Document:

Unassociated Document

    EXHIBIT
      10.1

     

    

     

    

    
 

     

    ASSET
      PURCHASE AGREEMENT

     

    by
      and among

     

    CENTRAL
      CITY CONSOLIDATED MINING CORP., a Colorado corporation

     

    HUNTER
      GOLD MINING INC., a Colorado corporation,

     

    HUNTER
      GOLD MINING CORP., a British Columbia corporation, 

     

    GEORGE
      OTTEN, a resident of Colorado 

     

    and

     

    WITS
      BASIN PRECIOUS MINERALS INC., a Minnesota corporation

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

     

    
      
        	 	 	
                Page

              
	 	 	 
	ARTICLE
                1 PURCHASE AND SALE OF ASSETS	 	
                2

              
	1.1	
                 Purchased
                  Assets. 

              	 	
                2

              
	1.2	
                Excluded
                  Assets. 

              	 	
                3

              
	ARTICLE
                2 ASSUMPTION OF LIABILITIES	 	
                3

              
	ARTICLE
                3 LETTER OPTION	 	
                3

              
	3.1	
                Letter
                  Option.

              	 	
                3

              
	3.2	
                Purchase
                  Price.

              	 	
                4

              
	3.3	
                The
                  Closing; Payment of Purchase Price.

              	 	
                4

              
	3.4	
                Intentionally
                  deleted.

              	 	
                4

              
	3.5	
                Intentionally
                  deleted.

              	 	
                5

              
	3.6	
                Method
                  of Payment 

              	 	
                5

              
	3.7	
                Intentionally
                  deleted.

              	 	
                5

              
	3.8	
                Allocation
                  of Purchase Price. 

              	 	
                5

              
	3.9	
                Sales
                  and Use Taxes; Other Expenses

              	 	
                 
5

              
	ARTICLE
                4 REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
                COVENANTORS	 	
                6

              
	4.1	
                Organization
                  and Good Standing.

              	 	
                6

              
	4.2	
                Authority;
                  Binding Obligation.

              	 	
                6

              
	4.3	
                No
                  Conflict

              	 	
                6

              
	4.4	
                Title,
                  Sufficiency and Condition of Assets.

              	 	
                7

              
	4.5	
                Acquired
                  Real Property.

              	 	
                7

              
	4.6	
                Environmental
                  Matters.

              	 	
                9

              
	4.7	
                Restrictive
                  Covenants

              	 	
                11

              
	4.8	
                Brokers.

              	 	
                11

              
	4.9	
                Disclosure

              	 	
                .11

              
	ARTICLE
                5 REPRESENTATIONS AND WARRANTIES OF PURCHASER	 	
                11

              
	5.1	
                Organization
                  and Good Standing

              	 	
                11

              
	5.2	
                Authority;
                  Binding Obligation.

              	 	
                11

              
	5.3	
                Compliance
                  with Other Instruments.

              	 	
                11

              
	5.4	
                Litigation.

              	 	
                11

              
	5.5	
                Consents

              	 	
                12

              
	5.6	
                Court
                  Orders, Decrees and Laws

              	 	
                12

              
	5.7	
                Shares
                  Duly and Validly Issued

              	 	
                12

              
	ARTICLE
                6 COVENANTS	 	
                12

              
	6.1	
                Access
                  and Information

              	 	
                .12

              
	6.2	
                Confidentiality

              	 	
                .12

              
	6.3	
                Real
                  Property

              	 	
                13

              
	6.4	
                General
                  Discharge of Environmental Liabilities.

              	 	
                14

              
	6.5	
                Notification
                  of Certain Matters

              	 	
                16

              
	6.6	
                Conditions

              	 	
                16

              
	6.7	
                Maintenance
                  of Good Standing

              	 	
                16

              
	ARTICLE
                7 AGREEMENT ON LETTER OPTION	 	
                16

              
	ARTICLE
                8 CONDITIONS PRECEDENT TO PURCHASER’S OBLIGATIONS	 	
                16

              
	8.1	
                Board
                  Approval

              	 	
                16

              
	8.2	
                Representations
                  and Warranties

              	 	
                16

              
	8.3	
                Absence
                  of Litigation

              	 	
                17

              
	8.4	
                Permit
                  Assignments

              	 	
                17

              
	8.5	
                Consents
                  and Approvals

              	 	
                17

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	8.6	
                Opinion
                  of Sellers’ Counsel

              	 	
                17

              
	8.7	
                Title
                  Evidence; Title Policy

              	 	
                17

              
	8.8	
                Receipt
                  of Other Seller Deliveries.

              	 	
                17

              
	8.9	
                Absence
                  of Changes

              	 	
                17

              
	8.10	
                Assignment

              	 	 17
	ARTICLE
                9 CONDITIONS PRECEDENT TO THE SELLERS’ AND COVENANTORS’
                OBLIGATIONS	 	
                18

              
	9.1	
                Representations
                  and Warranties

              	 	
                18

              
	9.2	
                Absence
                  of Litigation

              	 	
                18

              
	9.3	
                Consents
                  and Approvals

              	 	
                18

              
	9.4	
                Opinion
                  of Purchaser’s Counsel

              	 	
                18

              
	9.5	
                Receipt
                  of Other Closing Deliveries

              	 	
                18

              
	ARTICLE
                10 CLOSING DELIVERIES	 	
                18

              
	10.1	
                Deliveries
                  by Sellers

              	 	
                18

              
	10.2	
                Deliveries
                  by Purchaser

              	 	
                18

              
	ARTICLE
                11 TERMINATION BEFORE CLOSING	 	
                19

              
	ARTICLE
                12 INDEMNIFICATION	 	
                19

              
	12.1	
                Indemnification
                  by Sellers

              	 	
                19

              
	12.2	
                Definition
                  of “Damages”. .

              	 	
                19

              
	12.3	
                Limitation
                  of Liability of Sellers and Covenantors

              	 	
                19

              
	12.4	
                Indemnification
                  by Purchaser

              	 	
                19

              
	12.5	
                Claims
                  Period

              	 	
                20

              
	12.6	
                Payment
                  of Indemnification Claim

              	 	
                20

              
	12.7	
                Exclusive
                  Remedy

              	 	
                20

              
	ARTICLE
                13 GENERAL PROVISIONS	 	
                21

              
	13.1	
                No
                  Publicity

              	 	
                21

              
	13.2	
                Knowledge
                  Convention

              	 	
                21

              
	13.3	
                Reservation
                  of Rights

              	 	
                21

              
	13.4	
                Further
                  Acts and Assurances

              	 	
                21

              
	13.5	
                Notices

              	 	
                21

              
	13.6	
                Governing
                  Law

              	 	
                23

              
	13.7	
                Construction

              	 	
                23

              
	13.8	
                Dispute
                  Resolution

              	 	
                23

              
	13.9	
                No
                  Reliance

              	 	
                24

              
	13.10	
                Saturdays,
                  Sundays and Legal Holidays

              	 	
                24

              
	13.11	
                Binding
                  Agreement

              	 	
                24

              
	13.12	
                Headings

              	 	
                24

              
	13.13	
                Modification
                  and Waiver

              	 	
                24

              
	13.14	
                Severability

              	 	
                24

              
	13.15	
                Access
                  to Records

              	 	
                24

              
	13.16	
                Discretion.

              	 	
                25

              
	13.17	
                Counterparts;
                  Facsimile Signatures

              	 	
                25

              
	13.18	
                Entire
                  Agreement

              	 	
                25

              

      

       

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    

    ASSET
      PURCHASE AGREEMENT

     

    THIS
      ASSET PURCHASE AGREEMENT (this “Agreement”)
      is made
      and entered into as of this 20th day of September, 2006, by and among Wits
      Basin
      Precious Minerals Inc., a corporation organized under the laws of the State
      of
      Minnesota (the “Purchaser”),
      Central City Mining Corp., a corporation organized under the laws of the State
      of Colorado and George Otten, a resident of Colorado, (collectively, the
“Sellers”
      and
      each
      individually as a“Seller”),
      and
      Hunter Gold Mining Corp., a corporation organized under the laws of the Province
      of British Columbia, Canada, Hunter Gold Mining Inc, a corporation organized
      under the laws of the state of Colorado (collectively the “Covenantors”
      and
      each
      a “Covenantor”).

     

    INTRODUCTION

     

    A. Sellers
      and the Covenantors collectively own or control, among other things, certain
      real estate and mining claims commonly known as the “Bates-Hunter
      Mine and the Golden Gilpin Mill”, and
      associated real and personal property assets, including, but not limited to,
      a
      dewatering plant, mining properties, claims, permits and all ancillary
      equipment, as then same are held and may be replaced or improved from time
      to
      time, including further, all assets as set forth in that certain report by
      Steven A. Tedesco dated March, 1997, which includes operations conducted at
      the
      facilities identified on or about any of the foregoing or as may be listed
      on
Schedule
      1.1(a) to
      this
      Agreement (the “Assets”).
      

     

    B. Sellers
      and the Covenantors collectively also hold certain permit and contract rights
      relating to the Assets, certain liabilities pursuant to that certain one percent
      net smelter return royalty payable to the Goldrush Casino and Mining
      Corporation, which is limited to a maximum of US $1,500,000 for the life of
      said
      royalty agreement, as set forth on Schedule
      A-2
      of this
      Agreement (the “Royalty
      Contract”),
      upon
      the terms and conditions set forth in Article 2 of this Agreement, which were
      also intended by Sellers to be transferred with the Assets, pursuant to the
      Letter Option, as defined below.

     

    C. Sellers
      and/or the Covenantors together have previously entered into a letter agreement
      dated December 2, 2003, whereby Covenantors (on behalf of themselves and/or
      Sellers) had granted an option to Ken Swaisland (“Swaisland”),
      whereby Swaisland had the right to purchase the Assets under the terms and
      conditions contained therein (the “Swaisland
      Option”),
      which
      option was subsequently amended by those certain letter amendments dated January
      14, 2004 and August 4, 2004, which option was assigned to Cardinal Minerals,
      Inc., by assignment dated January 26, 2004, which assignment was later
      terminated and cancelled in its entirety by Swaisland dated on or about June
      22,
      2004, and which option, as amended, was purportedly assigned to Purchaser by
      Swaisland by assignment dated August 12, 2004, notwithstanding that the
      Swaisland Option had already expired as of that date. However, the Purchaser,
      Sellers and Covenantors have entered into a separate option agreement in letter
      form in substantially the same terms as the Swaisland Option (as amended),
      which
      option agreement was further amended by Letter Amendments dated October 26,
      2004, December 8, 2004, January 11, 2005, and January 20, 2005 (as so amended,
      the “Letter
      Option”).

     

    D. Purchaser,
      Sellers and Covenantors desire to extend and restate the Letter Option, and
      to
      purchase and sell the Purchased Assets as hereafter defined upon the terms
      and
      conditions set forth in this Agreement.

     

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the foregoing facts and premises hereby made
      a
      part of this Agreement, and the representations, warranties, covenants and
      agreements contained herein, and for other good and valuable consideration
      the
      receipt and sufficiency of which are hereby acknowledged, the parties hereto,
      intending to be legally bound, hereby agree as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Article
      1

    Purchase
      and Sale of Assets

     

    1.1  Purchased
      Assets.
      Subject
      to the terms and conditions set forth in this Agreement, Sellers hereby agree
      to
      sell, assign, transfer and deliver, and Purchaser hereby agrees to purchase
      and
      accept from Sellers, at and as of the Closing Date (as such term is defined
      below in Section
      3.2(a)),
      all of
      Sellers’ right, title and interest in and to the following properties, assets
      and rights existing as of the date hereof (collectively, the “Purchased
      Assets”):

     

    (a)  The
      Bates-Hunter Mine and the Golden Gilpin Mill and related real estate and real
      estate based mining claims (the “Acquired
      Real Property”);

     

    (b)  water
      treatment plant;

     

    (c)  surface
      real estate rights, as shown on the ownership list shown on the attached
Schedule
      1.1(c);

     

    (d)  all
      mining claims as shown on the ownership list shown on the attached Schedule
      1.1(c);

     

    (e)  all
      mining permits and water rights;

     

    (f)  all
      ancillary equipment used in any of the foregoing, to include all
      machinery, fixtures, furniture, equipment, materials, parts, supplies, tools
      and
      other tangible property owned or controlled by Seller and/or Covenantors, used
      in connection with the Purchased Assets and located on or about the Acquired
      Real Property (the “Purchased
      Equipment”)
      as set
      forth on the attached Schedule
      1.1(f);

     

    (g)  all
      rights under: (i) contracts relating to or creating rights with respect to
      the
      Purchased Assets, whether oral or written (the “Contracts”);
      and
      (ii) to the extent assignable, all other contracts and agreements, whether
      oral
      or written, used by Sellers and/or Covenantors in the operation of the Purchased
      Assets and set forth on Schedule 1.1(g)(the “Contracts”);

     

    (h)  all
      permits, authorizations and licenses used by Sellers and/or Covenantors
      exclusively in the management or operation of the Purchased Assets;

     

    (i)  all
      books, records, files and papers relating exclusively to the Purchased Assets
      created at any time prior to the Closing (as defined in Section 3.3(a) below)by
      Sellers and/or Covenantors , other than Sellers’ and Covenantors’ respective
      corporate minute books and related corporate records, and books, records, files
      and papers not otherwise relating exclusively to the Purchased
      Assets;

     

    (j)  any
      and
      all other properties, assets and rights of Sellers and/or Covenantors which
      are
      used exclusively in the management or operation of the Purchased Assets not
      expressly described, listed or referred to in Section 1.2 below.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    1.2  Excluded
      Assets.
      The
      following properties, assets and rights shall not be transferred to Purchaser
      and shall not be included within the definition of Purchased Assets
      (collectively, the “Excluded
      Assets”):

     

    (a)  all
      cash,
      including but not limited to petty cash, money-market, checking, savings and
      similar type accounts, and cash equivalents of Sellers as of the Closing
      Date; 

     

    (b)  all
      of
      Sellers’ rights under contracts and agreements that do not constitute
      Contracts;
      and

     

    (c)  all
      of
      Sellers’ corporate books and records and tax returns, and all rights of Sellers
      to any tax refunds, including tax refunds for periods prior to the Closing
      Date
      relating to the Purchased Assets.

     

    Article
      2

    Assumption
      of Liabilities

     

    Subject
      to the terms and conditions of this Agreement and contingent on the Closing
      occurring, Purchaser shall assume and agree to pay and perform the obligations
      of Sellers and Covenantors under the Contracts and the Royalty Contract arising
      after the Closing Date. Except as expressly provided herein, Purchaser shall
      not
      assume any other obligation or liability of Sellers or Covenantors that relates
      to or arises out of ownership or occupancy of the Purchased Assets or Sellers’
or Covenantors’ operations, including but not limited to Sellers’ and
      Covenantors’ respective operation of the Purchased Assets, prior to the Closing
      Date, whether absolute or contingent, known or unknown, contractual or
      otherwise, and specifically including but not limited to any accounts payable,
      debt, tax liabilities, employee-benefit or pension-plan liabilities, workers’
compensation liabilities, environmental liabilities, other legal liabilities,
      union or union-related liabilities, employment obligations or agreement, or
      any
      applicable change of control liabilities (collectively, the “Excluded
      Liabilities”).

     

    Article
      3

    Letter
      Option

     

    3.1  Letter
      Option. Sellers
      and Covenantors acknowledge, under the Letter Option, the Purchaser’s investment
      of the following sums and improvements to the Purchased Assets, including the
      Acquired Real Property in consideration of the grant of the option:

     

    (a)  $315,000.00
      aggregate cash payment, for “Phase I” of the Schedule A work program (as set
      forth in the O’Gorman Report work program as shown on Schedule 3.1(a) (the
“Work
      Program”)),
      paid
      to Gregory Gold Producers Inc.

     

    (b)  $300,000.00
      cash payment paid to Gregory Gold Producers, Inc., on or about January 31,
      2005.

     

    (c)  $300,000.00
      cash payment paid to Gregory Gold Producers, Inc., on or about May 30,
      2006.

     

    (d)  $265,000.00
      cash payment paid to Gregory Gold Producers, Inc., on or about August 31,
      2006.

     

    (All
      amounts set forth in this Section 3.1, plus other due diligence costs expended
      by Purchaser, including but not limited to improvements to the assets,
      attorney’s fees, title and survey costs, environmental report fees and similar
      acquisition expenses which are in excess of $800,000, are referred to herein
      as
      the “Due
      Diligence Costs”)

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    The
      parties hereto specifically agree that, to the extent that any of the Work
      Program results in mineral assets and/or sludge by-products (the “Interim
      Assets”),
      the
      Seller hereby specifically conveys to Purchaser full title to and authority
      to
      sell such Interim Assets in any manner that Purchaser shall deem to be
      reasonable, and Purchaser shall be entitled to retain all income from such
      sale(s) including any amount by which such income exceeds such amounts paid
      by
      Purchaser.  

