENLY VALLEY LIMITED PARTNERSHIP,
a Nevada limited partnership
	 
	 

	Date:  3/28/07
	 
	Date: 1/18/07

According to the Paperwork Reduction Act of 1995, an agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a valid 0 MB control number.  The valid OMB control number for this information collection is 0596-0082.  The time required to complete this information collection is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and -maintaining the data needed, and completing and reviewing the collection of Information.
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status.  (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program Information (Braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at 202-720-2600 (voice and TDD).
To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, 1400 Independence Avenue, SW, Washington, DC 20250-9410 or call (800) 975-3272 (voice) or (202) 720-6382 (TDD).  USDA is an equal opportunity provider and employer.
The Privacy Act of 1974 (5 U.S.C. 552a) and the Freedom of information Act (5 U.S.C. 552) govern the confidentiality to be provided for information received by the Forest Service.

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