Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Santa Fe Gold Corporation - Exhibit 4.1

SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE
AGREEMENT (this “Agreement”), is dated as of December 21, 2007, by
and among Santa Fe Gold Corporation, a Delaware corporation (the
“Company”), and Sulane Holdings Ltd., a British Virgin Islands company (
“Purchaser”).

WITNESSETH

     WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to Section 4(2) of
the Securities Act of 1933 (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to Purchaser, and
Purchaser desires to purchase from the Company, certain securities of the
Company pursuant to the terms set forth herein.

     WHEREAS, the parties
desire that, upon the terms and subject to the conditions contained herein, in
accordance with the schedule set forth on Exhibit A attached hereto (the
“Funding Schedule”), the Company shall issue and sell to Purchaser, as
provided herein, and Purchaser shall purchase (a) Thirteen Million Five Hundred
Thousand Dollars (US$13,500,000) original principal amount of 7% Senior Secured
Convertible Debentures in the form attached hereto as Exhibit B (the
“Convertible Debentures”), which shall be convertible at an initial
conversion price of $1.00 per share into shares of the Company’s common stock,
par value $0.002 (the “Common Stock”) (as converted, the “Conversion
Shares”), and (b) common stock warrants to purchase 6,750,000 shares of
Common Stock, at an initial exercise price of $1.00 per share, in the form of
Exhibit C (collectively, the “Warrants”). The Convertible
Debentures and Warrants are collectively referred herein to as the
“Securities.” 

     WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Mortgage, Security Agreement and Financing Statement
in the form attached hereto as Exhibit D (the “Mortgage
Agreement”), pursuant to which the Company has agreed to provide Purchaser a
security interest in Collateral (as this term is defined in the Mortgage
Agreement), to secure the Company’s obligations under this Agreement, the
Convertible Debentures, the Warrants and the Mortgage Agreement and any other
agreements ancillary or related hereto or thereto (collectively, the
“Transaction Documents”).

     NOW, THEREFORE, IN CONSIDERATION
of the mutual covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and Purchaser agree as follows:

     1.     
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

     (a)     
Purchase of Securities. Subject to the satisfaction (or waiver) of the
terms and conditions of this Agreement, Purchaser agrees to purchase, and the
Company agrees to sell and issue to Purchaser, the Securities, all in the
amounts and on the dates, respectively, as set forth in the Funding
Schedule.

     (b)     
Closing Dates. The first closing (the “First Closing”) of the
purchase and sale of the Securities shall take place on the date hereof, subject
to notification of satisfaction of the 

	SECURITIES PURCHASE AGREEMENT 	Page 1 

conditions to the First Closing set forth herein and in
Section 5 below (or such later date as is mutually agreed to by the
Company and Purchaser) (the “First Closing Date”). Subsequent closings of
the purchase and sale of the Securities (the “Subsequent Closings”) shall
take place on the dates and in the amounts as set forth in the Funding Schedule,
subject to notification of satisfaction of the conditions to Subsequent Closings
set forth herein and in Section 5 below (or such later date as is
mutually agreed to by the Company and the Purchaser) (each a “Subsequent
Closing Date”). The First Closing and all Subsequent Closings are
collectively referred to as the “Closing.”

     (b)     
Closing Deliveries. At each Closing, the Company shall deliver or cause
to be delivered to Purchaser the following:

     (i)     
a Convertible Debenture, registered in the name of Purchaser, in the principal
amount indicated on the Funding Schedule under the heading “Debenture Principal
Amount”;

     (ii)      a
Warrant to purchase shares of Common Stock, in the amount indicated on the
Funding Schedule under the heading “Shares of Common Stock Underlying Warrant
Purchased,” registered in the name of Purchaser; and

     (iii)     
the legal opinion of Company Counsel, in the form of Exhibit E, executed
by such counsel and delivered to Purchaser.

     At each Closing, Purchaser shall
deliver or cause to be delivered to the Company the purchase price indicated on
the Funding Schedule under the heading “Cash Purchase Price”, in United States
dollars and in immediately available funds, by wire transfer to an account
designated in writing by the Company for such purpose.

     2.     
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to
Purchaser that as of the date hereof:

     (a)     
Organization and Qualification. The Company’s public filings with the
United States Securities and Exchange Commission (the “SEC”), including
its Registration Statement on Form S-B, SEC File No. 333-141558, as amended, its
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2007, SEC File
No. 1-12974 and its Quarterly Reports as filed with the SEC (collectively, the
“SEC Filings”), contain a list of all direct and indirect subsidiaries of
the Company, the names of each person that owns equity of such subsidiaries and
the percentage of equity owned by each such person. Except as set forth in the
SEC Filings, the Company and its subsidiaries are corporations duly organized
and validly existing in good standing under the laws of the jurisdiction in
which they are incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted and proposed to
be conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.

	SECURITIES PURCHASE AGREEMENT 	Page 2 

     (b)     
Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Conversion Shares in accordance with the terms of the Convertible Debentures and
the shares of Common Stock underlying the Warrants upon exercise thereof (the
“Warrant Shares”), (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Debentures, the Warrants, the reservation for issuance and the
issuance of the Conversion Shares upon conversion of the Convertible Debentures,
and the reservation for issuance and the issuance of the Warrant Shares upon
exercise of the Warrants have been duly authorized by the Company’s Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies.

     (c)     
Capitalization. The SEC Filings correctly sets forth all shares that are
issued and outstanding. All of such outstanding shares have been validly issued
and are fully paid and nonassessable. No shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. As of the date of this Agreement, except
as set forth in the SEC Filings, (i) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, and (ii) there are no outstanding debt
securities, and no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance or conversion of the
Convertible Debentures. Attached hereto as Schedule 2(c) is a table showing the
capitalization of the Company, on a pro forma basis, giving effect to the
issuance of all the Conversion Shares and the Warrant Shares and the subsequent
issuance of all shares of Common Stock issuable upon exercise, conversion or
exchange of all options, warrants or other rights to acquire Common Stock and
all securities convertible into or exercisable or exchangeable for Common Stock.
The SEC Filings contain true and correct copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the
“Certificate of Incorporation”), and the Company’s By-laws, as in effect
on the date hereof (the “By-laws”), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.

     (d)     
Issuance of Securities. The Convertible Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be duly issued and
free from all taxes, liens and charges with respect to the issue thereof. The
Conversion Shares issuable upon conversion of the Convertible Debentures will be
duly authorized and reserved for issuance. The Warrant 

	SECURITIES PURCHASE AGREEMENT 	Page 3 

Shares issuable upon exercise of the Warrants will be duly
authorized and reserved for issuance. Upon conversion in accordance with the
terms of the Convertible Debentures the Conversion Shares will be duly issued,
fully paid and nonassessable. Upon exercise in accordance with the terms of the
Warrants the Warrant Shares will be duly issued, fully paid and
nonassessable.

     (e)     
No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or the Bylaws or (ii) conflict with or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. Neither the Company nor its subsidiaries is
in violation of any term of or in default under its Certificate of Incorporation
or By-laws or their organizational charter or by-laws, respectively, or any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries, except as set forth in the SEC Filings. The
business of the Company and its subsidiaries is not being conducted, and shall
not be conducted in violation of any material law, ordinance, or regulation of
any governmental entity. Except as specifically contemplated by this Agreement
and as required under the Securities Act of 1933, as amended (the “Securities
Act”) and any applicable state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance, which might give rise to any of the foregoing.

     (f)     
Financial Statements. The SEC Filings contain true and complete copies of
audited financial statements of the Company for its fiscal year ending June 30,
2007 and prior fiscal years and the unaudited balance sheet and income statement
of the Company for its quarter ending September 30, 2007 (collectively, the
“Financial Statements”). The Financial Statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved, except (i) as may be otherwise indicated in such
Financial Statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements, and, fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments that are not
individually or in the aggregate material). Neither the Financial Statements nor
any other information provided by or on behalf of the Company to Purchaser,
including, without limitation, information referred to in this Agreement,
collectively contain any untrue statement of a material fact or omits to state
any 

	SECURITIES PURCHASE AGREEMENT 	Page 4 

material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Since September 30, 2007, no changes, occurrences or developments
shall have occurred or become known to the Company that would be reasonably
expected to have a material adverse effect on the business, properties,
prospects, assets, liabilities or condition (financial or otherwise) of the
Company and its subsidiaries taken individually or in the aggregate (a
“Material Adverse Effect”). The Company and its subsidiaries have no
material liability, contingent or otherwise except those reflected on the
Financial Statements and those incurred in the ordinary course since September
30, 2007, and except as set forth in the SEC Filings.

     (g)     
Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as set forth in the SEC Filings, have a Material Adverse
Effect.

     (h)     
Acknowledgment Regarding Purchaser’s Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Purchaser is acting
solely in the capacity of an arm’s length Purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by the
Purchaser or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to the
Purchaser’s purchase of the Convertible Debentures or the Conversion Shares. The
Company further represents to the Purchaser that the Company’s decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its representatives.

     (i)     
No General Solicitation. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Convertible
Debentures, the Warrants, the Conversion Shares or the Warrant Shares
(collectively, the “Securities”).

     (j)     
No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Securities under the
Securities Act or cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act.

     (k)     
Employee Relations. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened. None of the Company’s or its
subsidiaries’ employees is a member of a 

	SECURITIES PURCHASE AGREEMENT 	Page 5 

union and the Company and its subsidiaries believe that their
relations with their employees are good.

     (l)     
Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights or licenses to use all material trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company’s
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service mark registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing that reasonably
could be expected to result in a Material Adverse Effect.