     

    3.2  Purchase
      Price. In
      the
      event that Purchaser elects to proceed to closing, as and for the purchase
      price
      of the Purchased Assets, Purchaser agrees to pay and Sellers agree to accept
      the
      sum of Six Million Seven Hundred Fifty Thousand Canadian Dollars ($6,750,000.00
      CDN) plus Three Million Six Hundred Twenty Thousand (3,620,000) unregistered
      and
      restricted shares of the .01 par value common capital stock of Purchaser payable
      as set out in Section 3.3 hereof (the “Purchase
      Price”). 

     

    3.3  The
      Closing; Payment of Purchase Price. 

     

    (a)  The
      closing of the transactions contemplated by this Agreement (the “Closing”)
      shall
      take place by the exchange of Closing documents by Sellers and Purchaser on
      November 30, 2006, or on such other date mutually agreeable to Purchaser and
      Sellers (“Closing
      Date”).
      The
      Closing will be effective as of the close of business on November 30,
      2006.

     

    (b)  Subject
      to the terms and conditions set forth in this Agreement, the parties agree
      to
      consummate, on the Closing Date, the transactions described below.

     

    (i)  Sellers
      will assign and transfer to Purchaser good, valid and marketable title in and
      to
      the Purchased Assets, free and clear of all Liens (as defined in Section 4.4(a)
      below) by delivering to Purchaser (A) a bill of sale and assignment in
      substantially the form attached hereto as Exhibit A (the “Bill
      of Sale”),
      and
      (B) warranty deeds in substantially the form attached as Exhibit B (the
“Deeds”).
      

     

    (ii)  Purchaser
      shall deliver to Sellers
      (or Sellers’ nominee) (i)
      the
      sum of Two Hundred Fifty Thousand Canadian Dollars ($250,000.00 CDN), (ii)
      a
      note payable to Sellers (or
      Sellers’ nominee) in
      the
      original principal amount of Six Million Five Hundred Thousand Canadian Dollars
      ($6,500,000.00 CDN) in the form of Exhibit
      C
      hereto
      and hereby made a part hereof (“Note”),
      (iii)
      a deed of trust in the form of Exhibit
      D
      hereto
      and hereby made a part hereof with George Otten (or
      other Sellers’ nominee) as
      the
      trustee for the Sellers securing
      the Note (the “Deed
      of Trust”),
      and
      (iv) Three Million Six Hundred Twenty Thousand (3,620,000) shares of the
      unregistered and restricted .01 par value common capital stock of the
      Purchaser.

     

    (iii)  Each
      of
      the parties shall deliver the documents required to be delivered to the other
      party or parties hereunder.

     

    (iv)  Each
      Seller shall deliver to Purchaser an Escrow Agreement in the form of
Exhibit
      E hereto
      (the “Escrow
      Agreement”)
      and a
      Representation and Stock Restriction Agreement in the form of Exhibit
      F
      hereto
      (the “Representation
      and Stock Restriction Agreement”).

     

    3.4  Intentionally
      deleted.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    3.5  Intentionally
      deleted. 

     

    3.6  Method
      of Payment.
      Any
      cash amounts payable hereunder shall be paid by wire transfer of immediately
      available funds to an account designated by the intended recipient or as
      otherwise indicated.

     

    3.7  Intentionally
      deleted. 

     

    3.8  Allocation
      of Purchase Price.
      Each party hereto agrees to report to the Internal Revenue Service such
      information concerning the allocation of Purchase Price as may be required
      by
      Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”).
      Each
      party agrees that it will adopt and utilize such agreed values for purposes
      of
      completing and filing Form 8594 for federal income tax purposes. No party hereto
      will voluntarily take any position inconsistent therewith upon examination
      of
      its respective federal tax return, in any claim, in any litigation or otherwise
      with respect to such tax return. The specific allocation of the Purchase Price
      shall be as set forth below (the “Allocation
      Schedule”).

     

    
      	
               

            	
              $_________________ land

            	 	$_________________ equipment	 
	 	$_________________ buildings	 	$_________________ goodwill	 
	 	$_________________ contract rights	 	$_________________ mining claims	 
	 	$_________________ water rights	 	$_________________
              mining permits	 

    

      

    3.9  Sales
      and Use Taxes; Other Expenses. 

     

    (a)  Notwithstanding
      anything in this Agreement to the contrary, Sellers shall pay the cost of all
      state and local sales and use taxes, if any, transfer taxes and documentary
      stamp taxes associated with the sale and conveyance of the Purchased Assets
      pursuant to this Agreement. 

     

    (b)  On
      or
      prior to the Closing, Sellers shall pay the full amount of any assessments
      on
      the Acquired Real Property that have been levied for periods prior to or that
      are pending as of the Closing Date. State and local real and personal property
      taxes, including any utility, water and sewer charges at the Acquired Real
      Property, shall be prorated between Sellers and Purchaser as of the Closing
      Date
      on the basis of the tax bills payable during the year of the Closing or, as
      applicable, utility bills for the period including the Closing Date. Purchaser
      shall pay the full amount of such taxes and utility charges upon receipt of
      any
      such bills for charges incurred for periods after the Closing Date, and Sellers,
      within fifteen (15) days of notice from Purchaser, shall reimburse Purchaser
      for
      the amount of Sellers’ pro rata share of such taxes and utility
      charges.

     

    (c)  Except
      as
      otherwise expressly provided in this Agreement, Sellers, Covenantors and
      Purchaser shall each pay their own respective costs and expenses in connection
      with this Agreement and the transactions contemplated by this Agreement,
      including any finder’s fees, brokerage, legal, tax, and advisory fees and
      expenses, or other commission arising by reason of any services rendered or
      alleged to have been rendered to such party in connection with this Agreement
      or
      the transactions contemplated by this Agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    Article
      4

    Representations
      and Warranties of the Sellers
      and the Covenantors

     

    To
      induce
      Purchaser to enter into this Agreement, Sellers hereby jointly and severally
      represent and warrant to Purchaser as indicated below. In addition, Covenantors
      jointly and severally (as between themselves, but only severally with the
      Sellers) hereby make those representations and warranties to the Purchaser
      as
      indicated below.

     

    4.1  Organization
      and Good Standing. 

     

    4.1.1 Central
      City Mining Corp. is a corporation duly incorporated, validly existing and
      in
      good standing under the laws of its jurisdiction of incorporation. Central
      City
      Mining Corp. has the requisite power to own, operate, use and/or lease the
      Purchased Assets, as applicable, and to conduct the operations of the Purchased
      Assets as presently being conducted by it and/or by the Covenantors, including
      any and all permits required by any public authority for such operations such
      as
      permits, or regulatory authorizations. Central City Mining Corp. is qualified
      or
      otherwise authorized to transact business as a foreign corporation in the state
      of Colorado.

     

    4.1.2 The
      Covenantors are each corporations duly incorporated, validly existing and in
      good standing under the laws of their respective jurisdictions of incorporation.
      The Covenantors each have the requisite power to own, control, operate, use
      and/or lease the Purchased Assets, as applicable, and to conduct the operations
      of the Purchased Assets to the extent presently being conducted by it, including
      any and all permits required by any public authority for such operations such
      as
      permits, or regulatory authorizations. Hunter Gold Mining Corp. is qualified
      or
      otherwise authorized to transact business in the state of Colorado.

     

    4.1.3 George
      Otten has the requisite power to own, operate, use and/or lease the Purchased
      Assets, as applicable, and to conduct the operations of the Purchased Assets
      as
      presently being conducted, including any and all permits required by any public
      authority for such operations such as permits, or regulatory
      authorizations.  

     

    4.2  Authority;
      Binding Obligation.
      Each
      corporate Seller and Covenantor has the requisite corporate power and authority
      to execute and deliver this Agreement and perform its obligations hereunder.
      Each corporate Seller’s and Covenantor’s execution and delivery of this
      Agreement, and performance of its covenants and agreements hereunder, have
      been
      duly authorized by all necessary corporate action of each such corporate Seller
      and Covenantor. This Agreement has been duly executed and delivered by each
      Seller and Covenantor, and constitutes a valid and binding obligation of each
      Seller and Covenantor, and is enforceable against each Seller and Covenantor
      in
      accordance with its terms.

     

    4.3  No
      Conflict.

     

    (a)  Neither
      the execution and delivery of this Agreement, nor the consummation or
      performance of any of the transactions contemplated by this Agreement (such
      transactions are collectively referred to hereinafter as the “Contemplated
      Transactions”)
      will
      directly or indirectly (with or without notice or lapse of time): (i)
      contravene, conflict with or result in a violation of or default under any
      provision of any corporate Seller’s or Covenantor’s articles or certificate of
      incorporation or bylaws, or any resolution adopted by the board of directors
      or
      shareholders of any corporate Seller or Covenantor; (ii) contravene, conflict
      with or result in a violation of or default under, or give any Governmental
      Body
      (as defined below) or other Person (as defined below) the right to challenge
      any
      of the Contemplated Transactions or exercise any remedy or obtain any relief
      under, any federal, state or local law, regulation, ordinance or administrative
      order or any judgment or decree to which any Seller, Covenantor and/or the
      Purchased Assets are subject; (iii) contravene, conflict with or result in
      a
      violation or breach of or default under any provision of, or give any Person
      the
      right to declare a default or exercise any remedy under, or to accelerate the
      maturity or performance of, or to cancel, terminate or modify any contract
      or
      other arrangement to which any Seller or Covenantor is a party or by which
      any
      Seller or Covenantor is bound; or (iv) result in the creation of any Lien of
      any
      kind or nature upon any of the Purchased Assets. No Seller or Covenantor is
      required to give any notice to or obtain any consent from any Person in order
      for Sellers and Covenantors to consummate the Contemplated Transactions, other
      than the approval of their respective shareholders by special
      resolution.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (b)  For
      purposes of this Agreement, the definitions set forth below shall
      apply. 

     

    (i)  The
      term
“Governmental
      Body”
means
      any (i) nation, state, city, town, village, district or other jurisdiction
      of
      any nature; (ii) federal, state, provincial, local, municipal, foreign or other
      government; (iii) governmental or quasi-governmental agency, branch, department,
      official or entity and any court or other tribunal; (iv) multi-national
      organization or body; or (v) any other body entitled to exercise any
      administrative, executive, judicial, legislative, police, regulatory or taxing
      authority or power of any nature.

     

    (ii)  The
      term
“Person”
means
      any individual, partnership, corporation, limited liability company,
      association, joint-stock company, trust, joint venture, unincorporated
      organization or association or a Governmental Body (or any department, agency
      or
      political subdivision thereof).

     

    (iii) The
      term
“Material
      Adverse Effect”
      means an
      effect which could reasonably be expected to be materially adverse to the
      operating results, business conditions or prospects of the Purchased
      Assets.

     

    4.4  Title,
      Sufficiency and Condition of Assets. 

     

    (a)  On
      or
      before Closing, Sellers will have good and marketable title to each asset
      constituting the Purchased Assets, free and clear of any security interest,
      mortgage, pledge, lien, charge, encumbrance, right of way, easement or adverse
      claim of any kind or nature except for Liens (i) that will be terminated by
      Sellers prior to the Closing, and (ii) rights of way, easements and other
      restrictions of record affecting the Acquired Real Property that are reflected
      on the Exception Documents (as defined in Section 6.3(c) (collectively,
“Liens”).
      To
      the extent that Sellers do not presently have good, valid and marketable to
      any
      asset constituting the Purchased Assets, Sellers shall diligently take such
      actions as may be necessary and/or advisable to acquire such title prior to
      the
      Closing Date. On the Closing Date, Sellers will transfer to Purchaser good,
      valid and marketable title to each asset constituting the Purchased Assets,
      free
      and clear of all Liens. 

     

    (b)  Except
      as
      otherwise expressly represented in this Asset Purchase Agreement, Sellers make
      no representations as to the condition and repair of the Purchased Assets and
      Purchased Assets are being sold to the Purchaser strictly on an “As Is, Where
      Is” basis. Purchaser acknowledges that it has had full and ample opportunity to
      inspect the Purchased Assets and to determine the suitability thereof for the
      Purchaser’s purposes..

     

    
      
        
        

      

      
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    4.5  Acquired
      Real Property. 

     

    Sellers
      and Covenantors represent and warrant as follows:

     

    (a)  Schedule
      1.1(a) contains a description of all real property owned or controlled by
      Sellers and Covenantors and used in the management or operation of the Purchased
      Assets; 

     

    (b)  On
      or
      before Closing, Sellers will have good, valid, marketable, indefeasible, fee
      simple title to all of the Purchased Assets including, without limitation,
      the
      Acquired Real Property;

     

    (c)  Sellers
      have access to public roads or valid perpetual easements over private streets
      or
      private property for ingress to and egress from the Acquired Real
      Property;

     

    (d)  Except
      as
      reflected on the Surveys, none of the structures or improvements on the Acquired
      Real Property encroaches upon real property of another person, and no structure
      or improvement of any other person substantially encroaches upon any of the
      Acquired Real Property, except for such encroachments that would not have,
      individually or in the aggregate, a material adverse effect on the value or
      present use of the Acquired Real Property;

     

    (e)  The
      Acquired Real Property is not subject to any Liens, other than Liens for current
      taxes not yet due, Liens to be discharged at Closing, and rights of way,
      easements and other restrictions of record that do not have a Material Adverse
      Effect and are reflected on the Exception Documents;

     

    (f)  Sellers
      and Covenantors have received no notice of actual or threatened special
      assessments or reassessments of the Acquired Real Property.

     

    (g)  Except
      as
      necessary to acquire good, valid and marketable title prior to the Closing
      Date,
      Sellers and Covenantors have not entered into any other contracts for the sale
      of the Purchased Assets, nor are there any contracts for sale, rights of first
      refusal, rights of first offer or options to purchase the Purchased Assets,
      or
      any other rights of others that might prevent the consummation of the
      transactions contemplated by this Agreement.

     

    (h)  Sellers
      and Covenantors are not in default concerning any of their obligations or
      liabilities regarding the Purchased Assets.

     

    (i)  No
      Seller
      is a “foreign person”, “foreign partnership”, “foreign trust” or “foreign
      estate” as those terms are defined in Section 1445 of the Code.

     

    (j)  There
      are
      no claims, actions, suits, proceedings or investigations pending or, to the
      knowledge of any Seller or Covenantor, threatened by any governmental department
      or agency, or any corporation, partnership, entity or person, which in any
      manner or to any extent may affect: (i) the Acquired Real Property, (ii)
      Sellers’ right, title and interest in and to any part or all of the Acquired
      Real Property, or (iii) Sellers’ ability to vest in Purchaser a fee simple
      ownership interest in the Purchased Assets, including the Acquired Real
      Property, free and clear of any and all liens (other than liens for current
      taxes not yet due), claims, encumbrances and rights of redemption.

     

    (k)  Except
      as
      reflected in the Surveys, and except for the site within the Acquired Real
      Property on which the mill and related structures are located, the Acquired
      Real
      Property is not in a designated wetland, flood plain or flood insurance
      area.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (l)  As
      at the
      Closing, there will be no other matters affecting the Acquired Real Property
      or,
      to the knowledge of any Seller or Covenantor, threatened which might reasonably
      be expected to have a Material Adverse Effect on the value, marketability or
      present use of the Acquired Real Property.

     

    4.6  Environmental
      Matters. 

     

    (a)  As
      used
      in this Section 4.6, the following terms shall have the following
      meanings:

     

    (i)  “Hazardous
      Materials”
means
      any dangerous, toxic or hazardous pollutant, contaminant, chemical, waste,
      material or substance regulated by any federal, state or local law, statute,
      code, ordinance, regulation, rule or other requirement relating to such
      substance. For purposes of this representation in Section 4.6 only and for
      no
      other purpose in this document, the definition of Hazardous Materials shall
      (i)
      only apply to laws, statutes, codes, ordinances, regulations, rules or other
      requirements in effect as of the date of the Closing and (ii) not include any
      soaps or fatty acids used during the pilot production tests carried out by
      the
      Sellers and/or Covenantors during their respective ownership and/or control
      of
      the Real Property.

     

    (ii)  “Environmental
      Laws”
means
      all applicable federal, state and local laws, rules, regulations, codes,
      ordinances, orders, decrees, directives, permits, licenses and judgments
      relating to pollution, contamination or protection of the environment
      (including, without limitation, all applicable federal, state and local laws,
      rules, regulations, codes, ordinances, orders, decrees, directives, permits,
      licenses and judgments relating to Hazardous Materials). For purposes of this
      representation in Section 4.6 only and for no other purpose in this document,
      the definition of Environmental Laws shall only apply to laws, statutes, codes,
      ordinances, regulations, rules or other requirements in effect as of the date
      of
      the Closing.

     

    (iii)  “Release”
shall
      mean the spilling, leaking, disposing (including without limitation the
      abandonment or discarding of barrels, containers, and other closed receptacles
      containing any Hazardous Material), discharging, emitting, depositing, ejecting,
      leaching, escaping, dumping, pumping, or any other release, however defined,
      whether intentional or unintentional, of any Hazardous Material. Release shall
      not include disposal of Hazardous Materials in compliance with Environmental
      Laws.

     

    (b)  To
      the
      best of the knowledge of each Seller and each Covenantor, and except as has
      been
      disclosed to Purchaser, the Real Property is in material compliance with all
      applicable Environmental Laws. 

     

    (c)  To
      the
      best of the knowledge of each Seller and each Covenantor, Sellers and/or
      Covenantors have obtained and maintained in full force and effect all
      environmental permits, licenses, certificates of compliance, approvals and
      other
      authorizations (collectively, the “Environmental
      Permits”),
      including without limitation those set forth in Schedule 4.6, necessary to
      conduct mining operations on the Real Property, and has provided to Purchaser
      a
      copy of each such Environmental Permit. To the best of the knowledge of each
      Seller and each Covenantor, Sellers and Covenantors have conducted such
      operations in material compliance with all terms and conditions of the
      Environmental Permits. To the best of the knowledge of each Seller and each
      Covenantor, with respect to the Acquired Real Property and any mining operations
      thereon carried out by them, Sellers and Covenantors have filed all reports
      and
      notifications required to be filed under and pursuant to all applicable
      Environmental Laws.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (d)  To
      the
      best of the knowledge of each Seller and each Covenantor, (i) except in material
      compliance with all applicable laws, no materials have been generated, treated,
      contained, handled, located, used, manufactured, processed, buried, incinerated,
      deposited, stored, or released by Sellers and/or Covenantors on, under or about
      any part of the Acquired Real Property or at any other location which, at the
      time such materials were in the possession or control of the Sellers or the
      Covenantors (as the case may be) would have met the definition of Hazardous
      Materials , (ii) the Acquired Real Property and any improvements thereon,
      contain no asbestos, urea formaldehyde, or polychlorinated biphenyls (PCBs),
      and
      (iii) no aboveground or underground storage tanks which now or formerly held
      any
      materials which, at the time they were in the possession or control of the
      Sellers or Covenantors, would have met the definition of Hazardous Materials
      are
      located on, under or about the Real Property, or have been located on, under
      or
      about the Real Property and then subsequently been removed or filled.

     

    (e)  No
      Seller
      or Covenantor has received written notice, and except has been disclosed to
      Purchaser, no Seller has knowledge of any threatened notice, alleging in any
      manner that any Seller or Covenantor might be potentially responsible for any
      Release of Hazardous Materials which is alleged to have occurred during the
      ownership or control of the Real Property (or any portion thereof) by the
      Sellers or the Covenantors respectively, or any costs arising under
      Environmental Laws with respect thereto.

     

    (f)  To
      the
      best of the knowledge of each Seller and each Covenantor, and except has been
      disclosed to Purchaser, no portion of the Real Property is or has been listed
      on
      the United States Environmental Protection Agency National Priorities List
      of
      Hazardous Waste Sites or equivalent state list or any other list, schedule,
      law,
      inventory or record of hazardous or solid waste sites maintained by any federal,
      state or local agency.
      Purchaser acknowledges that the Sellers and Covenantors have disclosed that
      the
      entire region in which the Real Property is situate has been placed upon the
      United States Environmental Protection Agency National Priorities List of
      Hazardous Waste Sites.

     

    (g)  Sellers
      have disclosed and delivered to Purchaser all environmental reports which
      Sellers and/or Covenantors have obtained or ordered with respect to the Real
      Property.

     

    (h)  Excluding
      the tailings, the tailings ponds and any other portion of the Real Property
      from
      which mined material was taken or onto which mined material was placed, to
      the
      best of the knowledge of each Seller and each Covenantor, no part of the Real
      Property has been used as a landfill, dump or other disposal, storage, transfer,
      handling or treatment area for materials which, at the time they were in the
      possession or control of the Sellers or Covenantors, would have met the
      definition of Hazardous Materials, or a facility for selling, dispensing,
      storing, transferring, disposing or handling petroleum and/or petroleum
      products, except in connection with the storage, handling and use of Hazardous
      Materials and petroleum products in the routine and ordinary conduct of
      operations on the Acquired Real Property and in compliance with applicable
      Environmental Laws.
      Neither
      the Sellers nor the Covenantors make any representations concerning any
      materials which were mined, processed or otherwise deposited on the Real
      Property prior to the time when the Sellers and/or the Covenantors (as the
      case
      may be) owned and controlled the Real Property, nor do the Sellers or
      Covenantors make any representation in respect of any activities carried out
      at
      the request and/or direction of, or under the supervision of, the Purchaser
      or
      its affiliates. 

     

    (i)  To
      the
      best of the knowledge of each Seller and each Covenantor, no lien has been
      attached or filed against any of the Purchased Assets in favor of any
      governmental or private entity for (i) any liability or imposition of costs
      under or violation of any applicable Environmental Law; or (ii) any Release
      of
      Hazardous Materials.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (j)  No
      Seller
      or Covenantor has used perchloroethylene (tetrachloroethylene) on the Real
      Property, and knows of no past use of such substances on the Real Property
      and
      knows of no incident(s) where such substances may have been entered upon or
      disposed of on the Real Property.

     

    4.7  Restrictive
      Covenants.
      Except
      as between the Sellers and the Covenantors, no Seller is a party to any written
      contract, license agreement or other restriction which limits the scope of
      the
      sale or use of the Purchased Assets, and any such agreement between the Sellers
      and the Covenantors shall not impede the Sellers’ ability to vest good, valid
      and marketable title to the Purchased Assets in the Purchaser on the Closing
      Date.

     

    4.8  Brokers.
      No finder, broker, agent or other intermediary has acted for or on behalf of
      Sellers in connection with the negotiation or consummation of this Agreement
      or
      the Contemplated Transactions.

     

    4.9  Disclosure.
      No representation or warranty of any Seller or Covenantor contained in this
      Agreement, any Schedules, any exhibit hereto or in any statement, certificate,
      instrument of transfer or conveyance or other document furnished to Purchaser
      pursuant to this Agreement, or otherwise in connection with the Contemplated
      Transactions, contains or will contain any untrue statement of a material fact
      or omits or will omit to state any material fact required to make the statements
      herein or therein not misleading.

     

    Article
      5

    Representations
      and Warranties of Purchaser

     

    Purchaser
      hereby represents and warrants to Sellers as follows:

     

    5.1  Organization
      and Good Standing.
      Purchaser is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Minnesota. Purchaser has all requisite corporate
      power and authority to execute and deliver this Agreement and perform its
      obligations hereunder.

     

    5.2  Authority;
      Binding Obligation.
      Purchaser’s execution and delivery of this Agreement including, without
      limitation, the Note and the Deed of Trust, and the performance of its
      obligations hereunder and thereunder, have been duly authorized by all necessary
      corporate action on the part of Purchaser. This Agreement including, without
      limitation, the Note and the Deed of Trust, have been duly executed and
      delivered by Purchaser and each constitutes a valid and binding obligation
      of
      Purchaser, enforceable against Purchaser in accordance with its
      terms.

     

    5.3  Compliance
      with Other Instruments.
      Purchaser’s execution and delivery of this Agreement will not (a) conflict with
      or result in any violation of Purchaser’s articles of incorporation or bylaws or
      (b) conflict with or result in a breach of any judgment, decree, law or order
      applicable to Purchaser.

     

    5.4  Litigation.
      There are no Proceedings pending or, to Purchaser’s knowledge, threatened
      against Purchaser which could, individually or in the aggregate, adversely
      affect Purchaser’s ability to perform its obligations under this
      Agreement.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    5.5  Consents.
      There are no consents, approvals or other authorizations of, orders or
      notifications of, registrations, declarations or filings with, any Person,
      which
      are required in connection with the valid execution, delivery or performance
      of
      this Agreement by Purchaser and the consummation by Purchaser of the
      Contemplated Transactions.

     

    5.6  Court
      Orders, Decrees and Laws.
      To Purchaser’s knowledge, Purchaser has not violated or failed to comply with
      any statute, law, ordinance or regulation of any Governmental Body in the
      conduct of Purchaser’s business which could, individually or in the aggregate,
      adversely affect Purchaser’s ability to perform its obligations under this
      Agreement. Purchaser is not in default with respect to any judgment, order
      or
      decree of any court or any Governmental Body which could, individually or in
      the
      aggregate, adversely affect Purchaser’s ability to perform its obligations under
      this Agreement.

     

    5.7  Shares
      Duly and Validly Issued. The 3,620,000 shares of .01 par value common
      capital stock of the Purchaser constituting a portion of the Purchase Price
      shall have been duly and validly issued as fully paid and non-assessable, and
      in
      accordance with all applicable securities laws, as of the Closing
      Date.

     

    Article
      6

    Covenants

     

    Sellers
      and Covenantors, covenant and agree with Purchaser (other than in respect of
      Section 6.7 only), and Purchaser covenants and agrees with Sellers (other than
      in respect of Sections 6.1 and 6.2 only) as follows:

     

    6.1  Access
      and Information.
      Sellers
      and Covenantors shall permit Purchaser and Purchaser’s counsel, accountants and
      other representatives full access, upon reasonable notice during normal business
      hours, to all the properties, assets, books, records, agreements, commitments
      and other documents of Sellers and Covenantors concerning the mining operations
      on the Acquired Real Property or the Purchased Assets; provided, however, that
      such access shall not unreasonably interfere with the mining operations on
      the
      Acquired Real Property. Sellers shall furnish to Purchaser and its
      representatives all available information with respect to the Purchased Assets
      as Purchaser may reasonably request. Purchaser’s due diligence investigation
      shall include, without limitation, a review of physical assets, corporate
      services, financial records, customer records and supplier records. All access
      shall be accomplished in a manner that will provide for confidentiality, as
      requested by Sellers and/or Covenantors.

     

    6.2  Confidentiality.

     

    (a)  For
      a
      period of 4 years from and after the Closing Date, no Seller or Covenantor
      shall
      disclose any confidential information to any Person except Purchaser, which
      confidential information relates to the Acquired Real Property or the Purchased
      Assets, including without limitation the profitability or findings from mining
      activity, but excluding information that is or becomes generally known to the
      public through no fault of any Seller or Covenantor. If notwithstanding this
      provision, any of such confidential information is required to be disclosed
      by
      applicable law or legal process, Sellers and/or Covenantors (as the case may
      be)
      will give Purchaser prompt notice of such requirement and, if requested, will
      assist Purchaser, at Purchaser’s expense, in seeking a protective order or other
      measures to preserve the confidentiality of such confidential information
      insofar as possible. 

     

    
      
        
        

      

      
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    (b)  Because
      the breach or anticipated breach of the confidentiality provisions set forth
      in
      this Section 6.2 could result in immediate and irreparable harm and injury
      to
      Purchaser, for which it will not have an adequate remedy at law, Sellers and
      Covenantors each hereby agree that Purchaser shall be entitled to relief in
      equity to enjoin temporarily and/or permanently such breach or anticipated
      breach and to seek any and all other legal and equitable remedies to which
      Purchaser may be entitled. 

     

    6.3  Real
      Property.
      Purchaser shall, at Purchaser’s expense, obtain prior to the Closing the
      following with the cooperation of Sellers as may be necessary:

     

    (a)  Abstracts.
      Updated abstracts, if applicable, for each Acquired Real Property parcel, dated
      subsequent to the date hereof (the “Abstracts”).

     

    (b)  Title
      Insurance Commitment. A commitment for an ALTA Owner’s (1970 Form B or the most
      recent revision thereof) policy of title insurance for each parcel of the
      Acquired Real Property, dated subsequent to the date hereof, which shall be
      issued by Commonwealth Land Title Insurance Company or another reputable
      national title insurance company reasonably acceptable to Purchaser (the
“Commitment”).
      The
      Commitment shall show all exceptions to title including, but not limited to,
      all
      covenants, conditions, restrictions, reservations, easements, rights and
      rights-of-way, liens and other matters of record, and shall include proper
      searches for bankruptcies, judgments and State and Federal tax liens affecting
      the Acquired Real Property or Seller. 

     

    (c)  Exception
      Documents. Complete and legible copies of all documents or instruments which
      are
      listed in the Commitment as affecting the Acquired Real Property (the
“Exception
      Documents”). 

     

    (d)  Survey.
      An as-built ALTA survey of each parcel of the Acquired Real Property dated
      subsequent to the date hereof (the “Survey”
and
      together with the Abstracts, the Commitment and the Exception Documents
      collectively referred to herein as the “Title
      Evidence”).

     

    (e)  Related
      Documents. True, complete and correct copies shall be provided to Purchaser
      of
      all documents, materials and information in the possession or control of Sellers
      and/or Covenantors pertaining to the Acquired Real Property, including documents
      related to the presence, or suspected presence, of toxic or hazardous materials
      and/or underground storage tanks. These materials shall include, without
      limitation any and all maps, surveys, plans, specifications, drawings,
      assessments, reports, studies, tests, investigations, contracts, agreements
      and
      conditions of approval.

     

    At
      the
      Closing, Purchaser shall receive, at Purchaser’s cost and expense, a title
      policy for the Acquired Real Property (the “Title
      Policy”)
      or a
      suitably marked up Commitment (the “Marked-Up
      Commitment”)
      signed
      by the title company undertaking to issue such Title Policy with coverage limits
      as determined by Purchaser showing Sellers in fee title to the Acquired Real
      Property, subject only to such exceptions as Purchaser shall reasonably accept
      with: (i) extended coverage and all general or standard exceptions (including
      exceptions for parties in possession, unrecorded instruments, survey matters
      and
      mechanics liens) deleted, (ii) a zoning endorsement (ALTA Form 3.1) insuring
      that the present use of the Acquired Real Property complies with applicable
      zoning laws, (iii) a survey accuracy endorsement, (iv) a location endorsement,
      (v) a specific access endorsement, and (vi) an endorsement to insure that the
      Acquired Real Property complies with all existing covenants, conditions,
      restrictions and easements of record and that the instruments creating any
      such
      matters do not contain any forfeiture of title or right of re-entry provisions,
      with all of such endorsements being in form and substance reasonably
      satisfactory to Purchaser.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    6.4  General
      Discharge of Environmental Liabilities. 

     

    (a)  Each
      Seller and Covenantor shall indemnify and hold harmless Purchaser from, against
      and in respect of, any and all Environmental Liabilities (as defined in this
      Section 6.4) related to activities that precede January 15, 2005 and which
      are
      related in any manner to the Real Property, including without limitation
      Environmental Liabilities, if any, related to the conditions set forth in the
      reports resulting from the Phase I environmental assessment and/or Phase II
      environmental testing performed by Purchaser, but only where the Seller or
      a
      Covenantor had actual knowledge (of the type contemplated by Section 13.2
      hereof) of the facts or circumstances giving rise to such Environmental
      Liabilities and failed to disclose such facts and circumstances to the
      Purchasers.

     

    (b)  If
      Purchaser believes that it is entitled to indemnification pursuant to
      Section 6.4(g), Purchaser shall give Sellers written notice (pursuant to
      the notice provisions of Section 13.5 of this Agreement) of such
      environmental indemnification claim within thirty (30) business days from the
      date Purchaser first becomes aware of such claim. Any such notice shall set
      forth in reasonable detail and, to the extent then known, the basis for such
      claim for indemnification. The failure of Purchaser to give notice of any claim
      for indemnification within such thirty (30) business day period shall not
      adversely affect Purchaser’s right to indemnity hereunder unless all Sellers
      shall have been prejudiced by such delay, and in such event only to the extent
      Sellers have been prejudiced.

     

    (c)  In
      response to a claim for indemnification made by Purchaser pursuant to Section
      6.4(a), Sellers shall promptly deliver to Purchaser written notice acknowledging
      receipt of Purchaser’s notice of claim, and setting forth the time required and
      any further information needed for Sellers to investigate the claim. Sellers
      shall have a reasonable time to investigate the claim but shall proceed promptly
      with all due diligence. Purchaser agrees to cooperate with Sellers during such
      investigation. Upon completion of Sellers’ investigation, Sellers shall provide
      written notice (the “Seller
      Notice”)
      to
      Purchaser that:

     

    (i)  subject
      to Section 6.4(d), Sellers acknowledge that Purchaser is entitled to
      indemnification, and Sellers will reimburse Purchaser for all loss, liability,
      expense (including without limitation reasonable expenses of investigation
      and
      reasonable attorneys’ fees and expenses) incurred by Purchaser (the
“Purchaser
      Environmental Losses”)
      arising from such Environmental Liability; or

     

    (ii)  Sellers
      acknowledge that Purchaser is entitled to indemnification and Sellers promptly
      shall discharge such Environmental Liability or others, acting on behalf of
      Seller, shall promptly discharge the Environmental Liability in accordance
      with
      the requirements of Section 6.4(e); or

     

    (iii)  Sellers
      object to such environmental indemnity claim; or

     

    (iv)  Purchaser
      may proceed with discharging the Environmental Liability subject to a
      reservation of rights by Sellers to object to Purchaser’s environmental
      indemnity claim under the process set out in Section 6.4(f).