     (m)     
Environmental Laws. Except as set forth in the SEC Filings, the Company
and its subsidiaries are (i) in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (“Environmental Laws”), except where
non- compliance could not reasonably be expected to result in a Material Adverse
Effect (ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses,
except where failure to receive such permits could not reasonably be expected to
result in a Material Adverse Effect and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where failure to
comply could not reasonably be expected to result in a Material Adverse
Effect.

     (n)     
Real Property. The Company holds good and marketable title in and to the
Collateral, free and clear of all liens, charges, security interests, options,
claims, mortgages, pledges, proxies, voting trusts or agreements, obligations,
understandings or arrangements or other restrictions on title or transfer of any
nature whatsoever, except as set forth in the SEC Filings. Any real property and
facilities held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries. 

     (o)     
Insurance. Except as set forth in the SEC Filings, the Company and each
of its subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company and its subsidiaries are engaged. Neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would 

	SECURITIES PURCHASE AGREEMENT 	Page 6 

not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.

     (p)     
Regulatory Permits. Except as set forth in the SEC Filings, the Company
and its subsidiaries possess all material certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit, the revocation or modification of which could reasonably be expected to
result in a Material Adverse Effect.

     (q)     
Internal Accounting Controls. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
and (iii) the recorded amounts for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.

     (r)     
No Material Adverse Breaches, etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company’s officers,
has or is expected to have a Material Adverse Effect.

     (s)     
Tax Status. The Company and each of its subsidiaries has made and filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and (unless and only to the
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. 

     (t)     
Certain Transactions. Except as disclosed in the SEC Filings and except
for arm’s length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties, none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

	SECURITIES PURCHASE AGREEMENT 	Page 7 

     (u)     
Fees and Rights of First Refusal. Except as set forth in the SEC Filings,
the Company is not obligated to offer the securities offered hereunder on a
right of first refusal basis or otherwise to any third parties including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties. All required right of first refusal
notices have been duly given and the applicable exercise period, applicable to
the transactions contemplated by the Transaction Documents, has expired in
accordance with its terms and none of the Convertible Debentures, the Warrants,
the Conversion Shares or the Warrant Shares, when issued as contemplated hereby,
will be subject to, or give rise to, any right of first refusal or similar
right.

     (v)     
Brokerage Fees. Except for a once-time account management fee of two
percent (2%) of the aggregate purchase price, in the amount of $270,000, payable
to Dr. Weinberger Consult GmbH, Germany, no broker’s, finder’s or placement fee
or commission will be payable to any person retained by or on behalf of the
Company or its subsidiaries with respect to any of the transactions contemplated
by this Agreement or any of the other Transaction Documents. The Company hereby
indemnifies the Purchaser against and agrees that it will hold the Purchaser
harmless from any claim, demand or liability, including reasonable attorneys’
fees, for any broker’s, finder’s or placement fee or commission alleged to have
been incurred by such indemnifying party.

     3.     
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

     The Purchaser represents and warrants
to the Company that as of the date hereof:

     (a)     
Knowledge, Skill and Experience. It has substantial knowledge, skill and
experience in making investment decisions of the type represented by the shares
of Common Stock issuable upon conversion of the Convertible Debentures and
exercise of the Warrants. Purchaser has reviewed the Risk Factors set forth in
the Company’s SEC Filings. 

     (b)     
Capable of Bearing Risks. It is capable of evaluating the risk of its
investment in the Securities and is able to bear the economic risk of such
investment, including the risk of losing the entire investment. 

     (c)     
Acquiring for its Own Account. The Securities will be acquired by it for
investment purposes only, for its own account and not with a present view to any
distribution thereof in violation of applicable securities laws.

     (d)     
Compliance with Securities Law. If the Purchaser should in the future
decide to dispose of the Securities, it is understood that it may so do only in
compliance with the Securities Act and applicable state securities laws.

     (e)     
Access to Information. The Company has made available to the Purchaser
the opportunity to ask questions of and to receive answers from the Company’s
officers, directors and other authorized representatives concerning the Company
and its business and prospects and the Purchaser has been permitted to have
access to all information which it has requested in order to evaluate the merits
and risks of the purchase of the Securities.

	SECURITIES PURCHASE AGREEMENT 	Page 8 

     (f)     
Acknowledgement. The Purchaser understands that:

(i)      the Securities have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act;

(ii)      the Securities must be held
indefinitely unless they are registered under the Securities Act and applicable
state securities laws or a subsequent disposition thereof is exempt from such
registration (and, upon request, evidence satisfactory to the Company is
provided by the Purchaser of the availability of such exemptions, including,
upon request, the delivery to the Company of an opinion of counsel, which
opinion is reasonably satisfactory to the Company); and 

(iii)      the Securities may bear a
legend to such effect.

     4.     
COVENANTS.

     (a)     
Best Efforts. The Company shall use its best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Section 5 of
this Agreement.

     (b)     
Securities Laws. The Company shall, on or before each Closing Date, take
such action as the Company shall reasonably determine is necessary to qualify
the Securities, or obtain an exemption for the Securities for sale to the
Purchaser at the Closing pursuant to this Agreement under the Securities Act and
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of any such action so taken to the Purchaser on or prior
to the Closing Date.

     (c)     
Use of Proceeds. The Company will use the proceeds from the sale of the
Securities primarily for construction and initial operation of the Summit
Project (as described in the SEC Filings), generally in accordance with the
budget and schedule recommended in the pre-feasibility report prepared by
Chapman, Wood and Griswold, Inc., dated April 2007, as supplemented, a summary
of which is attached hereto as Exhibit 4(c); (the "Budget" and the
"Schedule", respectively); provided, that any adverse deviation from the Budget
in excess of $750,000.00 or from the Schedule in excess of 90 days shall require
the prior written approval of the Purchaser. Notwithstanding the foregoing, (a)
on January 2, 2008, the Company shall apply proceeds from the sale of the
Securities to the extent, if any, required to repay in full all amounts owing
under the "Senior Indebtedness" (as defined in the Convertible Debentures) and
(b) in the event that the Project shall be constructed for an amount less than
the aggregate amount as set forth in the Budget, the Company shall use any
remaining net proceeds from the sale of the Securities for working capital and
general corporate purposes.

     (d)     
Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares and Warrant Shares. If at any time the
Company does not have available such shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all of the Conversion Shares
or exercise of the Warrant Shares, the Company shall call and hold a special
meeting of the 

	SECURITIES PURCHASE AGREEMENT 	Page 9 

shareholders within thirty (30) days of such occurrence, for
the sole purpose of increasing the number of shares authorized.

     (e)     
Corporate Existence. So long as at least $3 million original principal
amount of the Convertible Debentures remain outstanding, the Company shall not
directly or indirectly consummate any merger, reorganization, restructuring,
reverse stock split consolidation, sale of all or substantially all of the
Company’s assets or any similar transaction or related transactions (each such
transaction, an “Organizational Change”) unless, prior to the
consummation of an Organizational Change, the Company obtains the written
consent of the Purchaser. In any such case, the Company will make appropriate
provision with respect to such holders’ rights and interests to insure that the
provisions of this Section 4(e) will thereafter be applicable to the
Convertible Debentures.

     (f)     
Purchaser’s Right of First Refusal. As long as at least $3 million
original principal amount of the Convertible Debentures are outstanding, if the
Company intends to raise additional capital by the issuance or sale of capital
stock of the Company, including without limitation shares of any class of common
stock, any class of preferred stock, options, warrants or any other securities
convertible or exercisable into shares of common stock (whether the offering is
conducted by the Company, underwriter, placement agent or any third party) the
Company shall be obligated to offer to the Purchaser such issuance or sale of
capital stock, by providing in writing the principal amount of capital it
intends to raise and outline of the material terms of such capital raise, prior
to offering such issuance or sale of capital stock to any third parties
including, but not limited to, current or former officers or directors, current
or former shareholders and/or investors of the obligor, underwriters, brokers,
agents or other third parties. The Purchaser shall have thirty (30) business
days from receipt of such notice of the sale or issuance of capital stock to
exercise its right during the thirty (30) business days following receipt of the
notice to purchase all or a portion of such offered Common Stock, any class of
preferred stock, options, warrants or any other securities convertible or
exercisable into shares of Common Stock in accordance with the terms and
conditions set forth in the notice of sale. 

     (g)     
Company’s Right of First Refusal. Except in the case of a firmly
underwritten public offering, if Purchaser intends to (a) sell more than five
percent (5%) of the Company’s issued and outstanding shares of Common Stock, or
debentures, warrants or any other securities convertible or exercisable into
more than five percent (5%) of the Company’s issued and outstanding shares of
Common Stock (collectively, the “Purchaser Securities”) to a single
person or group of Affiliated Persons (as defined below), in one or in a series
of transactions, or (b) sell Securities to any person or Affiliated Person that
owns more than ten percent (10%) of the issued and outstanding shares of Common
Stock; then, Purchaser shall be obligated to offer to the Company such issuance
or sale of capital stock, by providing in writing the number of securities it
intends to sell and outline of the material terms of such transaction, prior to
offering the sale of securities stock to any third parties. The Company shall
have thirty (30) business days from receipt of such notice of the sale of
capital stock to exercise its right during the thirty (30) business days
following receipt of the notice to purchase all or a portion of such offered
securities. As used herein, “Affiliated Person” means any person or
entity that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common 

	SECURITIES PURCHASE AGREEMENT 	Page 10 

control with such person or entity, as such terms are used in
and construed under Rule 144 under the Securities Act of 1933, as amended.

     (h)     
Payment of Principal, Premium and Interest. The Company will duly and
punctually pay the principal, the interest, the premium (if any) and any other
amounts owing under this Agreement and the Convertible Debentures, in each case
when due under the terms of this Agreement and the Convertible Debentures, and
the Company will observe and comply with all other requirements applicable to it
pursuant to this Agreement and the other Transaction Documents, subject in each
case to applicable notice and grace periods.

     (i)     
Payment of Obligations. The Company and its subsidiaries shall pay,
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all its obligations and liabilities of whatever
nature, except (a) when the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP, with respect thereto have been provided on the books of the Company,
(b) for delinquent obligations which do not have a Material Adverse Effect, or
(c) for trade and other accounts payable in the ordinary course of business
which are not overdue for a period of more than 90 days or, if overdue for more
than 90 days, as to which a dispute exists and adequate reserves in conformity
with GAAP have been established on the books of the Company and its
subsidiaries, as the case may be.

     (j)     
Conduct of Business and Maintenance of Existence. Subject to this
Agreement, the Company and its subsidiaries shall continue to engage in the
business as the same is now conducted by it, and preserve, renew and keep in
full force and effect and in good standing its corporate existence and take all
reasonable action to maintain all material rights, privileges, franchises,
permits, licenses and approvals, copyrights, patents, trademarks, licenses and
trade names necessary or desirable in the normal conduct of the Company’s
business except for rights, privileges, franchises, permits, licenses and
approvals, copyrights, patents, trademarks and tradenames the loss of which
would not in the aggregate reasonably be expected to result in a Material
Adverse Effect, and except as otherwise permitted by this Agreement.

     (k)     
Maintenance of Properties. The Company and its subsidiaries shall keep
its properties in such reasonable repair, working order and condition, normal
wear and tear excepted, and shall from time to time make such reasonable
repairs, replacements, additions and improvements thereto, as are necessary for
the efficient operation of the Company’s business and shall comply at all times
in all material respects with all material franchises, licenses and leases to
which it is party so as to prevent any loss or forfeiture thereof or thereunder,
except where (i) compliance is at the time being contested in good faith by
appropriate proceedings and (ii) failure to comply with the provisions being
contested has not resulted, and does not create a material risk of resulting, in
the aggregate in any Material Adverse Effect.

     (l)     
Compliance with Law. The Company and its subsidiaries shall comply in all
material respects with all requirements of law, except where (a) compliance
therewith shall at the time be contested in good faith by appropriate
proceedings and (b) failure so to comply with the provisions being contested has
not resulted, and does not create a material risk of resulting, in the
aggregate, in any Material Adverse Effect.

	SECURITIES PURCHASE AGREEMENT 	Page 11 

     (m)     
Compliance with Transaction Documents. The Company and its subsidiaries
shall comply in all material respects with all the Transaction Documents (to the
extent not in violation of the other provisions of this Agreement).

     (n)     
Insurance. Except as set forth in the SEC Filings, the Company and its
subsidiaries shall at all times from and after the date of the Closing, maintain
in full force and effect insurance with reputable and solvent insurance carriers
in such amounts, covering such risks and liabilities and with such deductibles
or self-insured retentions as are in accordance with normal industry practice in
the Company’s business.

     (o)     
Environmental Laws. The Company and its subsidiaries shall comply in all
material respects, with the provisions of all applicable environmental laws, and
shall keep its owned properties free of any lien imposed pursuant to any
environmental law. Neither the Company nor any of its subsidiaries shall
generate, store, transport or dispose of any hazardous material on the
properties of the Company or its subsidiaries except as may be allowed under
valid permits.

     (p)     
Restricted Payments. Neither the Company nor any of its subsidiaries
shall, directly or indirectly, declare, order or pay any dividends or make any
distributions of any kind on its outstanding capital stock or any other payments
of any kind to any of the holders of its capital stock in respect of such
capital stock (including any redemption, purchase or acquisition of the same) or
make or set apart any sum, payment, dividend, distribution or property for such
purpose (or become contractually committed to do so), except that the Company’s
subsidiaries may pay dividends or make distributions to the Company.

     (q)     
Financial Statements and Reports. The Company and its subsidiaries shall
maintain a system of accounting in which entries that are correct in all
material respects shall be made of all transactions in relation to their
business and affairs in accordance with GAAP consistent with past practices.

     (r)     
Annual Reports. Unless the Company files such information with the SEC,
the Company shall furnish to the Purchaser as soon as available, and in any
event within 90 days after the end of each fiscal year, the consolidated balance
sheet of the Company and its subsidiaries as at the end of such fiscal year, the
consolidated statement of income, statement of changes in stockholders’ equity
and statement of cash flows of the Company and its subsidiaries as at the end of
such fiscal year (all in reasonable detail) and, in the case of consolidated
financial statements, comparative figures for the immediately preceding fiscal
year.

     (s)     
Quarterly Reports. Unless the Company files such information with the
SEC, the Company shall furnish to the Purchaser as soon as available and, in any
event, within 45 days after the end of each of the first three fiscal quarters
of the Company each year, the unaudited consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal quarter, the
consolidated statement of income and the statement of cash flows of the Company
and its subsidiaries for such fiscal quarter and for the portion of the fiscal
year then ended (all in reasonable detail) and comparative figures for the same
period in the preceding fiscal year.

	SECURITIES PURCHASE AGREEMENT 	Page 12 

     (t)     
Other Information. From time to time at reasonable intervals upon request
of any authorized officer of the Purchaser, the Company and its subsidiaries
shall furnish to the Purchaser such other information regarding the Company’s
business, assets, financial condition, income or prospects as such officer may
reasonably request, including copies of all tax returns of the Company and its
subsidiaries and any licenses, agreements, leases and instruments to which any
of the Company or its subsidiaries is party.

     (u)     
No Senior Indebtedness. As long as any part of the Convertible Debentures
are outstanding and Purchaser has complied with all its funding obligations as
set forth on the Funding Schedule, subject to Section v of this Section
(regarding subordination), the Company shall not incur any indebtedness,
liability or obligation that is senior to the Convertible Debentures in right of
payment, whether with respect to interest or upon liquidation or dissolution, or
otherwise; provided, however, that notwithstanding the foregoing, the Company
may, in the ordinary course of business, incur indebtedness secured by purchase
money security interests (which will be senior only as to the underlying assets
covered thereby) and indebtedness under capital lease obligations (which will be
senior only as to the underlying assets covered thereby) in an aggregate
outstanding principal amount not to exceed two million dollars ($2,000,000.00) .

     (v)     
Subordination. In the event that Purchaser should breach its obligation
to purchase the Debentures and Warrants as set forth in the Funding Schedule on
the terms and subject to the conditions hereof, the entire principal amount of,
and accrued interest on, all issued Convertible Debentures, including all of
Purchaser’s rights and remedies under the Mortgage Agreement, shall be
subordinated to all indebtedness that may be incurred by the Company for working
capital and capital expenditures relating to completion of the Company’s Summit
Project.

     (w)     
Board of Directors. At anytime that Purchaser is current in its funding
obligations as set forth in the Funding Schedule, upon thirty (30) days written
notice by Purchaser to the Company, the size of the Company’s Board of Directors
shall be set increased by two members and the Company shall use its best efforts
to cause two directors selected by Purchaser (the “Purchaser Nominees”)
to be appointed to the Board of Directors and to nominate the Purchaser Nominees
to serve on the Board of Directors at any subsequent stockholders’ meeting for
the election of directors.

     (x)     
Revision of Exhibit A to the Mortgage. The Company shall, as promptly as
practicable and in any case within thirty (30) days after the date of this
Agreement, update the information on Exhibit A to the Mortgage with the Grant
County recording office (book and page) and re-record the Mortgage to include
such updated information.

     5.     
CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE.

     (a)     
The obligation of the Purchaser hereunder to purchase the Convertible Debentures
and the Warrants at each Closing, is subject to the satisfaction, at or before
the Initial Closing Date and each Subsequent Closing Date, of each of the
following conditions:

	SECURITIES PURCHASE AGREEMENT 	Page 13 

          (i)     
The Summit Project shall be proceeding in accordance with the Budget and
Schedule, subject only to such deviations as have been approved by the Purchaser
pursuant to Section 4(c) or as do not require Purchaser approval pursuant
thereto;

          (ii)     
The Company shall have executed each of the Convertible Debentures, registered
in the name of Purchaser, in the respective principal amounts indicated on the
Funding Schedule under the heading “Debenture Principal Amount” issuable at such
closing and at all prior closings and delivered each of the same to the
Purchaser;

          (iii)     
The Company shall have executed each of the Warrants to purchase shares of
Common Stock, in the respective amounts indicated on the Funding Schedule under
the heading “Shares of Common Stock Underlying Warrant Purchased” (subject to
adjustment as provided therein) issuable at such closing and at all prior
closings; registered in the name of Purchaser and delivered the same to the
Purchaser; 

          (iv)     
The legal opinion of Company Counsel, in the form of Exhibit E, executed
by such counsel and shall be delivered to Purchaser; 

          (v)     
The representations and warranties of the Company shall be true and correct in
all material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality or Material Adverse Effect in
Section 2 above, in which case, such representations and warranties shall
be true and correct without further qualification) as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
set forth in Section 4 hereof and this Section 5, and shall have performed,
satisfied and complied in all material respects with the other covenants,
agreements and conditions required by this Agreement and the Mortgage to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. If requested by the Purchaser, the Purchaser shall have received a
certificate, executed by the President of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by the Purchaser including, without limitation an update as of the
Closing Date regarding the representation contained in Section 2(c)
above; and

          (vi)     
The Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Convertible Debentures
and exercise of the Warrants, shares of Common Stock to effect the conversion of
all of the Conversion Shares and Warrant Shares then outstanding.