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (d)  If
      Sellers elect to allow Purchaser to discharge an Environmental Liability under
      Section 6.4(c)(i), Purchaser shall take all steps reasonably and diligently
      necessary in the completion thereof and Sellers shall only be liable for those
      Purchaser Losses reasonably incurred by Purchaser pursuant to a proposal, work
      plan or other specifications approved in writing by Sellers in advance, which
      approval shall not be unreasonably withheld.

     

    (e)  If
      Sellers elect to discharge an Environmental Liability under Section 6.4(c)(ii),
      Sellers shall take all steps reasonably and diligently necessary in the
      completion thereof, including reimbursement of Purchaser for such Purchaser
      Losses incurred by Purchaser for which Sellers are provided written
      substantiation in connection therewith by Purchaser. 

     

    (f)  If
      (i)
      Sellers acknowledge Purchaser’s right to indemnification under Section 6.4(c)(i)
      but objects to Purchaser’s proposal, work plan or other specifications provided
      pursuant to Section 6.4(d), (ii) Sellers object to such claim by giving
      Purchaser written notice of its objection under Section 6.4(c)(iii), or (iii)
      Sellers notify Purchaser of Seller’s reservation of rights under Section
      6.4(c)(iv), then either Sellers or Purchaser may submit the claim to dispute
      resolution pursuant to Section 13.8 of this Agreement not later than 60 days
      after Purchaser’s receipt of the Seller Notice.

     

    (g)  Purchaser
      will allow Sellers access to the Acquired Real Property, and will provide any
      other third parties such additional reasonable access as may be reasonably
      necessary to develop a work plan, proposal or other specifications in connection
      with the discharge of any Environmental Liability pursuant to this Agreement
      or
      to discharge an Environmental Liability, and Sellers will use their reasonable
      best efforts, and will use such reasonable best efforts to cause any third
      parties, not to interfere with the Purchaser’s operations thereon in connection
      with such development or performance. In the event Purchaser transfers any
      interest in the Real Property at any time while Sellers remain liable to perform
      remediation required pursuant to this Agreement with respect to such Real
      Property, Purchaser will ensure in the document governing the transfer of such
      interest(s) that Sellers or such other third parties continues to have such
      reasonable access as may be reasonably necessary to perform remediation required
      pursuant to this Agreement. 

     

    (h)  Sellers’
      and Covenantors’ liability in respect of any Environmental Liability shall be
      limited in the manner provided in Section 12.3 hereof.

     

    (i)  Purchaser
      shall indemnify and hold harmless each Seller and Covenantor from, against
      and
      in respect of any and all Environmental Liabilities (as defined in this Section
      6.4) related to activities that take place on or after January 15, 2005 and
      which are related in any manner to the Real Property, including without
      limitation Environmental Liabilities, if any, related to the conditions set
      forth in the reports resulting from the Phase I environmental assessment and/or
      Phase II environmental testing performed by Purchaser. Where any Seller or
      Covenantor has a claim for indemnity under this Section 6.4(i), the provisions
      in Sections 6.4(b) and 6.4(c)(i) and (iii) shall apply, mutatis
      mutandis. 

     

    (j)  Definitions:
      As used in this Section 6.4

     

    (i)  “Damages”
shall
      have the meaning set forth in Section 12.2.

     

    (ii)  “Environmental
      Law”
shall
      have the meaning set forth in Section 4.6.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (iii)  “Environmental
      Liability”
means
      any Liability of a Person arising under any Environmental Law.

     

    (iv)  “Liabilities”
means,
      with respect to any Person, any liabilities, obligations or Damages incurred
      by
      such Person whether known or unknown, absolute or contingent, accrued or
      unaccrued, liquidated, or unliquidated, secured or unsecured, joint or
      several.

     

    (v)  “Person”
shall
      have the meaning set forth in Section 4.3(b)(ii).

     

    6.5  Notification
      of Certain Matters.
      Between
      the date hereof and the Closing, Sellers and Convenators shall give prompt
      written notice to Purchaser of (i) the occurrence or failure to occur of any
      event which would be likely to cause a Material Adverse Effect, (ii) any
      material claims, actions, proceedings or investigations commenced or, to the
      knowledge of any Seller or Covenantor, threatened, involving or affecting any
      of
      the Purchased Assets and which would be likely to cause a Material Adverse
      Effect, and (iii) any material adverse change in the condition (financial or
      other), properties, assets, or liabilities of any Seller which taken as a whole,
      would be likely to cause a Material Adverse Effect; provided, however, that
      no
      such notification shall affect the representations or warranties of the parties
      or the conditions to the parties’ obligations under this Agreement. 

     

    6.6  Conditions.
      Each Seller, Covenantor and Purchaser shall take all commercially reasonable
      actions to cause the conditions set forth in Article 8 and Article 9 to be
      satisfied and to consummate the Contemplated Transactions.

     

    6.7  Maintenance
      of Good Standing. During the period from the Closing Date until the due date
      of the last payment called for under the Note, Purchaser shall maintain itself
      in good standing under all applicable corporate laws.

     

    Article
      7

    Agreement
      on Letter Option

     

    The
      parties agree that (i) there has been no default or failure(s) to meet any
      of
      the obligations set forth in the Letter Option which are to be performed by
      Sellers, Covenantors or Purchaser and (ii) the expiry date set forth in the
      Letter Option shall be deemed to have been extended the earlier of the Closing
      Date or the date on which this Asset Purchase Agreement has been terminated
      in
      accordance with Article 11 hereof.

     

    Article
      8

    Conditions
      Precedent to Purchaser’s Obligations

     

    Purchaser’s
      obligations to consummate the Contemplated Transactions are subject to the
      satisfaction of each of the following conditions prior to or at the Closing,
      unless specifically waived in writing by Purchaser in advance:

     

    8.1  Board
      Approval.
      Purchaser shall have received approval from its board of directors to enter
      into
      this Agreement and consummate the Contemplated Transactions.

     

    8.2  Representations
      and Warranties.
      The representations and warranties of Sellers and Covenantors contained in
      this
      Agreement shall be true and correct as of the date of this Agreement, and as
      of
      the Closing Date as though the Closing Date had been substituted for the date
      of
      this Agreement throughout such representations and warranties (except that
      any
      representation or warranty made as of a specified date other than the date
      hereof need only be true as of such date), and each Seller and Covenantor shall
      have delivered to Purchaser a certificate of each such Seller and Covenantor,
      as
      contemplated by Section 10.1, to such effect. Each Seller and Covenantor shall
      have duly performed and complied with all covenants and agreements and satisfied
      all conditions required by this Agreement to be performed, complied with or
      satisfied by each Seller and/or Covenantor prior to or at the Closing and each
      Seller and Covenantor shall have delivered to Purchaser a certificate of each
      such Seller and Covenantor, as contemplated by Section 10.1, to such
      effect.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    8.3  Absence
      of Litigation.
      No order, writ, injunction or decree which is binding on Purchaser or any Seller
      and which prohibits Purchaser and/or any Seller from consummating the
      Contemplated Transactions shall be in effect. No claim, action, suit or
      proceeding shall be pending or threatened against Purchaser, any Seller and/or
      the Purchased Assets which, if adversely determined, would prevent the
      consummation of the Contemplated Transactions or result in the payment of
      substantial damages as a result of such action and for which the other party
      is
      not willing to provide indemnification.

     

    8.4  Permit
      Assignments. Purchaser shall have obtained the requisite assignments and/or
      additional permits permitting Purchaser to conduct operations at the Acquired
      Real Property.

     

    8.5  Consents
      and Approvals.
      All governmental and regulatory approvals and consents of contracting parties,
      requisite or appropriate to the consummation of the Contemplated Transactions
      shall have been obtained (or all applicable waiting periods shall have expired),
      and such consents or approvals shall remain in full force and
      effect.

     

    8.6  Opinion
      of Sellers’ Counsel.
      Purchaser shall have received from the Sellers’ legal counsel an opinion, dated
      as of the Closing Date, substantially in the form attached hereto as
Exhibit G
      (the
“Sellers’
      Counsel’s Legal Opinion”). 

     

    8.7  Title
      Evidence; Title Policy.
      Purchaser shall have received the Title Evidence and the Title Policy or
      Marked-Up Commitment for the Acquired Real Property, as contemplated by Section
      6.3, and shall otherwise have received such documents necessary to establish
      the
      transfer to Purchaser by Seller of good and marketable title to each asset
      constituting the Purchased Assets, free and clear of liens and encumbrances
      of
      any kind or nature.

     

    8.8  Receipt
      of Other Seller Deliveries.
      Purchaser shall have received from Seller, or such other applicable party,
      the
      other Seller Deliveries (as defined below) required to be delivered to Purchaser
      pursuant to Section 10.1 below.

     

    8.9  Absence
      of Changes.
      From the date of this Agreement to and including the Closing Date, there will
      not have been: (i) any increase in Liens against the Purchased Assets; (ii)
      change in the condition (financial or other), properties, assets, or liabilities
      representing Assumed Liabilities, whether or not insured, which change would
      have a Material Adverse Effect; or (iii) any fact or circumstance existing
      as of
      the date of this Agreement which has not been disclosed to Purchaser after
      the
      date hereof which has, or could reasonably be expected to have, individually
      or
      in the aggregate, a Material Adverse Effect.

     

    8.10  Assignment.
      Purchaser reserves the right hereunder to assign its right(s) to one or more
      affiliated parties prior to closing, it being understood that Purchaser may
      create one or more new entities which may consummate the Contemplated
      Transactions.

    
 

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    Article
      9

    Conditions
      Precedent to the Sellers’ and Covenantors’ Obligations

     

    Sellers’
      and Covenantors’ obligations to consummate the Contemplated Transactions are
      subject to the satisfaction prior to or at the Closing of each of the following
      conditions, unless specifically waived in writing by Sellers or Covenantors
      (as
      the case may be) in advance:

     

    9.1  Representations
      and Warranties.
      The
      representations and warranties of Purchaser contained in this Agreement shall
      be
      true and complete in all material respects as of the date of this Agreement
      and
      as of the Closing Date as though the Closing Date had been substituted for
      the
      date of this Agreement throughout such representations and warranties (except
      that any such representation or warranty made as of a specified date other
      than
      the date hereof need only be true as of such date), and Purchaser shall have
      delivered to Sellers and Covenantors a certificate of an officer of Purchaser,
      as contemplated by Section 10.2, to such effect. 

     

    9.2  Absence
      of Litigation.
      No order, writ, injunction or decree which is binding on Purchaser, any Seller
      and/or any Covenantor and which prohibits Purchaser, any Seller and/or any
      Covenantor from consummating the Contemplated Transactions shall be in effect.
      No claim, action, suit or proceeding shall be pending or threatened against
      Purchaser, any Seller and/or any Covenantor which, if adversely determined,
      would prevent the consummation of the Contemplated Transactions or result in
      the
      payment of substantial damages as a result of such action and for which the
      other party is not willing to provide indemnification.

     

    9.3  Consents
      and Approvals.
      All governmental and regulatory approvals and consents of contracting parties,
      requisite or appropriate to the consummation of the Contemplated Transactions
      shall have been obtained (or all applicable waiting periods shall have expired)
      and shall remain in full force and effect.

     

    9.4  Opinion
      of Purchaser’s Counsel.
      Sellers shall have received from Maslon Edelman Borman & Brand, LLP, counsel
      to Purchaser, an opinion, dated as of the Closing Date, in substantially the
      form of Exhibit H (the “Purchaser Counsel’s Legal Opinion”).

     

    9.5  Receipt
      of Other Closing Deliveries.
      Sellers shall have received from Purchaser, or such other applicable party,
      the
      Purchase Price in accordance with Section 3.2 and the other Purchaser Deliveries
      (as defined below) required to be delivered to Seller pursuant to Section 10.2
      below. 

     

    Article
      10

    Closing
      Deliveries

     

    10.1  Deliveries
      by Sellers.
      At the
      Closing, provided all conditions described in Article 9 have been satisfied,
      Sellers shall execute, or cause to be executed, and deliver to Purchaser the
      following (collectively, the “Seller
      Deliveries”):
      (a)
      the Bill of Sale; (b) the Deeds; (c) the Title Evidence; (d) Seller’s Counsel’s
      Legal Opinion; (e) the certificates required by Section 8.3; (f) such other
      instruments of conveyance reasonably requested by Purchaser; and (g) all
      documents necessary to establish the transfer to Purchaser by Seller of good
      and
      marketable title to each asset otherwise constituting the Purchased Assets,
      free
      and clear of liens and encumbrances of any kind or nature.

     

    10.2  Deliveries
      by Purchaser.
      At the Closing, provided all conditions described in Article 8 have been
      satisfied, Purchaser shall deliver the Purchase Price in accordance with Section
      3.2; and shall execute, or cause to be executed, and deliver to Seller the
      following (collectively, the “Purchaser
      Deliveries”):
      (a)
      Purchaser Counsel’s Legal Opinion; and (b) the certificates required by Section
      9.1.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    Article
      11

    Termination
      Before Closing

     

    This
      Asset Purchase Agreement may be terminated at any time prior to the Closing:
      (a)
      by the mutual written consent of all parties hereto; (b) by Purchaser, if,
      prior
      to the Closing, any condition set forth herein for the benefit of Purchaser,
      respectively, is not met to Purchaser’s satisfaction or cannot be cured shall
      not have been timely met or waived by the Purchaser; or (c) by either Sellers
      or
      Purchaser if the Closing has not occurred on or prior to November 30, 2006,
      for
      any reason other than the delay or nonperformance of the party or parties
      seeking such termination. Termination of this Agreement pursuant to this Article
      11 shall terminate all obligations of the parties hereunder, except for the
      obligations under Section 12.1, and such termination shall not constitute a
      waiver of any rights (including rights to indemnification under any agreement
      or
      covenant in this Agreement occurring prior to such termination) .

     

    Article
      12

    Indemnification

     

    12.1  Indemnification
      by Sellers.
      Subject
      to the terms of this Article 12, Sellers shall jointly and severally indemnify
      and hold Purchaser and each officer and director thereof (each a “Purchaser
      Indemnified Party”)
      harmless from, against and in respect of any and all Purchaser Losses in
      connection with any action, suit or proceeding brought against a Purchaser
      Indemnified Party) or Damages (as defined below) suffered or incurred by a
      Purchaser Indemnified Party by reason of:

     

    (a)  any
      breach of a representation or warranty made by any Seller and contained
      herein;

     

    (b)  any
      failure of any Seller to fulfill or perform any covenant, agreement or
      obligation of Seller contained herein; 

     

    (c)  Any
      Environmental Liabilities required to be discharged under Sections
      6.4;

     

    (d)  any
      Excluded Liability; or

     

    (e)  Liability
      arising out of the ownership and/or control of the Purchased Assets by any
      Seller and/or Covenantor on or prior to January 15, 2005.

     

    12.2  Definition
      of “Damages”.
      The
      term “Damages”
as
      used
      in this Agreement means all actual damages suffered or incurred by a party
      entitled to indemnification under Article 12, including without limitation
      all
      compensatory damages. 

     

    12.3  Limitation
      of Liability of Sellers and Covenantors. Notwithstanding any other provision
      of this Asset Purchase Agreement, the maximum liability of the Sellers
      (including their successors) to the Purchaser hereunder shall be 100% of the
      cash and shares comprising the Purchase Price and actually received by the
      Sellers (or their nominee) from the Purchaser and the maximum liability of
      the
      Covenantors (including their successors) shall be 100% of the cash and shares
      comprising the Purchase Price and actually received by the Sellers (or their
      nominee) from the Purchaser. 

     

    12.4  Indemnification
      by Purchaser.
      Purchaser shall indemnify and hold Seller harmless from, against and in respect
      of any and all loss, liability, expense (including without limitation reasonable
      expenses of investigation and reasonable attorneys’ fees and expenses in
      connection with any action, suit or proceeding brought against a Seller) or
      Damages suffered or incurred by Sellers (the “Seller
      Losses”)
      by
      reason of:

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (a)  any
      breach of a representation or warranty made by Purchaser and contained
      herein;

     

    (b)  any
      failure of Purchaser to fulfill or perform any covenant, agreement or obligation
      of Purchaser contained herein;

     

    (c)  any
      Assumed Liability;
      or

     

    (d)  any
      Environmental Liability or other Liability arising out of activities taking
      place on or after January 21, 2005.