6.      INDEMNIFICATION. In
consideration of the Purchaser’s execution and delivery of this Agreement and
acquiring the Securities hereunder, and in addition to all of the Company’s
other obligations under this Agreement, the Company shall defend, protect,
indemnify and hold harmless the Purchaser, and all of their officers, directors,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Purchaser Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith, and including reasonable
attorneys’ fees and disbursements (the 

	SECURITIES PURCHASE AGREEMENT 	Page 14 

“Indemnified Liabilities”), incurred by the Purchaser
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement or any of the other Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement or any of the other Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee based on material
misrepresentations or due to a material breach and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement or
any other instrument, document or agreement executed pursuant hereto by any of
the parties hereto, any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of the
Convertible Debentures or the status of the Purchaser or holder of the
Convertible Debentures or the Conversion Shares as a Purchaser of Convertible
Debentures in the Company; provided, however, that indemnification shall not
apply to Indemnified Liabilities resulting from the gross negligence or willful
misconduct of Purchaser. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.

     7.     
REGISTRATION RIGHTS 

     7.1     
Shelf Registration. As promptly as possible after receiving written
notice by the holders of at least $10,000,000 of initial principal amount of
Convertible Debentures (or, if not all Convertible Debentures are required to be
purchased hereunder, 75% of the aggregate principal amount of Convertible
Debentures issued), the Company shall prepare and file with the Commission a
“shelf” Registration Statement (as defined below) covering the resale of all the
Conversion Shares and Warrant Shares for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (or
another suitable form) and shall contain the “Plan of Distribution” as directed
by the Purchaser. “Registration Statement” means the
initial registration statement required to be filed under this Section 7 and any
additional registration statements contemplated by Section 7.2(f), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

          (a)     
The Company shall use its best efforts to cause the Registration Statement to be
declared effective by the Commission as promptly as possible after the filing
thereof, and shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until the first anniversary of
the Effective Date or such earlier date when all Conversion Shares and Warrant
Shares covered by such Registration Statement have been sold publicly (the
“Effectiveness Period”).

          (b)     
The Company shall notify Purchaser in writing promptly (and in any event within
one business day) after receiving notification from the Commission that the
Registration Statement has been declared effective.

	SECURITIES PURCHASE AGREEMENT 	Page 15 

     7.2.     
Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:

          (a)     
Not less than ten Trading Days (as defined below) prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to Purchaser
copies of all such documents proposed to be filed, which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject to
the review of such Purchaser, and (ii) cause its officers and directors, counsel
and independent certified public accountants to respond to such inquiries as
shall be necessary, in the reasonable opinion of respective counsel, to conduct
a reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any amendments
or supplements thereto to which Purchaser shall reasonably object. As used
herein, “Trading Day” means (a) any day on which the Common
Stock is listed or quoted and traded on its primary Trading Market, or (b) if
the Common Stock is not then listed or quoted and traded on any Trading Market,
then any Business Day. As used herein, “Trading Market”
means Nasdaq National Market or any other Eligible Market or any national
securities exchange, market or trading or quotation facility on which the Common
Stock is then listed or quoted. As used herein, “Eligible
Market” means any of the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market, Nasdaq Electronic Bulletin Board, or
in the event the Company is not listed on any of the above markets, the Company
shall be deemed to be trading on an Eligible Market for so long as the Company
is reported, in “Pink Sheets” published by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices).

          (b)(i)     
Prepare and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep the Registration Statement continuously
effective as to the applicable Conversion Shares for the Effectiveness Period
and prepare and file with the Commission such additional Registration Statements
in order to register for resale under the Securities Act all of the Conversion
Shares; (ii) cause the related Prospectus to be amended or supplemented by any
required Prospectus supplement, and as so supplemented or amended to be filed
pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in
any event within ten days, to any comments received from the Commission with
respect to the Registration Statement or any amendment thereto and as promptly
as reasonably possible provide the Purchaser true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Conversion Shares covered by the Registration Statement during the applicable
period in accordance with the intended methods of disposition by the Purchaser
thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented

          (c)     
Notify the Purchaser of Conversion Shares to be sold and Purchaser Counsel as
promptly as reasonably possible, and (if requested by any such Person) confirm
such notice in writing no later than one Trading Day thereafter, of any of the
following events: (i) 

	SECURITIES PURCHASE AGREEMENT 	Page 16 

the Commission notifies the Company whether there will be a
“review” of any Registration Statement; (ii) the Commission comments in writing
on any Registration Statement (in which case the Company shall deliver to each
Purchaser a copy of such comments and of all written responses thereto); (iii)
any Registration Statement or any post-effective amendment is declared
effective; (iv) the Commission or any other Federal or state governmental
authority requests any amendment or supplement to any Registration Statement or
Prospectus or requests additional information related thereto; (v) the
Commission issues any stop order suspending the effectiveness of any
Registration Statement or initiates any Proceedings for that purpose; (vi) the
Company receives notice of any suspension of the qualification or exemption from
qualification of any Conversion Shares for sale in any jurisdiction, or the
initiation or threat of any Proceeding for such purpose; or (vii) the financial
statements included or incorporated by reference in any Registration Statement
become ineligible for inclusion or incorporation therein or any statement made
in any Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference is untrue in any material respect
or any revision to a Registration Statement, Prospectus or other document is
required so that it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

          (d)     
Use its best efforts to avoid the issuance of or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of any Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Conversion Shares for sale in any jurisdiction, as
soon as possible.

          (e)     
Furnish to Purchaser, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.

          (f)     
Promptly deliver to Purchaser, without charge, as many copies of the Prospectus
or Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Purchaser may reasonably request. The Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by the Purchaser in connection with the offering and sale of the Conversion
Shares and Warrant Shares covered by such Prospectus and any amendment or
supplement thereto.

          (g)     
In the time and manner required by each Trading Market, prepare and file with
such Trading Market an additional shares listing application covering all of the
Conversion Shares and the Warrant Shares; (ii) take all steps necessary to cause
such Conversion Shares and Warrant Shares to be approved for listing on each
Trading Market as soon as possible thereafter; (iii) provide to the Purchaser
evidence of such listing; and (iv) maintain the listing of such Conversion
Shares and Warrant Shares on each such Trading Market or another Eligible
Market.

	SECURITIES PURCHASE AGREEMENT 	Page 17 

          (h)     
Prior to any public offering of Conversion Shares or Warrant Shares, use its
best efforts to register or qualify or cooperate with the selling Purchaser in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Conversion Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as Purchaser requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Conversion Shares and Warrant Shares
covered by a Registration Statement.

          (i)     
Cooperate with the Purchaser to facilitate the timely preparation and delivery
of certificates representing Conversion Shares to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall be free, to the
extent permitted by this Agreement, of all restrictive legends, and to enable
such Conversion Shares and Warrant Shares to be in such denominations and
registered in such names as Purchaser may request.

          (j)     
Upon the occurrence of any event described in Section 7.2(c)(vii), as promptly
as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.

          (k)     
Cooperate with any due diligence investigation undertaken by the Purchaser in
connection with the sale of Conversion Shares and Warrant Shares, including,
without limitation, by making available any documents and information; provided
that the Company will not deliver or make available to Purchaser material,
nonpublic information unless Purchaser specifically requests in advance to
receive material, nonpublic information in writing.

         
(l)      Comply with all applicable rules and
regulations of the Commission.

     7.3     
Registration Expenses. The Company shall pay (or reimburse the Purchaser
for) all fees and expenses incident to the performance of or compliance with
this Agreement by the Company, including without limitation (a) all registration
and filing fees and expenses, including without limitation those related to
filings with the Commission, any Trading Market and in connection with
applicable state securities or Blue Sky laws, (b) printing expenses (including
without limitation expenses of printing certificates for Conversion Shares and
Warrant Shares and of printing prospectuses requested by the Purchaser), (c)
messenger, telephone and delivery expenses, (d) all listing fees to be paid by
the Company to the Trading Market and (e) fees of Purchasers counsel in an
amount not to exceed $50,000.00. 

     7.4     
Dispositions. Purchaser agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Conversion Shares and Warrant Shares pursuant to the Registration
Statement. Purchaser further agrees that, 

	SECURITIES PURCHASE AGREEMENT 	Page 18 

upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Sections 7.2(c)(v), (vi) or (vii), Purchaser
will discontinue disposition of such Conversion Shares or Warrant Shares under
the Registration Statement until such Purchaser’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 7.2(j), or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.

     7.5     
Piggyback on Registrations. The Company and any of its security holders
may include securities of the Company in the Registration Statement if the
Conversion Shares and Warrant Shares are to be sold in a firm commitment
underwritten offering but, in the case of the Company and each such other
security holder, only (i) if it requests such inclusion within ten days after
receiving notice of a request by the holders of the Convertible Debentures that
the Registration Statement be filed; (ii) to the extent that, in the judgment of
the lead underwriter for such offering, inclusion of its shares, together with
shares requested to be included by the Company and other security holders of the
Company, will not adversely affect the terms and conditions, including without
limitation, pricing and number of shares, of the offering of the Conversion
Shares and Warrant Shares (with any shares so included to be allocated pro rata
among the Company and the requesting security holders, based on the number of
shares initially requested to be included in the Registration Statement by them)
and (iii) provided, in the case of other security holders of the Company, that
they enter into an underwriting agreement on the same terms and conditions as
apply to the holders of the Conversion Shares and the Warrant Shares.

     7.6     
Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Conversion
Shares and Warrant Shares and the Company shall determine to prepare and file
with the SEC a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (collectively, the “Other Securities”), other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to Purchaser written notice of such determination and if, within
fifteen days after receipt of such notice, Purchaser shall so request in
writing, the Company shall include in such registration statement all or any
part of such Conversion Shares and Warrant Shares Purchaser requests to be
registered if the securities Other Securities are to be sold in a firm
commitment underwritten offering but, in the case of each holder of the
Conversion Shares or Warrant Shares, only (i) to the extent that, in the
judgment of the lead underwriter for such offering, inclusion of its shares,
together with shares requested to be included by the holders of the Conversion
Shares and Warrant Shares, will not adversely affect the terms and conditions,
including without limitation, pricing and number of shares, of the offering of
the Other Securities (with any shares so included to be allocated pro rata among
the requesting holders of the Conversion Shares and Warrant Shares, based on the
number of shares initially requested to be included in the Registration
Statement by them) and (ii) provided, in the case of requesting 

	SECURITIES PURCHASE AGREEMENT 	Page 19 

holders of the Conversion Shares and Warrant Shares, that they
enter into an underwriting agreement on the same terms and conditions as apply
to the Other Securities.

     8.     
GOVERNING LAW: MISCELLANEOUS.

     (a)     
Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws.

     (b)     
Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.

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

     (d)     
Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

     (e)     
Entire Agreement, Amendments. This Agreement supersedes all other prior
oral or written agreements between the Purchaser, the Company, their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Purchaser makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.

     (f)     
Notices. Any notices, consents, waivers, or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon confirmation of receipt, when sent by facsimile; (iii)
three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

	SECURITIES PURCHASE AGREEMENT 	Page 20 

	: 	  
	If to the Purchaser: 	To the address set forth under such Purchaser
      name on the 
	  	signature pages attached hereto. 
	  	  
	  	  
	With a copy to: 	Karen C. Wiedemann 
	  	Fried, Frank, Harris, Shriver & Jacobson
      (London) LLP 
	  	99 City Road 
		London EC1Y 1AX  
	  	Telephone:: +44 20 7972 9624 
	  	Facsimile: +44 20 7972 9602 
	  	  
	  	  
	If to the Company, to: 	Santa Fe Gold Corporation 
	  	11128 Pennsylvania NE, Suite 200, 
	  	Albuquerque, NM 87110 
	  	Attention: W. Pierce Carson 
	  	Telephone: (505) 255-4852 
	  	Facsimile: (505) 255-4851 

     Each party shall provide five (5)
days’ prior written notice to the other party of any change in address or
facsimile number.

     (g)     
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser.

     (h)     
No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

     (i)     
Survival. The representations and warranties of the Company contained in
Section 2, and the indemnification provisions set forth in Section
6, shall survive the Closing for a period of one (1) year following the date
on which the Convertible Debentures are converted, redeemed or otherwise
disposed of in full.

     (j)     
Publicity. Except as otherwise required by applicable law, the Company
and the Purchaser shall have the right to approve, before issuance any press
release or any other public statement with respect to the transactions
contemplated hereby made by the other party.

     (k)     
Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

	SECURITIES PURCHASE AGREEMENT 	Page 21 

     (l)     
No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

[REMAINDER PAGE INTENTIONALLY LEFT BLANK]

	SECURITIES PURCHASE AGREEMENT 	Page 22 

     IN WITNESS WHEREOF,
the undersigned have executed this Securities Purchase Agreement as of the date
first written above.

	 	THE COMPANY: 
	 	 
	 	SANTA FE GOLD CORPORATION 
	 	  
	 	By: 	 
	 	Name: W. Pierce Carson 
	 	Title: President 
	 	 
	 	THE PURCHASER: 
	 	 
	 	SULANE HOLDINGS, LTD 
	 	  
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	                   	Address for Notice: 
	 	                   	P.O. Box 414 
	 	                   	CH-1630 Bulle 
	 	                   
    	Switzerland

	SECURITIES PURCHASE AGREEMENT 	Page 23 

Schedule 2 (c)

PRO FORMA CAPITALIZATION TABLE

The following pro forma capitalization table sets forth certain
information relating to our capitalization: (i) as of September 30, 2007, after
giving effect to payoff for cash of the current senior secured convertible
notes; the elimination of the related discounts on the notes and related
derivative instruments liability; and (ii) as of September 30, 2007, after
giving effect to the conversion of all Company equity instruments as detailed
below.

	  	 	  	 	 	Pro forma at September 	 
	  	 	  	 	 	30, 2007, giving effect to 	 
	  	 	  	 	 	conversion of all 	 
	  	 	September 30, 	 	 	Company Equity 	 
	  	 	2007 	 	 	Instruments 	 
	  	 	(Unaudited) 	 	 	(Unaudited) 	 
	Current Debt Related to Convertible Notes:
    	 	  	 	 	  	 
	     Convertible notes payable 	$	 945,411 	 	$	 -- 	 
	     Notes discounts 	 	(310,292	) 	 	-- 	 
	     Derivative instruments liability 	 	2,192,402 	 	 	--
	 
	  	$	 2,827,521 	 	$	 -- 	 
	  	 	  	 	 	  	 
	Shareholders’ Equity: 	 	  	 	 	  	 
	     Common Stock 	$	 147,771 	 	$	 231,275 	 
	       
       (authorized 200,000,000 shares) 	 	  	 	 	  	 
	   Additional Paid in Capital 	 	44,549,160 	 	 	76,962,760 	 
	   Deferred Compensation 	 	(8,846	) 	 	-- 	 
	  	 	44,688,085 	 	 	77,194,035 	 
	  	 	  	 	 	  	 
	   Accumulated (Deficit) 	 	(44,524,418	) 	 	(46,853,577	) 
	  	 	  	 	 	  	 
	   Total Shareholders’ Equity 	$	 163,667 	 	$	 30,340,458 	 

The Capitalization Table includes conversion, issuance and
exercise of the following equity instruments and is qualified in its entirety by
the detailed descriptions of the securities, including the anti-dilution
provisions thereof, as set forth in the SEC filings.

	(1) 	
      Issuance of an aggregate 888,095 true-up shares for
      October 2007 principal and interest conversions on amended private
      placement of Senior Secured Convertible Notes issued March 20,
  2006.

	(2) 	
      Exercise of warrants associated with amended private
      placement Senior Secured Convertible Notes issued March 20, 2006
      aggregating 4,153,431 shares, exercise price of $1.00 per share.

	(3) 	
      Issuance and conversion of Additional Investment Rights
      and related warrants aggregating 2,836,245 shares, at conversion and
      exercise price of $1.00 per share. Assumes that holders exercise their
      Additional Investment Rights before expiration date of July 20, 2008, of
      which there is no assurance. Reference amended private placement of Senior
      Secured Convertible Notes issued March 20, 2006.

	(4) 	
      Conversion of 10% Senior Subordinated Convertible Notes,
      interest for three years and related warrants issued in October and
      December 2007, aggregating 864,000 shares, conversion and exercise price
      of $1.25 per share. Assumes conversion of debentures and exercise of
      warrants after three years.

	(5) 	
      Conversion of 7% Senior Secured Convertible Debentures
      dated 12/21/07, conversion of interest for a three period and exercise of
      attached warrants, aggregating 22,560,292 shares. Debenture conversion and
      warrant exercise price of $1.00 per share. Assumes Debentures are
      converted and warrants exercised after three years and interest is
      converted at $1.00 per share.

	SECURITIES PURCHASE AGREEMENT 	Page 24 

	(6) 	
      Exercise of all outstanding options to officers,
      directors and employees aggregating 9,950,000 shares at exercise prices
      ranging from $.10 to $1.24 per share.

	(7) 	
      Includes issuance of 500,000 restricted shares to the CEO
      related to performance benchmarks.

Upon conversion and exercise of the aforementioned equity
instruments, the pro forma capitalization table reflects 115,637,478 common
shares issued and outstanding.

	SECURITIES PURCHASE AGREEMENT 	Page 25 

Exhibit 4(c)

BUDGET

ESTIMATED CAPITAL COST 
(US dollars) 
(CWG April
2007)

	Summit Mine 	 	  	 	 	 	 
	             Engineering
      and permits 	 	31,000 	 	 	 	 
	           
       Site prep, roads and trucking facilities 	 	105,000 	 	 	 	 
	             Water and
      communication systems 	 	94,000 	 	 	 	 
	           
       Surface plant and equipment 	 	67,000 	 	 	 	 
	             Mine
      development 	 	3,492,000 	 	 	 	 
	         Total
      Mine 	 		 	$	 3,789,000  	 
	Lordsburg Millsite 	 	  	 	 	 	 
	           
       Engineering, permits and roads 	 	56,000 	 	 	 	 
	             Dismantle
      and move St. Cloud mill 	 	251,000 	 	 	 	 
	           
       Mill construction 	 	5,851,000 	 	 	 	 
	             Initial
      tailing facility 	 	836,000 	 	 	 	 
	           
       Mobile equipment 	 	205,000 	 	 	 	 
	         Total Millsite 	 		 	$	 7,199,000  	 
	Other 	 	  	 	 	 	 
	             Project
      management and supervision (1 year) 	 	632,000 	 	 	 	 
	           
       Reclamation bonding 	 	300,000 	 	 	 	 
	           Working capital (4
      months) 	 	1,524,000 	 	 	 	 
	         Total
      Other 	 		 	$	 2,456,000  	 
	  	 	  	 	 	 	 
	Total estimated capital cost 	 		 	$	 13,444,000  	 

	SECURITIES PURCHASE AGREEMENT 	Page 26 

SCHEDULE

PROJECTED CONSTRUCTION EXPENDITURE IN 12-WEEK PERIODS

(CWG July 2007)

	12-Week Period 	 	Mine 	 	 	Mill 	 	 	Other1 	 	 	Total 	 
	Period 1 (1-12 wks) 	$	193,000 	 	$	172,000 	 	$	146,000 	 	$	511,000 	 
	Period 2 (13-24 wks) 	 	634,000 	 	 	2,448,000 	 	 	146,000 	 	 	3,228,000 	 
	Period 3 (25-36 wks) 	 	984,000 	 	 	2,357,000 	 	 	146,000 	 	 	3,487,000 	 
	Period 4 (37-48 wks) 	 	1,069,000 	 	 	2,221,000 	 	 	446,000 	 	 	3,736,000 	 
	Period 5 (49-60 wks) 	 	909,000 	 	 	- 	 	 	1,170,000 	 	 	2,079,000 	 
	Period 6 (60-64 wks)2 	 	-_
	 	 	-_
	 	 	403,000 	 	 	403,000 	 
	Totals 	$	3,789,000 	 	$	7,199,000 	 	$	2,456,000 	 	$	13,444,000 	 