     

    

     

    12.5  Claims
      Period.
      For
      purposes of this Agreement, a “Claims
      Period”
shall
      be the period during which a claim for indemnification must be asserted under
      this Agreement by an indemnified party, which period shall begin on the Closing
      Date and terminate as follows:

     

    (a)  with
      respect to Purchaser Losses and Damages arising under Section 12.1(a) or
      12.1(b), the Claims Period shall terminate two (2) years after the Closing
      Date;
      provided, however, that with respect to Purchaser Losses arising out of a breach
      the representations and warranties under Sections 4.5(b) and 4.7 hereof, or
      arising under Section 12.1(d) with respect to Excluded Liabilities, the Claims
      Period shall terminate four (4) years after the Closing Date;

     

    (b)  with
      respect to Purchaser Losses and Damages arising under Section 12.1(c) or the
      failure of Sellers to fulfill or perform its covenants, agreements or
      obligations under Section 6.4 hereof, and, the Claims Period shall terminate
      on
      the last of (i) due date of the last payment called for under the Note, or
      (ii)
      four (4) years following the Closing Date;

     

    (c)  with
      respect to Seller and/or Covenantor Losses and Damages arising under Section
      12.4(a) or 12.4(b), the Claims Period shall terminate two (2) years after the
      Closing Date; 

     

    (d)  with
      respect to Seller Losses and Damages arising under Section 12.4(c), the Claims
      Period shall terminate four (4) years after the Closing Date;

     

    (e)  with
      respect to Seller and/or Covenantor Losses and Damages arising under Section
      12.4(d),
      the
      Claims Period shall terminate on the due date of the last payment called for
      under the Note.

     

    Any
      claims for indemnification pursuant to this Article 12 must be made in writing
      by the indemnified party to the indemnifying party on or prior to the expiration
      of the applicable Claims Period. All claims for indemnification for which proper
      notification of the indemnifying party shall have been made by the indemnified
      party prior to the close of business on the last day of the applicable Claims
      Period shall continue to survive and shall remain a basis for indemnity
      hereunder until such claim is finally resolved or disposed of in accordance
      with
      the terms hereof.

     

    12.6  Payment
      of Indemnification Claim.
      With
      respect to Purchaser Losses and Damages payable hereunder, the Purchaser
      Indemnified Parties shall be entitled to assert their right to payment directly
      against each Seller.

     

    12.7  Exclusive
      Remedy.
      After the Closing, the rights set forth in this Article 12 shall be each party’s
      sole and exclusive remedies against the other parties hereto for
      misrepresentation or breaches of covenants contained in this Agreement and
      any
      related documents. Notwithstanding the foregoing, nothing herein includes any
      limitation on its Claims Period contained in Section 12.4 hereof shall prevent
      any of the indemnified parties from bringing an action based upon allegations
      of
      fraud with respect to either party in connection with this Agreement and any
      related documents. In the event such fraud action is brought, the prevailing
      party’s attorney’s fees and costs shall be paid by the non-prevailing
      party. 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    Article
      13

    General
      Provisions

     

    13.1  No
      Publicity.
      Sellers, Covenantors and Purchaser agree that they will not make any press
      releases or other announcements prior to or at the time of Closing with respect
      to the Contemplated Transactions, except as required by applicable law, without
      the prior approval of the other party, which approval will not be unreasonably
      withheld.

     

    13.2  Knowledge
      Convention.
      Whenever any statement herein or in any Schedule, Exhibit, certificate or other
      document delivered to any party pursuant to this Agreement is made “to the
      knowledge” of a party hereto or words of similar intent, such statement shall be
      deemed to be made to the actual knowledge of the party, but without any
      representation that the party has made due or any inquiry of any individuals
      within the organization of any corporate Seller or Covenantor that would be
      reasonably likely to have information regarding the matter in
      question.

     

    13.3  Reservation
      of Rights.
      Neither a party’s representations and warranties contained in this Agreement nor
      the party’s indemnification obligations set forth in this Agreement shall be
      affected by (a) any due diligence or other investigation conducted by another
      party, or (b) any knowledge on the part of another party or its agents or
      representatives of any circumstances resulting from such investigation or
      otherwise, including without limitation knowledge that one or more of such
      party’s representations or warranties might be untrue when made or become untrue
      on or prior to the Closing. Notwithstanding anything contained herein to the
      contrary, Purchaser represents that it does not have any knowledge that any
      of
      representations or warranties made by Sellers and/or Covenantors are untrue,
      or
      that any Environmental Liabilities or other Liabilities exist, prior to Closing,
      except as indicated in the certificate delivered at Closing pursuant to Section
      9.1, for which indemnification will not be sought.

     

    13.4  Further
      Acts and Assurances.
      Sellers and Covenantors shall, at any time and from time to time at and after
      the Closing, upon request of Purchaser and without additional consideration,
      take any and all steps reasonably necessary to place Purchaser in possession
      and
      operating control of the Purchased Assets, and Sellers and Covenantors will
      do,
      execute, acknowledge and deliver, or will cause to be done, executed,
      acknowledged and delivered, all such further acts, deeds, assignments,
      transfers, conveyances and assurances as may be reasonably required for the
      more
      effective transferring and confirming to Purchaser or for reducing to its
      possession, any or all of the Purchased Assets.

     

    13.5  Notices.
      Any notice or other document to be given hereunder by any party hereto to any
      other party hereto shall be in writing and delivered by courier or by facsimile
      transmission, receipt confirmed, or sent by any express mail service, postage
      or
      fees prepaid, to

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    If
      to
      Purchaser:

     

    Wits
      Basin Precious Minerals, Inc.

    900
      IDS
      Center

    80
      South
      8th
      Street

    Minneapolis,
      MN 55402-8773

    Attention:
      Chief Executive Officer

    Facsimile:
      (612) 395-5276

     

    With
      a copy to:

     

    Maslon
      Edelman Borman & Brand, LLP

    3300
      Wells Fargo Center

    90
      South
      Seventh Street

    Minneapolis,
      Minnesota 55402

    Attention:
      William Mower, Esq.

    Facsimile:
      (612) 642-8358

     

    If
      to
      any Seller:

     

    George
      E.
      Otten

    11438
      C.R. #19

    Fort
      Lupton, CO 80621

    Attention:
      George Otten

    Facsimile:
      (970) 785-2538

     

    With
      a copy to:

     

     

    Attention:

    Facsimile:
         

     

    If
      to
      any Covenantor:

     

    Hunter
      Gold Mining Corp.

    P.O.
      Box
      2460, Station “R”

    Kelwona,
      British Columbia

    Canada

    Attention:
      Dell Balfour

    Facsimile:
      (250) 765-4420

     

    With
      a copy to:

     

    Pushor
      Mitchell LLP

    3rd
      Floor,
      1665 Ellis Street

    Kelowna,
      British Columbia Canada

    V1W
      4T7

    Attention:
      E. Blair Forrest

    Facsimile:
      (250) 762-9115

    

     

    or
      at
      such other address or number for a party as shall be specified by like notice.
      Any notice that is delivered in the manner provided herein shall be deemed
      to
      have been duly given to the party to whom it is directed upon actual receipt
      by
      such party or its agent.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    13.6  Governing
      Law.
      This
      Agreement shall be construed in accordance with and governed by the laws of
      the
      State of Colorado without regard to its conflicts-of-law
      provisions.

     

    13.7  Construction.
      No provision of this Agreement shall be construed against or interpreted to
      the
      disadvantage of any party hereto by any court or other governmental or judicial
      authority or by any board of arbitrators by reason of such party or its counsel
      having or being deemed to have structured or drafted such provision. All
      references in this Agreement to Article(s), Section(s), Schedule(s) or
      Exhibit(s) shall refer to Article(s), Section(s), Schedule(s) or Exhibit(s)
      of
      this Agreement.

     

    13.8  Dispute
      Resolution.
      Any dispute among the parties hereto before the Closing may be resolved by
      application to any court of competent jurisdiction. Any dispute among the
      parties hereto arising on or after the Closing Date, shall be exclusively
      resolved in accordance with the arbitration provisions of this Section 13.8
      set
      forth below:

     

    (a)  The
      parties shall attempt in good faith to resolve any dispute arising out of or
      relating to this Agreement or the breach, termination or validity thereof
      promptly by negotiation between executives who have authority to settle the
      controversy. Any party may give the other written notice that a dispute exists
      (a “Notice
      of Dispute”).
      The
      Notice of Dispute shall include a statement of such party’s position. Within
      twenty (20) business days of the delivery of the Notice of Dispute, executives
      of both parties shall meet at a mutually acceptable time and place, and
      thereafter as long as they both reasonably deem necessary, to exchange relevant
      information and attempt to resolve the dispute. If the matter has not been
      resolved within forty-five (45) days of the disputing party’s Notice of Dispute,
      or if the parties fail to meet within twenty (20) days, either party may
      initiate arbitration of the controversy or claim as provided
      hereinafter.

     

    (b)  If
      a
      negotiator intends to be accompanied at a meeting by an attorney, the other
      negotiator shall be given at least three (3) working days’ notice of such
      intention and may also be accompanied by an attorney. All negotiations pursuant
      to this clause are confidential and shall be treated as compromise and
      settlement negotiations for purposes of the Federal Rules of Evidence and state
      rules of evidence.

     

    (c)  Any
      controversy or claim arising out of or relating to this Agreement or the breach,
      termination or validity thereof, or the Contemplated Transactions, if not
      settled by negotiation as provided above in Section 13.8(a), shall be settled by
      arbitration in Denver, Colorado in accordance with the CPR Rules for
      Non-Administered Arbitration of Business Disputes, by three (3) arbitrators.
      Each party shall choose one arbitrator and the two arbitrators so chosen shall
      choose a third arbitrator who must be a retired judge of a state or federal
      court of the United States. The arbitrators shall be appointed as provided
      by
      CPR Rule 5, Selection of Arbitrators. The arbitration procedure shall be
      governed by the United States Arbitration Act, 9 U.S.C. §1-16, and the award
      rendered by the arbitrators shall be final and binding on the parties and may
      be
      entered in any court having jurisdiction thereof. 

     

    (d)  Each
      party shall have discovery rights as provided by the Federal Rules of Civil
      Procedure within the limits imposed by the arbitrators; provided, however,
      that
      all such discovery shall be commenced and concluded within ninety (90) days
      of
      the selection of the third arbitrator.

     

    (e)  It
      is the
      intent of the parties that any arbitration shall be concluded as quickly as
      reasonably practicable. Unless the parties otherwise agree, once commenced,
      the
      hearing on the disputed matters shall be held four (4) days a week until
      concluded, with each hearing date to begin at 9:00 a.m. and to conclude at
      5:00
      p.m. The arbitrators shall use all reasonable efforts to issue the final award
      or awards within a period of five (5) business days after closure of the
      proceedings. Failure of the arbitrators to meet the time limits of this Section
      13.8(e) shall not be a basis for challenging the award.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    (f)  The
      arbitrators shall instruct the non-prevailing parties to pay all costs of the
      proceedings, including the fees and expenses of the arbitrators and the
      reasonable attorneys’ fees and expenses of the prevailing parties. If the
      arbitrators determine that there is not a prevailing party, each party shall
      be
      instructed to bear its own costs and to pay one-half of the fees and expenses
      of
      the arbitrators.

     

    13.9  No
      Reliance.
      Except
      for the parties hereto and their assignees permitted under Section 13.11: (a)
      no
      third party is entitled to rely on any of the representations, warranties and
      agreements of a party contained in this Agreement; (b) the parties to this
      Agreement assume no liability to any third party because of any reliance on
      the
      representations, warranties and agreements of any of the parties contained
      in
      this Agreement; and (c) no other Person other than the parties to this Agreement
      shall acquire any legal or equitable rights or remedies under this
      Agreement.

     

    13.10  Saturdays,
      Sundays and Legal Holidays.
      If the time period by which any acts or payments required hereunder must be
      performed or paid expires on a Saturday, Sunday or legal holiday, then such
      time
      period shall be automatically extended to the close of business on the next
      regularly scheduled business day.

     

    13.11  Binding
      Agreement.
      The terms, conditions and obligations of this Agreement shall inure to the
      benefit of and be binding upon the parties hereto and their respective
      successors and assigns. Except as provided herein, without the prior written
      consent of the each other party, no party hereto may assign such party’s rights,
      duties or obligations hereunder or any part thereof to any other Person prior
      to
      Closing. 

     

    13.12  Headings.
      The headings of the Articles and Sections of this Agreement are inserted for
      convenience only and shall not be deemed to constitute part of this Agreement
      or
      to affect the construction hereof.

     

    13.13  Modification
      and Waiver.
      Any term or condition of this Agreement may be waived at any time by the party
      entitled to the benefit thereof, and any such waiver must be pursuant to written
      waiver signed by the party entitled to such benefits. No waiver of any of the
      provisions of this Agreement shall be deemed to or shall constitute a waiver
      of
      any other provision hereof. No delay or failure on the part of any party hereto
      to exercise any right, power or privilege hereunder shall operate as a waiver
      thereof; nor shall any waiver on the part of any party hereto of any right,
      power or privilege hereunder operate as a waiver of any other right, power
      or
      privilege hereunder; nor shall any single or partial exercise of any right,
      power, or privilege hereunder preclude any other or further exercise thereof
      or
      the exercise of any other right, power or privilege hereunder.

     

    13.14  Severability.
      Any provision hereof which is prohibited or unenforceable in any jurisdiction
      will, as to such jurisdiction, be ineffective to the extent of such prohibition
      or unenforceability without invalidating the remaining provisions hereof, and
      any such prohibition or unenforceability in any jurisdiction will not invalidate
      or render unenforceable such provision in any other jurisdiction. To the extent
      permitted by law, the parties hereto waive any provision of law which renders
      any such provision prohibited or unenforceable in any respect.

     

    13.15  Access
      to Records.
      For a period of six (6) years after the Closing Date, Sellers, Covnenators
      and
      their respective attorneys, accountants and representatives shall, upon
      reasonable advance notice to Purchaser during normal business hours and without
      disruption of the business of Purchaser, have reasonable access to all books,
      accounts, records, documents and information relating to the Purchased Assets
      for any periods prior to the Closing Date in the possession or custody of
      Purchaser (or Purchaser’s agents) for the purpose of examining and making copies
      of all or any portion of such properties relating to the notifying Seller or
      Covenantor. Purchaser agrees not to destroy such books, accounts, records,
      documents and information for a period of six (6) years after the Closing Date
      without giving the express prior written consent of the corporate Sellers and
      the corporate Covenantors.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    13.16  Discretion.
      Whenever a party may take action under this Agreement in his, her or its “sole
      discretion,” “sole and absolute discretion” or “discretion,” or under a grant of
      similar authority or latitude, such Person shall be entitled to consider any
      factors and interests as it desires, including its own interests.

     

    13.17  Counterparts;
      Facsimile Signatures.
      This Agreement may be executed in one or more counterparts, each of which shall
      for all purposes be deemed to be an original and all of which shall constitute
      the same instrument. The parties hereby acknowledge and agree that for purposes
      of this Agreement, and all certificates, documents and other items to be
      delivered pursuant to the terms thereof, that facsimile signatures and other
      electronically delivered signatures shall be deemed acceptable to and binding
      upon each party hereto.

     

    13.18  Entire
      Agreement.
      This Agreement and the Schedules and Exhibits hereto, together with the
      documents and instruments delivered pursuant hereto constitute the entire
      agreement between the parties hereto pertaining to the subject matter hereof
      and
      supersede all prior and contemporaneous agreements, understandings, negotiations
      and discussions, whether written or oral, of the parties hereto (other than
      those between and/or among any of the Sellers and/or Covenantors and to which
      the purchaser is not a party); provided, however, that this provision is not
      intended to abrogate any other written agreement between the parties executed
      with or after this Agreement or any written agreement pertaining to another
      subject matter. No supplement, modification or waiver of the terms or conditions
      of this Agreement shall be binding unless executed in writing by authorized
      representatives of the parties hereto.

     

    

     

    [The
      remainder of this page is intentionally left blank.]

     

     

     

     

    
 

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Asset Purchase Agreement
      to
      be duly executed and delivered, all on and as of the date first written
      above.

     

     

    
      	
              PURCHASER:

            	 	
              SELLERS:

            
	 	 	 
	
              WITS
                BASIN
                PRECIOUS MINERALS INC. 

              a
                Minnesota corporation

            	 	
              CENTRAL
                CITY CONSOLIDATED MINING CORP. 

              a
                Colorado corporation

            
	 	 	 
	 	 	 
	
              By:
                /s/ Stephen D. King

              Name:
                Stephen D. King

              Title:
                C.E.O.