___________________
1 Management and supervision;
bonding; working capital Periods 5 & 6. 
2 4-week period.

	SECURITIES PURCHASE AGREEMENT 	Page 27 

	Exhibits 	 
	       
                 A. 	Funding Schedule 
	           
             B. 	Form of Convertible Debenture 
	       
                 C. 	Form of Warrant 
	           
             D. 	Form of Mortgage 
	                 
       E. 	Form of Opinion of Counsel
  

	SECURITIES PURCHASE AGREEMENT 	Page 28 

EXHIBIT A

FUNDING SCHEDULE

	
CLOSING DATE 
	DEBENTURE 
PRINCIPAL AMOUNT
      
	SHARES OF COMMON 
STOCK
      UNDERLYING 
WARRANT PURCHASED3 	
CASH PURCHASE 
PRICE
  
	December 21, 2007
      	$
      350,000 	175,000 	$
      350,000 
	January 15, 2008
    	$1,500,000 	750,000 	$1,500,000 
	April 15, 2008 	$3,500,000 	1,750,000 	$3,500,000 
	July 15, 2008 	$3,500,000 	1,750,000 	$3,500,000 
	October 15, 2008
    	$3,500,000 	1,750,000 	$3,500,000 
	January 15, 2009
    	$1,150,000 	575,000 	$1,150,000 
	Total 	$13,500,000 	6,750,000 	$13,500,000 

____________________
3 Share numbers and Warrant
Price at issuance subject to adjustment as set forth in the Form of Warrant.

	SECURITIES PURCHASE AGREEMENT 	Page 29 

EXHIBIT B

Form of Convertible Debenture

EXHIBIT C

Form of Warrant

EXHIBIT D

Form of Mortgage

EXHIBIT E

Form of Opinion of CounselFiled by Automated Filing Services Inc. (604) 609-0244 - Santa Fe Gold Corporation - Exhibit 4.2

EXHIBIT B

FORM OF CONVERTIBLE
DEBENTURE

NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS
DEBENTURE ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.

SANTA FE GOLD CORPORATION

7% SENIOR SECURED CONVERTIBLE DEBENTURE DUE DECEMBER 31,
2012

	$_________ 	Albuquerque, New Mexico 	___________, 200_ 

     This 7% Senior Secured
Convertible Debenture (this “Debenture”) is issued by Santa Fe
Gold Corporation, a Delaware corporation (“Maker”), to Sulane
Holdings, Ltd. (“Holder”), pursuant to that certain Securities
Purchase Agreement, dated December 15, 2007 (the “Securities Purchase
Agreement”), by and between Maker and Holder. In addition to the terms
defined elsewhere in this Debenture, capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the Securities Purchase
Agreement.

     FOR VALUE RECEIVED, Maker
hereby promises to pay to Holder or its successors and assigns the principal sum
of _______________ Thousand Dollars ($ ,000.00) 1 together with
interest on the unpaid principal balance from time to time remaining in
accordance with the following terms: 

     1.     
Interest and Principal Payments;
Redemption.

          1.1     
Interest. Interest on the outstanding principal amount hereof
shall accrue at the rate of seven percent (7%) per annum. Until June 30, 2009,
interest on the outstanding principal amount will be deferred, accrued and
compounded quarterly (“Initial Accrued Interest”). The Initial
Accrued Interest shall be due on July 1, 2009 and payable within five (5)
Business Days (as defined in Section 8.11 below) after June 30, 2009. Commencing
with the quarter ending September 30, 2009, interest on the outstanding
principal amount shall be payable quarterly in arrears (each a “Quarterly
Interest Payment”) and shall be due the first day of the month following
the applicable quarter and payable within five (5) Business Days after the end
of each quarter ending 

___________________________
1 The amount is set
forth in the Funding Schedule, which is included as Exhibit A to the Purchase
Agreement, in respect of the applicable Closing Date. 

September 30, December 31, March 31,
and June 30, respectively (each an “Interest Payment Date”).

          Interest
shall be calculated on the basis of a 360-day year and the actual number of days
elapsed, to the extent permitted by applicable law. All past due principal and
interest shall bear interest from maturity at the rate of fourteen percent (14%)
per annum, calculated on a 360-day year commencing on the date on which demand
for payment shall be made in writing.

          1.2     
Payment in Shares. The Holder shall have the option, by giving
Maker written notice of its election thirty (30) days’ prior to June 30, 2009,
to have the Initial Accrued Interest paid in shares of the Company’s common
stock (“Common Stock”). Commencing September 30, 2009, the
Holder shall have the option to make an annual election, by giving Maker thirty
(30) days’ prior written notice of its election, to have the following four (4)
Quarterly Interest Payments paid in shares of Common Stock. Valuation of the
Common Stock shall be based upon the Market Price (as defined below) of the
Common Stock for the thirty (30) trading days immediately preceding the payment
due date. As used herein, “Market Price” shall mean the arithmetic
average of the volume weighted average trading price per share of Common Stock
for such thirty (30) day period as reported by Bloomberg L.P., or any successor
performing similar functions.

          1.3     
Principal and Accrued Interest Payments. The outstanding principal
amount of, and accrued interest on, this Debenture shall be payable in cash on
December 31, 2012.

          1.4     
Pre-payment election. On January 1, 2011 and January 1, 2012,
respectively, Holder shall have the right to make an annual election, by giving
ninety (90) days prior written notice to Maker, to require Maker to pay to
Holder thirty percent (30%) of any Available Quarterly Cash Flow (as defined
below) within fifteen (15) days after the end of each of Maker’s four fiscal
quarters for the calendar years 2011 and 2012, respectively (the “Excess
Quarterly Cash Flow Payment”). As used herein, “Available
Quarterly Cash Flow” means net operating cash flow from the Summit
Project (as defined in the Securities Purchase Agreement) for Maker’s applicable
fiscal quarter less a reasonable operating and contingency reserve. The Excess
Quarterly Cash Flow Payment will first be applied to accrued and unpaid interest
and then to the outstanding principal amount of this Debenture. Maker’s
obligation to make any Excess Quarterly Cash Flow Payments will terminate upon
repayment, redemption or conversion of the Debenture.

          1.5     
Redemption. After December 31, 2010, subject to Holder’s right to
convert this Debenture at any time into shares of Common Stock as set forth in
Section 2.1 below, upon at least 30 days prior written notice to Holder,
Maker may redeem the outstanding principal amount of, and accrued interest on,
this Debenture at the Redemption Prices (as defined below) on the date specified
for redemption (the “Redemption Date”).

2

     Such
redemption shall be at a purchase price, expressed as a percentage of the
initial principal amount of, and accrued interest on, the Debenture during the
applicable period (the “Redemption Price”):

	 	12 months ending December 31, 	Redemption Price 
	 	           
             2011 	       102%
    
	 	               
         2012 	       101%

     The
applicable Redemption Price will be paid by cashier’s check or wire transfer on
the Redemption Date upon presentation and surrender of this Debenture. On and
after the close of business on the Redemption Date, all rights with respect to
this Debenture shall forthwith cease and terminate, except the right of Holder
thereof to receive upon surrender of this Debenture the consideration payable
upon redemption thereof.

2.     
Conversion. 

          2.1     
Voluntary Conversion. Holder has the right, at Holder’s option, at
any time and from time to time prior to payment in full of the principal balance
of, and accrued interest on, this Debenture, to convert this Debenture, in
accordance with the provisions of Section 2.3 hereof, in whole or in
part, into fully paid and non-assessable shares of Maker’s common stock, $.002
par value per share (“Common Stock”). The number of shares of
Common Stock into which this Debenture may be converted (the “Conversion
Shares”) shall be determined by dividing the aggregate principal amount
together with all accrued interest to the date of conversion by the Conversion
Price (as defined below) in effect at the time of such conversion. The initial
conversion price shall be equal to $1.00 per share (the “Conversion
Price”).

          2.2     
Automatic Conversion. The entire principal amount of this
Debenture shall be automatically converted into the Conversion Shares at the
Conversion Price upon (i) Holders of at least a majority of the outstanding
principal amount of this Debenture consent to such conversion, or (ii) the
Market Price of the Common Stock exceeding $2.50 per share for 10 consecutive
trading days.

         
2.3      Conversion Procedure.

          2.3.1   Notice
of Conversion Pursuant to Section 2.1. Before Holder shall be
entitled to convert this Debenture into shares of Common Stock, it shall
surrender this Debenture at the office of Maker and shall give written notice in
substantially the form set forth on Exhibit A attached hereto. Such
notice shall be delivered by mail, postage prepaid, to Maker at its principal
corporate office, of the election to convert the same pursuant to Section
2.1, and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Maker shall, as soon
as practicable thereafter, issue and deliver at such office to Holder of this
Debenture a certificate or certificates for the number of shares of Common Stock
to which Holder of this Debenture shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of this Debenture, and the person or
persons 

3

entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.

          2.3.2     
Notice of Conversion Pursuant to Section 2.2. If this
Debenture is automatically converted, written notice shall be delivered to
Holder of this Debenture at the address of Holder set forth in the Securities
Purchase Agreement or at the address last given by Holder to Maker for the
purpose of notice or, if no such address appears or is given, at the place where
the principal executive office of Maker is located, notifying Holder of the
conversion to be effected, specifying the Conversion Price, the principal amount
of this Debenture to be converted, the amount of accrued interest to be
converted, the date on which such conversion will occur and calling upon such
Holder to surrender to Maker, in the manner and at the place designated, this
Debenture.