            	 	
              By:
                /s/ George E. Otten

              Name:
                George E. Otten

              Title:
                President

            
	 	 	 
	 	 	 
	 	 	
              GEORGE
                OTTEN

              a
                resident of Colorado

            
	 	 	 
	 	 	
               

            
	 	 	
              /s/
                George E. Otten

            
	 	 	 
	 	 	
              COVENANTORS

            
	 	 	 
	 	 	
              HUNTER
                GOLD MINING CORP.

              a
                British Columbia corporation

            
	 	 	 
	 	 	 
	 	 	
              By:
                /s/ George E. Otten

              Name:
                George E. Otten

              Title:
                President

            
	 	 	 
	 	 	
              HUNTER
                GOLD MINING INC. 

              a
                Colorado corporation

            
	 	 	 
	 	 	 
	 	 	
              By:
                /s/ George E. Otten

              Name:
                George E. Otten

              Title:
                President

            

    

    

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    SCHEDULES

     

    
      
        	 	
                Schedule
                  A-2 

              	 	
                Royalty
                  Contract 

              
	 	
                Schedule
                  1.1(c) 

              	 	
                Property
                  List

              
	 	
                Schedule
                  1.1(f) 

              	 	
                Assets

              
	 	
                Schedule
                  1.1(g)

              	 	
                Contracts

              
	 	
                Schedule
                  3.1(a)

              	 	
                O’Gorman
                  Report work program 

              
	 	
                Schedule
                  4.6(c)

              	 	
                Environmental
                  Permits 

              

      

    

     

    

    EXHIBITS

     

    
      
        	
                Exhibit
                  A 

              	 	
                Bill
                  of Sale and Assignment

              
	
                Exhibit
                  B

              	 	
                Warranty
                  Deeds

              
	
                Exhibit
                  C

              	 	
                Note

              
	
                Exhibit
                  D

              	 	
                Deed
                  of Trust

              
	
                Exhibit
                  E

              	 	
                Escrow
                  Agreement

              
	
                Exhibit
                  F

              	 	
                Representation
                  and Stock Restriction Agreement

              
	
                Exhibit
                  G

              	 	
                Sellers’
                  Counsel’s Legal Opinion

              
	
                Exhibit
                  H 

              	 	
                Purchaser
                  Counsel’s Legal
                  Opinion

              

      

    

    

    
      
        
        

      

      
        27EX 4.1

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
      TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
      FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
      AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT
      REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
      144
      OR REGULATION S UNDER SAID ACT.

     

    CALLABLE
      SECURED CONVERTIBLE NOTE

     

    
      	
              Winter
                Park, Florida

            	 
	
              September
                22, 2006

            	
              $63,000

            

    

    

     

    FOR
      VALUE RECEIVED,
      BOOTIE BEER CORPORATION,
      a
      Nevada corporation (hereinafter called the “Borrower”),
      hereby promises to pay to the order of AJW PARTNERS, LLC or registered assigns
      (the “Holder”)
      the
      sum of $63,000, on September 22, 2009 (the “Maturity
      Date”),
      and
      to pay interest on the unpaid principal balance hereof at the rate of six
      percent (6%) (the “Interest
      Rate”)
      per
      annum from September 22, 2006 (the “Issue
      Date”)
      until
      the same becomes due and payable, whether at maturity or upon acceleration
      or by
      prepayment or otherwise. Any amount of principal or interest on this Note which
      is not paid when due shall bear interest at the rate of fifteen percent (15%)
      per annum from the due date thereof until the same is paid (“Default
      Interest”).
      Interest shall commence accruing on the Issue Date, shall be computed on the
      basis of a 365-day year and the actual number of days elapsed and shall be
      payable quarterly provided that no interest shall be due and payable for any
      month in which the Trading Price (as such term is defined below) is greater
      than
      $.15 for each Trading Day (as such term is defined below) of the month. All
      payments due hereunder (to the extent not converted into common stock, $.001
      par
      value per share (the “Common
      Stock”)
      in
      accordance with the terms hereof) shall be made in lawful money of the United
      States of America. All payments shall be made at such address as the Holder
      shall hereafter give to the Borrower by written notice made in accordance with
      the provisions of this Note. Whenever any amount expressed to be due by the
      terms of this Note is due on any day which is not a business day, the same
      shall
      instead be due on the next succeeding day which is a business day and, in the
      case of any interest payment date which is not the date on which this Note
      is
      paid in full, the extension of the due date thereof shall not be taken into
      account for purposes of determining the amount of interest due on such date.
      As
      used in this Note, the term “business day” shall mean any day other than a
      Saturday, Sunday or a day on which commercial banks in the city of New York,
      New
      York are authorized or required by law or executive order to remain closed.
      Each
      capitalized term used herein, and not otherwise defined, shall have the meaning
      ascribed thereto in that certain Securities Purchase Agreement, dated September
      22, 2006, pursuant to which this Note was originally issued (the “Purchase
      Agreement”).

     

    This
      Note
      is free from all taxes, liens, claims and encumbrances with respect to the
      issue
      thereof and shall not be subject to preemptive rights or other similar rights
      of
      shareholders of the Borrower and will not impose personal liability upon the
      holder thereof. The obligations of the

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Borrower
      under this Note shall be secured by that certain Security Agreement and
      Intellectual Property Security Agreement, each dated September 22, 2006 by
      and
      between the Borrower and the Holder.

     

    The
      following terms shall apply to this Note:

     

    ARTICLE
      I. CONVERSION
      RIGHTS

     

    1.1 Conversion
      Right.
      The
      Holder shall have the right from time to time, and at any time on or prior
      to
      the earlier of (i) the Maturity Date and (ii) the date of payment of the Default
      Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III,
      the Optional Prepayment Amount (as defined in Section 5.1 or any payments
      pursuant to Section 1.7, each in respect of the remaining outstanding principal
      amount of this Note to convert all or any part of the outstanding and unpaid
      principal amount of this Note into fully paid and non-assessable shares of
      Common Stock, as such Common Stock exists on the Issue Date, or any shares
      of
      capital stock or other securities of the Borrower into which such Common Stock
      shall hereafter be changed or reclassified at the conversion price (the
“Conversion
      Price”)
      determined as provided herein (a “Conversion”);
      provided,
      however,
      that in
      no event shall the Holder be entitled to convert any portion of this Note in
      excess of that portion of this Note upon conversion of which the sum of (1)
      the
      number of shares of Common Stock beneficially owned by the Holder and its
      affiliates (other than shares of Common Stock which may be deemed beneficially
      owned through the ownership of the unconverted portion of the Notes or the
      unexercised or unconverted portion of any other security of the Borrower
      (including, without limitation, the warrants issued by the Borrower pursuant
      to
      the Purchase Agreement) subject to a limitation on conversion or exercise
      analogous to the limitations contained herein) and (2) the number of shares
      of
      Common Stock issuable upon the conversion of the portion of this Note with
      respect to which the determination of this proviso is being made, would result
      in beneficial ownership by the Holder and its affiliates of more than 4.99%
      of
      the outstanding shares of Common Stock and provided further
      that the
      Holder shall not be entitled to convert any portion of this Note during any
      month immediately succeeding a Determination Date on which the Borrower
      exercises its prepayment option pursuant to Section 5.2 of this Note. For
      purposes of the proviso to the immediately preceding sentence, beneficial
      ownership shall be determined in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
      as
      otherwise provided in clause (1) of such proviso. The number of shares of Common
      Stock to be issued upon each conversion of this Note shall be determined by
      dividing the Conversion Amount (as defined below) by the applicable Conversion
      Price then in effect on the date specified in the notice of conversion, in
      the
      form attached hereto as Exhibit A (the “Notice
      of Conversion”),
      delivered to the Borrower by the Holder in accordance with Section 1.4 below;
      provided that the Notice of Conversion is submitted by facsimile (or by other
      means resulting in, or reasonably expected to result in, notice) to the Borrower
      before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
      Date”).
      The
      term “Conversion
      Amount”
means,
      with respect to any conversion of this Note, the sum of (1) the principal amount
      of this Note to be converted in such conversion plus
      (2)
      accrued and unpaid interest, if any, on such principal amount at the interest
      rates provided in this Note to the Conversion Date, provided, however, that
      the
      Company shall have the right to pay any or all interest in cash plus
      (3)
      Default Interest, if any, on the amounts referred to in the
      immediately

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    preceding
      clauses (1) and/or (2) plus
      (4) at
      the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
      1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
      Agreement, dated as of September 22, 2006, executed in connection with the
      initial issuance of this Note and the other Notes issued on the Issue Date
      (the
“Registration
      Rights Agreement”).
      The
      term “Determination
      Date” means
      the
      last business day of each month after the Issue Date.

     

    1.2 Conversion
      Price.

     

    (a) Calculation
      of Conversion Price.
      The
      Conversion Price shall be the lesser of (i) the Variable Conversion Price (as
      defined herein) and (ii) the Fixed Conversion Price (as defined herein)
      (subject, in each case, to equitable adjustments for stock splits, stock
      dividends or rights offerings by the Borrower relating to the Borrower’s
      securities or the securities of any subsidiary of the Borrower, combinations,
      recapitalization, reclassifications, extraordinary distributions and similar
      events). The “Variable
      Conversion Price”
shall
      mean the Applicable Percentage (as defined herein) multiplied by the Market
      Price (as defined herein). “Market
      Price”
means
      the average of the lowest three (3) Trading Prices (as defined below) for the
      Common Stock during the twenty (20) Trading Day period ending one Trading Day
      prior to the date the Conversion Notice is sent by the Holder to the Borrower
      via facsimile (the “Conversion
      Date”).
      “Trading
      Price”
means,
      for any security as of any date, the intraday trading price on the
      Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”)
      as
      reported by a reliable reporting service (“Reporting
      Service”)
      mutually acceptable to Borrower and Holder and hereafter designated by Holders
      of a majority in interest of the Notes and the Borrower or, if the OTCBB is
      not
      the principal trading market for such security, the intraday trading price
      of
      such security on the principal securities exchange or trading market where
      such
      security is listed or traded or, if no intraday trading price of such security
      is available in any of the foregoing manners, the average of the intraday
      trading prices of any market makers for such security that are listed in the
      “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
      be calculated for such security on such date in the manner provided above,
      the
      Trading Price shall be the fair market value as mutually determined by the
      Borrower and the holders of a majority in interest of the Notes being converted
      for which the calculation of the Trading Price is required in order to determine
      the Conversion Price of such Notes. “Trading
      Day”
shall
      mean any day on which the Common Stock is traded for any period on the OTCBB,
      or
      on the principal securities exchange or other securities market on which the
      Common Stock is then being traded. “Applicable
      Percentage”
shall
      mean 50%; provided, however, that the Applicable Percentage shall be increased
      to (i) 55% in the event that the Registration Statement (as defined in the
      Registration Rights Agreement) is filed on or before the Filing Date (as defined
      in the in the Registration Rights Agreement) and (ii) 60% in the event that
      the
      Registration Statement (as defined in the Registration Rights Agreement) becomes
      effective on or before the Effectiveness Deadline (as defined in the
      Registration Rights Agreement). In addition, the Holder agrees that it will
      limit all of its conversions to no more than the greater of (1) $80,000 per
      calendar month; or (2) the average daily dollar volume calculated during the
      ten
      (10) business days prior to a conversion, per conversion.

     

    (b) Conversion
      Price During Major Announcements.
      Notwithstanding
      anything contained in Section 1.2(a) to the contrary, in the event the Borrower
      (i) makes a public announcement that it intends to consolidate or merge with
      any
      other

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    corporation
      (other than a merger in which the Borrower is the surviving or continuing
      corporation and its capital stock is unchanged) or sell or transfer all or
      substantially all of the assets of the Borrower or (ii) any person, group or
      entity (including the Borrower) publicly announces a tender offer to purchase
      50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
      date of the announcement referred to in clause (i) or (ii) is hereinafter
      referred to as the “Announcement
      Date”),
      then
      the Conversion Price shall, effective upon the Announcement Date and continuing
      through the Adjusted Conversion Price Termination Date (as defined below),
      be
      equal to the lower of (x) the Conversion Price which would have been applicable
      for a Conversion occurring on the Announcement Date and (y) the Conversion
      Price
      that would otherwise be in effect. From and after the Adjusted Conversion Price
      Termination Date, the Conversion Price shall be determined as set forth in
      this
      Section 1.2(a). For purposes hereof, “Adjusted
      Conversion Price Termination Date”
shall
      mean, with respect to any proposed transaction or tender offer (or takeover
      scheme) for which a public announcement as contemplated by this Section 1.2(b)
      has been made, the date upon which the Borrower (in the case of clause (i)
      above) or the person, group or entity (in the case of clause (ii) above)
      consummates or publicly announces the termination or abandonment of the proposed
      transaction or tender offer (or takeover scheme) which caused this Section
      1.2(b) to become operative.

     

    1.3 Authorized
      Shares.
      The
      Borrower covenants that during the period the conversion right exists, the
      Borrower will reserve from its authorized and unissued Common Stock a sufficient
      number of shares, free from preemptive rights, to provide for the issuance
      of
      Common Stock upon the full conversion of this Note and the other Notes issued
      pursuant to the Purchase Agreement (the “Reserved
      Amount”).
      The
      Reserved Amount shall be increased from time to time in accordance with the
      Borrower’s obligations pursuant to Section 4(h) of the Purchase Agreement. The
      Borrower represents that upon issuance, such shares will be duly and validly
      issued, fully paid and non-assessable. In addition, if the Borrower shall issue
      any securities or make any change to its capital structure which would change
      the number of shares of Common Stock into which the Notes shall be convertible
      at the then current Conversion Price, the Borrower shall at the same time make
      proper provision so that thereafter there shall be a sufficient number of shares
      of Common Stock authorized and reserved, free from preemptive rights, for
      conversion of the outstanding Notes. The Borrower (i) acknowledges that it
      has
      irrevocably instructed its transfer agent to issue certificates for the Common
      Stock issuable upon conversion of this Note, and (ii) agrees that its
      issuance of this Note shall constitute full authority to its officers and agents
      who are charged with the duty of executing stock certificates to execute and
      issue the necessary certificates for shares of Common Stock in accordance with
      the terms and conditions of this Note.

     

    If,
      at
      any time a Holder of this Note submits a Notice of Conversion, and the Borrower
      does not have sufficient authorized but unissued shares of Common Stock
      available to effect such conversion in accordance with the provisions of this
      Article I (a “Conversion
      Default”),
      subject to Section 4.8, the Borrower shall issue to the Holder all of the shares
      of Common Stock which are then available to effect such conversion. The portion
      of this Note which the Holder included in its Conversion Notice and which
      exceeds the amount which is then convertible into available shares of Common
      Stock (the “Excess
      Amount”)
      shall,
      notwithstanding anything to the contrary contained herein, not be convertible
      into Common Stock in accordance with the terms hereof until (and at the Holder’s
      option at any time after) the

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    date
      additional shares of Common Stock are authorized by the Borrower to permit
      such
      conversion, at which time the Conversion Price in respect thereof shall be
      the
      lesser of (i) the Conversion Price on the Conversion Default Date (as defined
      below) and (ii) the Conversion Price on the Conversion Date thereafter elected
      by the Holder in respect thereof. In addition, the Borrower shall pay to the
      Holder payments (“Conversion
      Default Payments”)
      for a
      Conversion Default in the amount of (x) the sum
      of
      (1) the
      then outstanding principal amount of this Note plus
      (2)
      accrued and unpaid interest on the unpaid principal amount of this Note through
      the Authorization Date (as defined below) plus
      (3)
      Default Interest, if any, on the amounts referred to in clauses (1) and/or
      (2),
multiplied
      by
      (y) .24,
multiplied
      by
      (z)
      (N/365), where N = the number of days from the day the holder submits a Notice
      of Conversion giving rise to a Conversion Default (the “Conversion
      Default Date”)
      to the
      date (the “Authorization
      Date”)
      that
      the Borrower authorizes a sufficient number of shares of Common Stock to effect
      conversion of the full outstanding principal balance of this Note. The Borrower
      shall use its best efforts to authorize a sufficient number of shares of Common
      Stock as soon as practicable following the earlier of (i) such time that the
      Holder notifies the Borrower or that the Borrower otherwise becomes aware that
      there are or likely will be insufficient authorized and unissued shares to
      allow
      full conversion thereof and (ii) a Conversion Default. The Borrower shall send
      notice to the Holder of the authorization of additional shares of Common Stock,
      the Authorization Date and the amount of Holder’s accrued Conversion Default
      Payments. The accrued Conversion Default Payments for each calendar month shall
      be paid in cash or shall be convertible into Common Stock (at such time as
      there
      are sufficient authorized shares of Common Stock) at the applicable Conversion
      Price, at the Borrower’s option, as follows:

     

    (a) In
      the
      event Holder elects to take such payment in cash, cash payment shall be made
      to
      Holder by the fifth (5th)
      day of
      the month following the month in which it has accrued; and

     

    (b) In
      the
      event Holder elects to take such payment in Common Stock, the Holder may convert
      such payment amount into Common Stock at the Conversion Price (as in effect
      at
      the time of conversion) at any time after the fifth day of the month following
      the month in which it has accrued in accordance with the terms of this Article
      I
      (so long as there is then a sufficient number of authorized shares of Common
      Stock).

     

    The
      Holder’s election shall be made in writing to the Borrower at any time prior to
      6:00 p.m., New York, New York time, on the third day of the month following
      the
      month in which Conversion Default payments have accrued. If no election is
      made,
      the Holder shall be deemed to have elected to receive cash. Nothing herein
      shall
      limit the Holder’s right to pursue actual damages (to the extent in excess of
      the Conversion Default Payments) for the Borrower’s failure to maintain a
      sufficient number of authorized shares of Common Stock, and each holder shall
      have the right to pursue all remedies available at law or in equity (including
      degree of specific performance and/or injunctive relief).

     

    1.4 Method
      of Conversion.

     

    (a) Mechanics
      of Conversion.
      Subject
      to Section 1.1, this Note may be converted by the Holder in whole or in part
      at
      any time from time to time after the Issue Date, by (A) submitting to the
      Borrower a Notice of Conversion (by facsimile or other reasonable

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    means
      of
      communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
      New York time) and (B) subject to Section 1.4(b), surrendering this Note at
      the principal office of the Borrower. 