          2.4     
Delivery of Stock Certificates. As promptly as practicable
after the conversion of this Debenture, Maker at its expense will issue and
deliver to Holder of this Debenture a certificate or certificates for the number
of full shares of Common Stock issuable upon such conversion.

          2.5     
Mechanics and Effect of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of this Debenture. In lieu of Maker
issuing any fractional shares to Holder upon the conversion of this Debenture,
Maker shall pay to Holder the amount of outstanding principal that is not so
converted, such payment to be in the form as provided below. Upon the conversion
of this Debenture pursuant to Section 2.1 above, Holder shall surrender
this Debenture, duly endorsed, at the principal office of Maker. At its expense,
Maker shall, as soon as practicable thereafter, issue and deliver to such Holder
at such principal office a certificate or certificates for the number of shares
of such Common Stock to which Holder shall be entitled upon such conversion
(bearing such legends as are required by applicable state and federal securities
laws in the opinion of counsel to Maker), together with any other securities and
property to which Holder is entitled upon such conversion under the terms of
this Debenture, including a check payable to Holder for any cash amounts payable
as described above. Upon conversion of this Debenture in its entirety, Maker
shall be forever released from all its obligations and liabilities under this
Debenture, except that Maker shall be obligated to pay Holder, within ten (10)
days after the date of such conversion, any interest accrued and unpaid or
unconverted to and including the date of such conversion.

     3.     
Anti-Dilution Provisions and Other Adjustments. In order to
prevent dilution of the rights granted hereunder, the Conversion Price shall be
subject to adjustment from time to time in accordance with this Section
3.

          3.1     
Adjustments for Splits and Combinations. In case, after the
issuance of this Debenture, Maker shall (i) pay a dividend or make a
distribution on its outstanding shares of Common Stock in shares of its Capital
Stock, (ii) subdivide the then outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine the then outstanding shares of
Common Stock into a smaller number of 

4

shares of Common Stock, or (iv) issue
by reclassification of its shares of Common Stock any shares of any other class
of capital stock of Maker (including any such reclassification in connection
with a merger in which Maker is the continuing Maker), then the Conversion Price
in effect immediately prior to the opening of business on the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that Holder of this
Debenture thereafter surrendered for conversion shall be entitled to receive the
number and kind of shares of Common Stock of Maker that such holder would have
owned or been entitled to receive immediately following such action had such
Debenture been converted immediately prior to such time. An adjustment made
pursuant to this Section 3.1 for a dividend or distribution shall become
effective immediately after the record date for the dividend or distribution and
an adjustment made pursuant to this Section 3.1 for a subdivision,
combination or reclassification shall become effective immediately after the
effective date of the subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any action listed above shall be
taken.

          3.2     
Adjustments for Issuances of Rights, Options or Warrants. If
Maker, at any time while this Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to the Holder)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than then applicable Conversion Price (except for Permitted
Issuances (as defined below)), then the Conversion Price shall be multiplied by
a fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants (plus the number of additional shares of Common Stock
offered for subscription or purchase), and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants, plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at the Conversion Price. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.

          3.3     
Adjustments for Issuances of Common Stock Equivalents. If Maker,
at any time while this Debenture is outstanding, shall issue shares, except for
Permitted Issuances, of Common Stock or rights, warrants, options or other
securities or debt that 

5

are convertible into or exchangeable
for shares of Common Stock (“Common Stock Equivalents”) entitling
any Person to acquire shares of Common Stock, at a price per share less than the
Conversion Price (if the holder of the Common Stock or Common Stock Equivalent
so issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights per share which is issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price per
share which is less than the Conversion Price, such issuance shall be deemed to
have occurred for less than the Conversion Price), then, at the sole option of
the Holder, the Conversion Price shall be adjusted to mirror the conversion,
exchange or purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. Maker shall
notify Holder in writing, no later than one (1) business day following the
issuance of any Common Stock or Common Stock Equivalent subject to this Section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. 

          3.4     
Adjustments for Issuances of Indebtedness, Assets or Securities.
If Maker, at any time while this Debenture is outstanding, shall distribute to
all holders of Common Stock (and not to the Holder) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price at which this Debenture
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the fair market value of a share of
Common Stock determined as of the record date mentioned above as determined by
the Board of Directors in good faith, and of which the numerator shall be such
fair market value of a share of Common Stock on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to Holder of the portion
of assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above.

          3.5     
Adjustment for Reclassification or Merger. In case of any
reclassification or change in the Common Stock (other than any reclassification
or change referred to in Section 3.1 and other than a change in par
value) or in case of any consolidation of Maker with any other corporation or
any merger of Maker into another corporation or of another corporation into
Maker (other than a merger in which Maker is the continuing corporation and
which does not result in any reclassification or change (other than a change in
par value or any reclassification or change to which Section 3.1 is
applicable) in the outstanding Common Stock), or in case of any sale or transfer
to another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of Maker, in any such case, the
corporation or entity (or its 

6

successor in such consolidation or
merger) or the purchaser of such properties and assets shall make appropriate
provision so that Holder shall have the right thereafter, at its option, (A) to
convert the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture into the kind and amount of shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of Maker into
which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) to require Maker to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.

          3.6     
Notice of Adjustment. Whenever the Conversion Price or the
conversion privilege shall be adjusted as provided in Sections 3.1, 3.2, 3.3,
3.4 or 3.5, Maker shall promptly cause a notice to be mailed to Holders of
record of this Debenture describing the nature of the event requiring such
adjustment, the Conversion Price in effect immediately thereafter and the kind
and amount of stock or other securities or property into which this Debenture
shall be convertible after such event. Where appropriate, such notice may be
given in advance and included as a part of a notice required to be mailed under
the provisions of Section 3.8.

          3.7     
De Minimis Adjustment. Maker may, but shall not be required to,
make any adjustment of the Conversion Price if such adjustment would require an
increase or decrease of less than 1% in such Conversion Price; provided,
however, that any adjustments which by reason of this Section 3.7 are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 3 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may
be.

         
3.8      Notices. In case at any
time:

     (i)     
Maker shall take any action which would require an adjustment in the Conversion
Price pursuant to this Section;

     (ii)     
there shall be any capital reorganization or reclassification of the Common
Stock (other than a change in par value), or any consolidation or merger to
which Maker is a party and for which approval of any shareholders of Maker is
required, or any sale or transfer of all or substantially all of the properties
and assets of Maker; or

7

     (iii)     
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of Maker;

then, in any such event, Maker shall
give written notice, in the manner provided in Section 8.1 hereof, to
Holders of this Debenture at their respective addresses as the same appear on
the books of Maker, at least 30 days prior to any record date for such action,
dividend or distribution or the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer, lease
dissolution, liquidation or winding up; provided, however, that any notice
required by any event described in clause (ii) of this Section 3.8 shall
be given in the manner and at the time that such notice is given to Holders of
Common Stock. Without limiting the obligations of Maker to provide notice of
corporate actions hereunder, the failure to give the notice required by this
Section 3.8 or any defect therein shall not affect the legality or
validity of any such corporate action of Maker or the vote upon such action.

          3.9     
Permitted Issuances. As used herein, “Permitted
Issuances” shall mean (i) securities issuable pursuant to any option,
warrant or other agreement in effect as of the date hereof and set forth in the
SEC Filings (as defined in the Securities Purchase Agreement); (ii) up to eight
million shares of Common Stock (or options to purchase such Common Stock)
issuable to officers, directors, employees, or consultants to Maker pursuant to
Maker’s 2007 Equity Incentive Plan approved by the Maker’s shareholders and set
forth in the SEC Filings; (iii) up to ten million shares of Common Stock (or
options to purchase such Common Stock) issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business combination
approved by the Board of Directors: or (iv) up to five million shares of Common
Stock (or warrants, options to purchase such Common Stock or securities
convertible or exchangeable into Common Stock) in any transaction exempt from
the registration requirements of the United States federal securities laws.

     4.     
Reservation of Shares. Maker shall at all times reserve and
keep available, solely for the purpose of issuance upon conversion of this
Debenture, such number of shares of Common Stock as shall be issuable upon the
conversion of this Debenture. 

     5.     
Events of Defaults. If any of the events specified
in this Section 5 shall occur (herein individually referred to as an
“Event of Default”), Holder of this Debenture may declare the
entire principal and unpaid accrued interest hereon immediately due and payable,
by notice in writing to Maker:

     5.1     
Default in the payment of the principal or interest of this Debenture when due
and payable;

     5.2     
The institution by Maker of proceedings to be adjudicated as bankrupt or
insolvent, or the consent by it to institution of bankruptcy or insolvency
proceedings against it or the filing by it of a petition or answer or consent
seeking reorganization or 

8

release under the federal Bankruptcy
Act, or any other applicable federal or state law, or the consent by it to the
filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of Maker, or of any substantial part
of its property, or the making by it of assignment for the benefit of creditors;
or

          5.3     
If, within sixty (60) days after the commencement of an action against Maker
(and service of process in connection therewith on Maker) seeking any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such action shall
not have been resolved in favor of Maker or all orders or proceedings thereunder
affecting the operations or the business of Maker stayed, or if the stay of any
such order or proceeding shall thereafter be set aside, or if, within sixty (60)
days after the appointment without the consent or acquiescence of Maker of any
trustee, receiver or liquidator of Maker or of all or any substantial part of
the properties of Maker, such appointment shall not have been vacated; or 

         
5.4      Maker or any subsidiary of Maker shall fail to
pay, or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or Maker or any subsidiary of Maker shall
call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or Maker or any subsidiary of Maker
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing or any of the actions described in
Sections 5.2 or 5.3; or any corporate or other action is taken by
Maker or any subsidiary of Maker for the purpose of effecting any of the
foregoing or any of the actions described in Sections 5.2 or 5.3;
or

          5.5     
Any declared default of Maker or any or its subsidiaries under any Senior
Indebtedness that gives the holder thereof the right to accelerate such Senior
Indebtedness, and such Senior Indebtedness is in fact accelerated by such
holder.