     

    (b) Surrender
      of Note Upon Conversion.
      Notwithstanding
      anything to the contrary set forth herein, upon conversion of this Note in
      accordance with the terms hereof, the Holder shall not be required to physically
      surrender this Note to the Borrower unless the entire unpaid principal amount
      of
      this Note is so converted. The Holder and the Borrower shall maintain records
      showing the principal amount so converted and the dates of such conversions
      or
      shall use such other method, reasonably satisfactory to the Holder and the
      Borrower, so as not to require physical surrender of this Note upon each such
      conversion. In the event of any dispute or discrepancy, such records of the
      Borrower shall be controlling and determinative in the absence of manifest
      error. Notwithstanding the foregoing, if any portion of this Note is converted
      as aforesaid, the Holder may not transfer this Note unless the Holder first
      physically surrenders this Note to the Borrower, whereupon the Borrower will
      forthwith issue and deliver upon the order of the Holder a new Note of like
      tenor, registered as the Holder (upon payment by the Holder of any applicable
      transfer taxes) may request, representing in the aggregate the remaining unpaid
      principal amount of this Note. The Holder and any assignee, by acceptance of
      this Note, acknowledge and agree that, by reason of the provisions of this
      paragraph, following conversion of a portion of this Note, the unpaid and
      unconverted principal amount of this Note represented by this Note may be less
      than the amount stated on the face hereof.

     

    (c) Payment
      of Taxes.
      The
      Borrower shall not be required to pay any tax which may be payable in respect
      of
      any transfer involved in the issue and delivery of shares of Common Stock or
      other securities or property on conversion of this Note in a name other than
      that of the Holder (or in street name), and the Borrower shall not be required
      to issue or deliver any such shares or other securities or property unless
      and
      until the person or persons (other than the Holder or the custodian in whose
      street name such shares are to be held for the Holder’s account) requesting the
      issuance thereof shall have paid to the Borrower the amount of any such tax
      or
      shall have established to the satisfaction of the Borrower that such tax has
      been paid.

     

    (d) Delivery
      of Common Stock Upon Conversion.
      Upon
      receipt by the Borrower from the Holder of a facsimile transmission (or other
      reasonable means of communication) of a Notice of Conversion meeting the
      requirements for conversion as provided in this Section 1.4, the Borrower shall
      issue and deliver or cause to be issued and delivered to or upon the order
      of
      the Holder certificates for the Common Stock issuable upon such conversion
      within three (3) business days after such receipt (and, solely in the case
      of
      conversion of the entire unpaid principal amount hereof, surrender of this
      Note)
      (such second business day being hereinafter referred to as the “Deadline”)
      in
      accordance with the terms hereof and the Purchase Agreement (including, without
      limitation, in accordance with the requirements of Section 2(g) of the Purchase
      Agreement that certificates for shares of Common Stock issued on or after the
      effective date of the Registration Statement upon conversion of this Note shall
      not bear any restrictive legend).

     

    (e) Obligation
      of Borrower to Deliver Common Stock.
      Upon
      receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed
      to
      be the holder

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    of
      record
      of the Common Stock issuable upon such conversion, the outstanding principal
      amount and the amount of accrued and unpaid interest on this Note shall be
      reduced to reflect such conversion, and, unless the Borrower defaults on its
      obligations under this Article I, all rights with respect to the portion of
      this
      Note being so converted shall forthwith terminate except the right to receive
      the Common Stock or other securities, cash or other assets, as herein provided,
      on such conversion. If the Holder shall have given a Notice of Conversion as
      provided herein, the Borrower’s obligation to issue and deliver the certificates
      for Common Stock shall be absolute and unconditional, irrespective of the
      absence of any action by the Holder to enforce the same, any waiver or consent
      with respect to any provision thereof, the recovery of any judgment against
      any
      person or any action to enforce the same, any failure or delay in the
      enforcement of any other obligation of the Borrower to the holder of record,
      or
      any setoff, counterclaim, recoupment, limitation or termination, or any breach
      or alleged breach by the Holder of any obligation to the Borrower, and
      irrespective of any other circumstance which might otherwise limit such
      obligation of the Borrower to the Holder in connection with such conversion.
      The
      Conversion Date specified in the Notice of Conversion shall be the Conversion
      Date so long as the Notice of Conversion is received by the Borrower before
      6:00
      p.m., New York, New York time, on such date.

     

    (f) Delivery
      of Common Stock by Electronic Transfer.
      In
      lieu
      of delivering physical certificates representing the Common Stock issuable
      upon
      conversion, provided the Borrower’s transfer agent is participating in the
      Depository Trust Company (“DTC”)
      Fast
      Automated Securities Transfer (“FAST”)
      program, upon request of the Holder and its compliance with the provisions
      contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
      best efforts to cause its transfer agent to electronically transmit the Common
      Stock issuable upon conversion to the Holder by crediting the account of
      Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
      (“DWAC”)
      system.

     

    (g) Failure
      to Deliver Common Stock Prior to Deadline.
      Without
      in any way limiting the Holder’s right to pursue other remedies, including
      actual damages and/or equitable relief, the parties agree that if delivery
      of
      the Common Stock issuable upon conversion of this Note is more than three (3)
      business days after the Deadline (other than a failure due to the circumstances
      described in Section 1.3 above, which failure shall be governed by such Section)
      the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond
      the Deadline that the Borrower fails to deliver such Common Stock. Such cash
      amount shall be paid to Holder by the fifth day of the month following the
      month
      in which it has accrued or, at the option of the Holder (by written notice
      to
      the Borrower by the first day of the month following the month in which it
      has
      accrued), shall be added to the principal amount of this Note, in which event
      interest shall accrue thereon in accordance with the terms of this Note and
      such
      additional principal amount shall be convertible into Common Stock in accordance
      with the terms of this Note.

     

    1.5 Concerning
      the Shares.
      The
      shares of Common Stock issuable upon conversion of this Note may not be sold
      or
      transferred unless (i) such shares are sold pursuant to an effective
      registration statement under the Act or (ii) the Borrower or its transfer agent
      shall have been furnished with an opinion of counsel (which opinion shall be
      in
      form, substance and scope customary for opinions of counsel in comparable
      transactions) to the effect that the shares to be sold or transferred may be
      sold or transferred pursuant to an exemption from such

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    registration
      or (iii) such shares are sold or transferred pursuant to Rule 144 under the
      Act (or a successor rule) (“Rule
      144”)
      or
      (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of
      the Borrower who agrees to sell or otherwise transfer the shares only in
      accordance with this Section 1.5 and who is an Accredited Investor (as defined
      in the Purchase Agreement). Except as otherwise provided in the Purchase
      Agreement (and subject to the removal provisions set forth below), until such
      time as the shares of Common Stock issuable upon conversion of this Note have
      been registered under the Act as contemplated by the Registration Rights
      Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
      as to the number of securities as of a particular date that can then be
      immediately sold, each certificate for shares of Common Stock issuable upon
      conversion of this Note that has not been so included in an effective
      registration statement or that has not been sold pursuant to an effective
      registration statement or an exemption that permits removal of the legend,
      shall
      bear a legend substantially in the following form, as appropriate:

     

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
      OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
      SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
      SCOPE
      CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
      IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
      S
      UNDER SAID ACT.”

     

    The
      legend set forth above shall be removed and the Borrower shall issue to the
      Holder a new certificate therefor free of any transfer legend if (i) the
      Borrower or its transfer agent shall have received an opinion of counsel, in
      form, substance and scope customary for opinions of counsel in comparable
      transactions, to the effect that a public sale or transfer of such Common Stock
      may be made without registration under the Act and the shares are so sold or
      transferred, (ii) such Holder provides the Borrower or its transfer agent with
      reasonable assurances that the Common Stock issuable upon conversion of this
      Note (to the extent such securities are deemed to have been acquired on the
      same
      date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock
      issuable upon conversion of this Note, such security is registered for sale
      by
      the Holder under an effective registration statement filed under the Act or
      otherwise may be sold pursuant to Rule 144 without any restriction as to the
      number of securities as of a particular date that can then be immediately sold.
      Nothing in this Note shall (i) limit the Borrower’s obligation under the
      Registration Rights Agreement or (ii) affect in any way the Holder’s obligations
      to comply with applicable prospectus delivery requirements upon the resale
      of
      the securities referred to herein.

     

    1.6 Effect
      of Certain Events.

     

    (a) Effect
      of Merger, Consolidation, Etc.
      At the
      option of the Holder, the sale, conveyance or disposition of all or
      substantially all of the assets of the Borrower, the effectuation by the
      Borrower of a transaction or series of related transactions in which more than
      50% of the voting power of the Borrower is disposed of, or the consolidation,
      merger or other business combination of the Borrower with or into any other
      Person (as defined

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    below)
      or
      Persons when the Borrower is not the survivor shall either: (i) be deemed to
      be
      an Event of Default (as defined in Article III) pursuant to which the Borrower
      shall be required to pay to the Holder upon the consummation of and as a
      condition to such transaction an amount equal to the Default Amount (as defined
      in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.
“Person”
shall
      mean any individual, corporation, limited liability company, partnership,
      association, trust or other entity or organization.

     

    (b) Adjustment
      Due to Merger, Consolidation, Etc.
      If,
      at
      any time when this Note is issued and outstanding and prior to conversion of
      all
      of the Notes, there shall be any merger, consolidation, exchange of shares,
      recapitalization, reorganization, or other similar event, as a result of which
      shares of Common Stock of the Borrower shall be changed into the same or a
      different number of shares of another class or classes of stock or securities
      of
      the Borrower or another entity, or in case of any sale or conveyance of all
      or
      substantially all of the assets of the Borrower other than in connection with
      a
      plan of complete liquidation of the Borrower, then the Holder of this Note
      shall
      thereafter have the right to receive upon conversion of this Note, upon the
      basis and upon the terms and conditions specified herein and in lieu of the
      shares of Common Stock immediately theretofore issuable upon conversion, such
      stock, securities or assets which the Holder would have been entitled to receive
      in such transaction had this Note been converted in full immediately prior
      to
      such transaction (without regard to any limitations on conversion set forth
      herein), and in any such case appropriate provisions shall be made with respect
      to the rights and interests of the Holder of this Note to the end that the
      provisions hereof (including, without limitation, provisions for adjustment
      of
      the Conversion Price and of the number of shares issuable upon conversion of
      the
      Note) shall thereafter be applicable, as nearly as may be practicable in
      relation to any securities or assets thereafter deliverable upon the conversion
      hereof. The Borrower shall not effect any transaction described in this Section
      1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days
      prior written notice (but in any event at least fifteen (15) days prior written
      notice) of the record date of the special meeting of shareholders to approve,
      or
      if there is no such record date, the consummation of, such merger,
      consolidation, exchange of shares, recapitalization, reorganization or other
      similar event or sale of assets (during which time the Holder shall be entitled
      to convert this Note) and (b) the resulting successor or acquiring entity (if
      not the Borrower) assumes by written instrument the obligations of this Section
      1.6(b). The above provisions shall similarly apply to successive consolidations,
      mergers, sales, transfers or share exchanges.

     

    (c) Adjustment
      Due to Distribution.
      If
      the
      Borrower shall declare or make any distribution of its assets (or rights to
      acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
      by way of return of capital or otherwise (including any dividend or distribution
      to the Borrower’s shareholders in cash or shares (or rights to acquire shares)
      of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”),
      then
      the Holder of this Note shall be entitled, upon any conversion of this Note
      after the date of record for determining shareholders entitled to such
      Distribution, to receive the amount of such assets which would have been payable
      to the Holder with respect to the shares of Common Stock issuable upon such
      conversion had such Holder been the holder of such shares of Common Stock on
      the
      record date for the determination of shareholders entitled to such
      Distribution.

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    (d) Adjustment
      Due to Dilutive Issuance.
      If, at
      any time when any Notes are issued and outstanding, the Borrower issues or
      sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued
      or sold, any shares of Common Stock for no consideration or for a consideration
      per share (before deduction of reasonable expenses or commissions or
      underwriting discounts or allowances in connection therewith) less than the
      Fixed Conversion Price in effect on the date of such issuance (or deemed
      issuance) of such shares of Common Stock (a “Dilutive
      Issuance”),
      then
      immediately upon the Dilutive Issuance, the Fixed Conversion Price will be
      reduced to the amount of the consideration per share received by the Borrower
      in
      such Dilutive Issuance; provided
      that
      only one adjustment will be made for each Dilutive Issuance.

     

    The
      Borrower shall be deemed to have issued or sold shares of Common Stock if the
      Borrower in any manner issues or grants any warrants, rights or options (not
      including employee stock option plans), whether or not immediately exercisable,
      to subscribe for or to purchase Common Stock or other securities convertible
      into or exchangeable for Common Stock (“Convertible
      Securities”)
      (such
      warrants, rights and options to purchase Common Stock or Convertible Securities
      are hereinafter referred to as “Options”)
      and
      the price per share for which Common Stock is issuable upon the exercise of
      such
      Options is less than the Fixed Conversion Price then in effect, then the Fixed
      Conversion Price shall be equal to such price per share. For purposes of the
      preceding sentence, the “price per share for which Common Stock is issuable upon
      the exercise of such Options” is determined by dividing (i) the total amount, if
      any, received or receivable by the Borrower as consideration for the issuance
      or
      granting of all such Options, plus the minimum aggregate amount of additional
      consideration, if any, payable to the Borrower upon the exercise of all such
      Options, plus, in the case of Convertible Securities issuable upon the exercise
      of such Options, the minimum aggregate amount of additional consideration
      payable upon the conversion or exchange thereof at the time such Convertible
      Securities first become convertible or exchangeable, by (ii) the maximum total
      number of shares of Common Stock issuable upon the exercise of all such Options
      (assuming full conversion of Convertible Securities, if applicable). No further
      adjustment to the Conversion Price will be made upon the actual issuance of
      such
      Common Stock upon the exercise of such Options or upon the conversion or
      exchange of Convertible Securities issuable upon exercise of such
      Options.

     

    Additionally,
      the Borrower shall be deemed to have issued or sold shares of Common Stock
      if
      the Borrower in any manner issues or sells any Convertible Securities, whether
      or not immediately convertible (other than where the same are issuable upon
      the
      exercise of Options), and the price per share for which Common Stock is issuable
      upon such conversion or exchange is less than the Fixed Conversion Price then
      in
      effect, then the Fixed Conversion Price shall be equal to such price per share.
      For the purposes of the preceding sentence, the “price per share for which
      Common Stock is issuable upon such conversion or exchange” is determined by
      dividing (i) the total amount, if any, received or receivable by the Borrower
      as
      consideration for the issuance or sale of all such Convertible Securities,
      plus
      the minimum aggregate amount of additional consideration, if any, payable to
      the
      Borrower upon the conversion or exchange thereof at the time such Convertible
      Securities first become convertible or exchangeable, by (ii) the maximum total
      number of shares of Common Stock issuable upon the conversion or exchange of
      all
      such Convertible Securities. No further adjustment to the Fixed Conversion
      Price
      will be made upon the actual issuance of such Common Stock upon conversion
      or
      exchange of such Convertible Securities.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    Notwithstanding
      anything herein to the contrary, no adjustments to the Conversion Price shall
      be
      made in connection with the issuance of securities reserved for issuance as
      set
      forth on Schedule 3(c) to the Purchase Agreement.

     

    (e) Purchase
      Rights.
      If,
      at
      any time when any Notes are issued and outstanding, the Borrower issues any
      convertible securities or rights to purchase stock, warrants, securities or
      other property (the “Purchase
      Rights”)
      pro
      rata to the record holders of any class of Common Stock, then the Holder of
      this
      Note will be entitled to acquire, upon the terms applicable to such Purchase
      Rights, the aggregate Purchase Rights which such Holder could have acquired
      if
      such Holder had held the number of shares of Common Stock acquirable upon
      complete conversion of this Note (without regard to any limitations on
      conversion contained herein) immediately before the date on which a record
      is
      taken for the grant, issuance or sale of such Purchase Rights or, if no such
      record is taken, the date as of which the record holders of Common Stock are
      to
      be determined for the grant, issue or sale of such Purchase Rights.

     

    (f) Notice
      of Adjustments.
      Upon
      the
      occurrence of each adjustment or readjustment of the Conversion Price as a
      result of the events described in this Section 1.6, the Borrower, at its
      expense, shall promptly compute such adjustment or readjustment and prepare
      and
      furnish to the Holder of a certificate setting forth such adjustment or
      readjustment and showing in detail the facts upon which such adjustment or
      readjustment is based. The Borrower shall, upon the written request at any
      time
      of the Holder, furnish to such Holder a like certificate setting forth (i)
      such
      adjustment or readjustment, (ii) the Conversion Price at the time in effect
      and
      (iii) the number of shares of Common Stock and the amount, if any, of other
      securities or property which at the time would be received upon conversion
      of
      the Note.