     6.     
Security. Payment of this Debenture shall be secured by a
mortgage, security agreement and financing statement executed by Maker, dated
December 15, 2007 (the “Mortgage”), covering the real property and
assets that comprise the Summit Project.

     7.     
Subordination. The principal amount of, and
accrued interest on, this Debenture shall be subordinated to all Senior
Indebtedness, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all Maker’s Senior Indebtedness. As used
herein, “Senior Indebtedness” means the principal of and unpaid
accrued interest on all current and future debt of Maker, (i) that is evidenced
by one or more outstanding convertible debentures, and that may be issued in
connection with additional investment rights issued in private placements
completed on March 21, 2006, and September 6, 2006, respectively, as described
in the Company’s Registration Statement on Form SB-2, SEC Registration No.
333-141558 and (ii) in the event that Holder should breach its obligations to
purchase the Debentures and Warrants as set forth in the Funding Schedule in
accordance with the terms and conditions set forth in the Securities Purchase
Agreement, all indebtedness that may be incurred by Maker for working capital
and capital expenditures relating to completion of the Summit Project.

9

     If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of Maker, or if this Debenture shall be declared due and payable
upon the occurrence of an event of default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by Maker in respect of the
outstanding principal amount of the Debenture (the “Unpaid Principal Balance”),
or accrued and unpaid interest on, this Debenture at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (ii) no claim or proof of claim shall be
filed with Maker by or on behalf of the Holder of this Debenture that shall
assert any right to receive any payments in respect of the Unpaid Principal
Balance and accrued and unpaid interest thereon (including declaring an Event of
Default, acceleration, instituting any legal action or otherwise enforcing its
rights with respect to the indebtedness evidenced by this Debenture), except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding. If there occurs an event of default that
has been declared in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding, permitting the
holder of such Senior Indebtedness to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full,
no payment shall be made in respect of the unpaid principal balance and accrued
and unpaid interest thereon.

     Subject to the rights, if any, of
the holders of Senior Indebtedness under this Section 7 to receive cash,
securities or other properties otherwise payable or deliverable to the Holder,
nothing contained in this Section 7 shall impair, as between Maker and the
Holder, the obligation of Maker, subject to the terms and conditions hereof, to
pay to the Holder the Unpaid Principal Balance and unpaid accrued interest
thereon as and when the same become due and payable, or shall prevent the Holder
of this Debenture, upon default hereunder, from exercising all rights, powers
and remedies otherwise provided herein or by applicable law.

     Subject to the payment in full of
all Senior Indebtedness and until this Debenture shall be paid in full, the
Holder shall be subrogated to the rights of the holders of Senior Indebtedness
(to the extent of payments or distributions previously made to such holders of
Senior Indebtedness) pursuant to the provisions of this Section 7 to receive
payment or distributions of assets of Maker applicable to the Senior
Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between Maker and its creditors, other than the holders
of Senior Indebtedness and the Holder, be deemed to be a payment by Maker to or
on account of this Debenture; and for the purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness to which the
Holder would be entitled except for the provisions of this Section 7 shall, as
between the Maker and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Maker to or on
account of the Senior Indebtedness.

     By its acceptance of this
Debenture, the Holder agrees to execute and deliver such documents as may be
reasonably requested from time to time by Maker or the lender of any 

10

Senior Indebtedness in order to implement the foregoing
provisions of this Section 7.

    
8.     
General

          8.1     
Notices. Any notice or demand given hereunder by Holder must be in
writing to be effective and shall be deemed to have been given and received (a)
when actually delivered to the address of the party to be notified if delivered
in person, (b) if mailed, on the earlier of the date actually delivered to the
address of the party to be notified or (whether ever so delivered or not) on the
third Business Day (as defined in Section 8.11 below) after it is enclosed in an
envelope, addressed to the party to be notified, properly stamped, sealed, and
deposited in the United States mail, certified mail, return receipt requested,
or (c) one (1) Business Day after deposit with a nationally recognized overnight
delivery service.

          8.2     
Renounciation. Maker hereby renounces and waives grace,
presentment, protest, notice of every type, including, without limitation,
notice of default, notice of intention to accelerate, notice of acceleration,
and notice of protest, and consents that time of payment may be extended without
notice.

          8.3     
Waiver. This Debenture evidences the payment obligations of Maker
to Holder. No failure on the part of Holder to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power,
privilege or remedy under this Debenture shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power, privilege or remedy
under this Debenture preclude any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law. Any
waiver by Holder of a breach of any provision of this Debenture shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Debenture. Any waiver must be in
writing.

          8.4     
Successors and Assigns. This Debenture shall be binding upon, and
inure to the benefit of, Maker and Holder and their respective successors and
assigns. Maker may not assign its rights or obligations under this Debenture
without the prior written consent of Holder except in the event of a capital
reorganization or reclassification of the Common Stock (other than a change in
par value), or any consolidation or merger to which Maker is a party and for
which approval of shareholders of Maker is required. 

          8.5     
Severability. If one or more provisions of this Debenture
are held to be invalid, illegal or unenforceable under applicable law, such
provision(s) shall be excluded from this Debenture and the balance of this
Debenture shall be interpreted as if such provision(s) were so excluded and
shall otherwise be enforceable in accordance with its terms, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.

          8.6     
Usury. If it shall be found that any interest or other
amount deemed interest due hereunder shall violate applicable laws governing
usury, the applicable rate of interest due 11

hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. Maker covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law or other law which would prohibit or forgive
Maker from paying all or any portion of the principal of or interest on this
Debenture as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Debenture, and Maker (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants that it will
not, by resort to any such law, hinder, delay or impeded the execution of any
power herein granted to Holder, but will suffer and permit the execution of
every such as though no such law has been enacted.

          The
parties hereto intend to conform strictly to the usury laws applicable to
Holder. Accordingly, if the transactions contemplated hereby would be usurious
under applicable state or federal law, then, notwithstanding anything to the
contrary in this Debenture or in any other agreement entered into in connection
with or as security for this Debenture, it is agreed as follows: (a) the
aggregate of all consideration which constitutes interest under law applicable
to Holder that is contracted for, taken, reserved, charged or received under
this Debenture or under any of such other agreements or otherwise in connection
with this Debenture shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be credited by Holder on
the principal amount of this Debenture (or, to the extent that the principal
amount of this Debenture has been or would thereby be paid in full, refunded by
Holder to Maker); and (b) if the maturity of this Debenture is accelerated by
reason of an election of Secured Party resulting from any Event of Default under
this Debenture, the Mortgage or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to Holder may never include more than the maximum amount allowed
by such applicable law, and excess interest, if any, provided for in this
Debenture, the Mortgage or otherwise shall be cancelled automatically as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Holder on the principal amount of this Debenture (or, to the extent
that the principal amount of this Debenture has been or would thereby be paid in
full, refunded by Holder to Maker).

          8.7     
Governing Law. This Debenture shall be governed by the substantive
laws of the State of Delaware, without regard to principles of conflicts of
laws, and shall be performable in Albuquerque, New Mexico.

          8.8     
Lost or Mutilated. If this Debenture is mutilated, lost, stolen or
destroyed, Maker shall execute and deliver, in exchange and substitution for and
upon cancellation of the mutilated Debenture, or in lieu of or in substitution
for a lost, stolen or destroyed Debenture, a new Debenture for the principal
amount of this Debenture so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such Debenture, and of
the ownership hereof, and indemnity, if requested, all reasonably satisfactory
to Maker.

         
8.9      Direct Obligation. Except as
expressly provided herein, no provision of this 

12

Debenture shall alter or impair the
obligations of Maker, which are absolute and unconditional, to pay the principal
of, interest and other charges (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of Maker. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms of the Securities Purchase
Agreement. 

          8.10     
Attorneys’ Fees. If Maker fails to strictly comply with the terms
of this Debenture, then Maker shall reimburse Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys’ fees and expenses
incurred by Holder in any action in connection with this Debenture, including,
without limitation, those incurred: (i) during any workout, attempted workout,
and/or in connection with the rendering of legal advice as to Holder’s rights,
remedies and obligations, (ii) collecting any sums which become due to Holder,
(iii) defending or prosecuting any proceeding or any counterclaim to any
proceeding or appeal; or (iv) the protection, preservation or enforcement of any
rights or remedies of Holder.

          8.11     
Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day (as defined below), such payment
shall be made on the next succeeding Business Day. As used herein,
“Business Day” means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.

     IN
WITNESS WHEREOF, the undersigned have executed this Debenture as of the date
first above written.

MAKER:

SANTA FE GOLD CORPORATION 

	 By: 		 	  
	 	Name: W. Pierce Carson 	 	 
	 	Title: President & CEO
    	 	

13

EXHIBIT A

NOTICE OF CONVERSION

(To Be Signed Only Upon Conversion of Debenture)

	TO: 	SANTA FE GOLD CORPORATION

     The undersigned, Holder of the
foregoing Debenture, pursuant to Section 2.1 of such Debenture hereby surrenders
such Debenture for conversion into shares of Common Stock of SANTA FE GOLD
CORPORATION, to the extent of $ ______________ unpaid principal amount of, and
accrued interest on, such Debenture, and requests that the certificates for such
shares be issued in the name of, and delivered to, __________________ ,
whose address is _________________________________________________________.

Dated: ____________________________

	 	 
	 	(Signature must conform in all respects 
	 	to name of Holder as specified on the 
	 	face of the Note) 
	 	  
	 	  
	 	(Address) 

14

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