     

    1.7 Trading
      Market Limitations.
      Unless
      permitted by the applicable rules and regulations of the principal securities
      market on which the Common Stock is then listed or traded, in no event shall
      the
      Borrower issue upon conversion of or otherwise pursuant to this Note and the
      other Notes issued pursuant to the Purchase Agreement more than the maximum
      number of shares of Common Stock that the Borrower can issue pursuant to any
      rule of the principal United States securities market on which the Common Stock
      is then traded (the “Maximum
      Share Amount”),
      which
      shall be 19.99% of the total shares outstanding on the Closing Date (as defined
      in the Purchase Agreement), subject to equitable adjustment from time to time
      for stock splits, stock dividends, combinations, capital reorganizations and
      similar events relating to the Common Stock occurring after the date hereof.
      Once the Maximum Share Amount has been issued (the date of which is hereinafter
      referred to as the “Maximum
      Conversion Date”),
      if
      the Borrower fails to eliminate any prohibitions under applicable law or the
      rules or regulations of any stock exchange, interdealer quotation system or
      other self-regulatory organization with jurisdiction over the Borrower or any
      of
      its securities on the Borrower’s ability to issue shares of Common Stock in
      excess of the Maximum Share Amount (a “Trading
      Market Prepayment Event”),
      in
      lieu of any further right to convert this Note, and in full satisfaction of
      the
      Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
      within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
      Market Prepayment Date”),
      an
      amount equal to 130% times
      the
sum
      of (a)
      the then outstanding principal amount of this Note immediately following the
      Maximum Conversion Date, plus
      (b)
      accrued and unpaid interest on the unpaid principal amount of this Note to
      the
      Trading Market Prepayment Date, plus
      (c)
      Default Interest, if any, on the amounts referred to in

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    clause
      (a) and/or (b) above, plus
      (d) any
      optional amounts that may be added thereto at the Maximum Conversion Date by
      the
      Holder in accordance with the terms hereof (the then outstanding principal
      amount of this Note immediately following the Maximum Conversion Date,
plus
      the
      amounts referred to in clauses (b), (c) and (d) above shall collectively be
      referred to as the “Remaining
      Convertible Amount”).
      With
      respect to each Holder of Notes, the Maximum Share Amount shall refer to such
      Holder’s pro rata
      share
      thereof determined in accordance with Section 4.8 below. In the event that
      the
      sum of (x) the aggregate number of shares of Common Stock issued upon conversion
      of this Note and the other Notes issued pursuant to the Purchase Agreement
      plus
      (y) the
      aggregate number of shares of Common Stock that remain issuable upon conversion
      of this Note and the other Notes issued pursuant to the Purchase Agreement,
      represents at least one hundred percent (100%) of the Maximum Share Amount
      (the
“Triggering
      Event”),
      the
      Borrower will use its best efforts to seek and obtain Shareholder Approval
      (or
      obtain such other relief as will allow conversions hereunder in excess of the
      Maximum Share Amount) as soon as practicable following the Triggering Event
      and
      before the Maximum Conversion Date. As used herein, “Shareholder
      Approval”
means
      approval by the shareholders of the Borrower to authorize the issuance of the
      full number of shares of Common Stock which would be issuable upon full
      conversion of the then outstanding Notes but for the Maximum Share
      Amount.

     

    1.8 Status
      as Shareholder.
      Upon
      submission of a Notice of Conversion by a Holder, (i) the shares covered thereby
      (other than the shares, if any, which cannot be issued because their issuance
      would exceed such Holder’s allocated portion of the Reserved Amount or Maximum
      Share Amount) shall be deemed converted into shares of Common Stock and (ii)
      the
      Holder’s rights as a Holder of such converted portion of this Note shall cease
      and terminate, excepting only the right to receive certificates for such shares
      of Common Stock and to any remedies provided herein or otherwise available
      at
      law or in equity to such Holder because of a failure by the Borrower to comply
      with the terms of this Note. Notwithstanding the foregoing, if a Holder has
      not
      received certificates for all shares of Common Stock prior to the tenth (10th)
      business day after the expiration of the Deadline with respect to a conversion
      of any portion of this Note for any reason, then (unless the Holder otherwise
      elects to retain its status as a holder of Common Stock by so notifying the
      Borrower) the Holder shall regain the rights of a Holder of this Note with
      respect to such unconverted portions of this Note and the Borrower shall, as
      soon as practicable, return such unconverted Note to the Holder or, if the
      Note
      has not been surrendered, adjust its records to reflect that such portion of
      this Note has not been converted. In all cases, the Holder shall retain all
      of
      its rights and remedies (including, without limitation, (i) the right to receive
      Conversion Default Payments pursuant to Section 1.3 to the extent required
      thereby for such Conversion Default and any subsequent Conversion Default and
      (ii) the right to have the Conversion Price with respect to subsequent
      conversions determined in accordance with Section 1.3) for the Borrower’s
      failure to convert this Note.

     

    ARTICLE
      II. CERTAIN
      COVENANTS

     

    2.1 Distributions
      on Capital Stock.
      So long
      as the Borrower shall have any obligation under this Note, the Borrower shall
      not without the Holder’s written consent (a) pay, declare or set apart for such
      payment, any dividend or other distribution (whether in cash, property or other
      securities) on shares of capital stock other than dividends on shares of
      Common

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    Stock
      solely in the form of additional shares of Common Stock or (b) directly or
      indirectly or through any subsidiary make any other payment or distribution
      in
      respect of its capital stock except for distributions pursuant to any
      shareholders’ rights plan which is approved by a majority of the Borrower’s
      disinterested directors.

     

    2.2 Restriction
      on Stock Repurchases.
      So long
      as the Borrower shall have any obligation under this Note, the Borrower shall
      not without the Holder’s written consent redeem, repurchase or otherwise acquire
      (whether for cash or in exchange for property or other securities or otherwise)
      in any one transaction or series of related transactions any shares of capital
      stock of the Borrower or any warrants, rights or options to purchase or acquire
      any such shares.

     

    2.3 Borrowings.
      So long
      as the Borrower shall have any obligation under this Note, the Borrower shall
      not, without the Holder’s written consent (which shall not be unreasonable
      withheld), create, incur, assume or suffer to exist any liability for borrowed
      money, except (a) borrowings in existence or committed on the date hereof and
      of
      which the Borrower has informed Holder in writing prior to the date hereof,
      (b)
      indebtedness to trade creditors or financial institutions incurred in the
      ordinary course of business or (c) borrowings, the proceeds of which shall
      be
      used to repay this Note.

     

    2.4 Sale
      of Assets.
      So long
      as the Borrower shall have any obligation under this Note, the Borrower shall
      not, without the Holder’s written consent (which shall not be unreasonable
      withheld), sell, lease or otherwise dispose of any significant portion of its
      assets outside the ordinary course of business. Any consent to the disposition
      of any assets may be conditioned on a specified use of the proceeds of
      disposition.

     

    2.5 Advances
      and Loans.
      So long
      as the Borrower shall have any obligation under this Note, the Borrower shall
      not, without the Holder’s written consent, lend money, give credit or make
      advances to any person, firm, joint venture or corporation, including, without
      limitation, officers, directors, employees, subsidiaries and affiliates of
      the
      Borrower, except loans, credits or advances (a) in existence or committed on
      the
      date hereof and which the Borrower has informed Holder in writing prior to
      the
      date hereof, (b) made in the ordinary course of business or (c) not in excess
      of
      $50,000.

     

    2.6 Contingent
      Liabilities.
      So long
      as the Borrower shall have any obligation under this Note, the Borrower shall
      not, without the Holder’s written consent, which shall not be unreasonably
      withheld, assume, guarantee, endorse, contingently agree to purchase or
      otherwise become liable upon the obligation of any person, firm, partnership,
      joint venture or corporation, except by the endorsement of negotiable
      instruments for deposit or collection and except assumptions, guarantees,
      endorsements and contingencies (a) in existence or committed on the date hereof
      and which the Borrower has informed Holder in writing prior to the date hereof,
      and (b) similar transactions in the ordinary course of business. 

     

    ARTICLE
      III. EVENTS
      OF DEFAULT

     

    If
      any of
      the following events of default (each, an “Event
      of Default”)
      shall
      occur:

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

     

    3.1 Failure
      to Pay Principal or Interest.
      The
      Borrower fails to pay the principal hereof or interest thereon when due on
      this
      Note, whether at maturity, upon a Trading Market Prepayment Event pursuant
      to
      Section 1.7, upon acceleration or otherwise;

     

    3.2 Conversion
      and the Shares.
      The
      Borrower fails to issue shares of Common Stock to the Holder (or announces
      or
      threatens that it will not honor its obligation to do so) upon exercise by
      the
      Holder of the conversion rights of the Holder in accordance with the terms
      of
      this Note (for a period of at least sixty (60) days, if such failure is solely
      as a result of the circumstances governed by Section 1.3 and the Borrower is
      using its best efforts to authorize a sufficient number of shares of Common
      Stock as soon as practicable), fails to transfer or cause its transfer agent
      to
      transfer (electronically or in certificated form) any certificate for shares
      of
      Common Stock issued to the Holder upon conversion of or otherwise pursuant
      to
      this Note as and when required by this Note or the Registration Rights
      Agreement, or fails to remove any restrictive legend (or to withdraw any stop
      transfer instructions in respect thereof) on any certificate for any shares
      of
      Common Stock issued to the Holder upon conversion of or otherwise pursuant
      to
      this Note as and when required by this Note or the Registration Rights Agreement
      (or makes any announcement, statement or threat that it does not intend to
      honor
      the obligations described in this paragraph) and any such failure shall continue
      uncured (or any announcement, statement or threat not to honor its obligations
      shall not be rescinded in writing) for three (3) days after the Borrower shall
      have been notified thereof in writing by the
      Holder;

     

    3.3 Failure
      to Timely File Registration or Effect Registration.
      The
      Borrower fails to file the Registration Statement within forty-five (45) days
      following the Closing Date (as defined in the Purchase Agreement) or obtain
      effectiveness with the Securities and Exchange Commission of the Registration
      Statement within one hundred twenty (120) days following the Closing Date (as
      defined in the Purchase Agreement) or such Registration Statement lapses in
      effect (or sales cannot otherwise be made thereunder effective, whether by
      reason of the Borrower’s failure to amend or supplement the prospectus included
      therein
      in
      accordance with the Registration Rights Agreement or otherwise) for more than
      ten (10) consecutive days or twenty (20) days in any twelve month period after
      the Registration Statement becomes effective;

     

    3.4 Breach
      of Covenants.
      The
      Borrower breaches any material covenant or other material term or condition
      contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e),
      4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for
      a
      period of ten (10) days after written notice thereof to the Borrower from the
      Holder;

     

    3.5 Breach
      of Representations and Warranties.
      Any
      representation or warranty of the Borrower made herein or in any agreement,
      statement or certificate given in writing pursuant hereto or in connection
      herewith (including, without limitation, the Purchase Agreement and the
      Registration Rights Agreement), shall be false or misleading in any material
      respect when made and the breach of which has (or with the passage of time
      will
      have) a material adverse effect on the rights of the Holder with respect to
      this
      Note, the Purchase Agreement or the Registration Rights Agreement;

     

    3.6 Receiver
      or Trustee.
      The
      Borrower or any subsidiary of the Borrower shall make an assignment for the
      benefit of creditors, or apply for or consent to the appointment

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

    of
      a
      receiver or trustee for it or for a substantial part of its property or
      business, or such a receiver or trustee shall otherwise be
      appointed;

     

    3.7 Judgments.
      Any
      money judgment, writ or similar process shall be entered or filed against the
      Borrower or any subsidiary of the Borrower or any of its property or other
      assets for more than $250,000, and shall remain unvacated, unbonded or unstayed
      for a period of twenty (20) days unless otherwise consented to by the Holder,
      which consent will not be unreasonably withheld;

     

    3.8 Bankruptcy.
      Bankruptcy, insolvency, reorganization or liquidation proceedings or other
      proceedings for relief under any bankruptcy law or any law for the relief of
      debtors shall be instituted by or against the Borrower or any subsidiary of
      the
      Borrower;

     

    3.9 Delisting
      of Common Stock.
      The
      Borrower shall fail to maintain the listing of the Common Stock on at least
      one
      of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
      the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
      Exchange; or

     

    3.10 Default
      Under Other Notes.
      An Event
      of Default has occurred and is continuing under any of the other Notes issued
      pursuant to the Purchase Agreement, then, upon the occurrence and during the
      continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4,
      3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
      aggregate principal amount of the outstanding Notes issued pursuant to the
      Purchase Agreement exercisable through the delivery of written notice to the
      Borrower by such Holders (the “Default
      Notice”),
      and
      upon the occurrence of an Event of Default specified in Section 3.6 or 3.8,
      the
      Notes shall become immediately due and payable and the Borrower shall pay to
      the
      Holder, in full satisfaction of its obligations hereunder, an amount equal
      to
      the greater of (i) 140% times
      the
sum
      of (w)
      the then outstanding principal amount of this Note plus
      (x)
      accrued and unpaid interest on the unpaid principal amount of this Note to
      the
      date of payment (the “Mandatory
      Prepayment Date”)
      plus
      (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and/or
      (x)
plus
      (z) any
      amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
      pursuant to Section 2(c) of the Registration Rights Agreement (the then
      outstanding principal amount of this Note to the date of payment plus
      the
      amounts referred to in clauses (x), (y) and (z) shall collectively be known
      as
      the “Default
      Sum”)
      or
      (ii) the “parity value” of the Default Sum to be prepaid, where parity value
      means (a) the highest number of shares of Common Stock issuable upon conversion
      of or otherwise pursuant to such Default Sum in accordance with Article I,
      treating the Trading Day immediately preceding the Mandatory Prepayment Date
      as
      the “Conversion Date” for purposes of determining the lowest applicable
      Conversion Price, unless the Default Event arises as a result of a breach in
      respect of a specific Conversion Date in which case such Conversion Date shall
      be the Conversion Date), multiplied
      by
      (b) the
      highest Closing Price for the Common Stock during the period beginning on the
      date of first occurrence of the Event of Default and ending one day prior to
      the
      Mandatory Prepayment Date (the “Default
      Amount”)
      and
      all other amounts payable hereunder shall immediately become due and payable,
      all without demand, presentment or notice, all of which hereby are expressly
      waived, together with all costs, including, without limitation, legal fees
      and
      expenses, of collection, and the Holder shall be entitled to exercise all other
      rights and remedies available at law or in equity. If the Borrower fails to
      pay
      the Default Amount within five (5) business days of written notice that such
      amount

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    is
      due
      and payable, then the Holder shall have the right at any time, so long as the
      Borrower remains in default (and so long and to the extent that there are
      sufficient authorized shares), to require the Borrower, upon written notice,
      to
      immediately issue, in lieu of the Default Amount, the number of shares of Common
      Stock of the Borrower equal to the Default Amount divided by the Conversion
      Price then in effect.

     

    ARTICLE
      IV. MISCELLANEOUS

     

    4.1 Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of the Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude other or
      further exercise thereof or of any other right, power or privileges. All rights
      and remedies existing hereunder are cumulative to, and not exclusive of, any
      rights or remedies otherwise available.

     

    4.2 Notices.
      Any
      notice herein required or permitted to be given shall be in writing and may
      be
      personally served or delivered by courier or sent by United States mail and
      shall be deemed to have been given upon receipt if personally served (which
      shall include telephone line facsimile transmission) or sent by courier or
      three
      (3) days after being deposited in the United States mail, certified, with
      postage pre-paid and properly addressed, if sent by mail. For the purposes
      hereof, the address of the Holder shall be as shown on the records of the
      Borrower; and the address of the Borrower shall be P.O. Box 125, Winter Park,
      FL
      32790, facsimile number: [
      ]. Both
      the Holder and the Borrower may change the address for service by service of
      written notice to the other as herein provided.

     

    4.3 Amendments.
      This
      Note and any provision hereof may only be amended by an instrument in writing
      signed by the Borrower and the Holder. The term “Note” and all reference
      thereto, as used throughout this instrument, shall mean this instrument (and
      the
      other Notes issued pursuant to the Purchase Agreement) as originally executed,
      or if later amended or supplemented, then as so amended or
      supplemented.

     

    4.4 Assignability.
      This
      Note shall be binding upon the Borrower and its successors and assigns, and
      shall inure to be the benefit of the Holder and its successors and assigns.
      Each
      transferee of this Note must be an “accredited investor” (as defined in Rule
      501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary,
      this Note may be pledged as collateral in connection with a bona fide
      margin
      account or other lending arrangement.

     

    4.5 Cost
      of Collection.
      If
      default is made in the payment of this Note, the Borrower shall pay the Holder
      hereof costs of collection, including reasonable attorneys’ fees.

     

    4.6 Governing
      Law.
      THIS
      NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
      OF
      THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
      WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
      BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND UNITED
      STATES FEDERAL COURTS LOCATED IN NEW YORK,

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

     

    NEW
      YORK
      WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED
      INTO
      IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
      BOTH
      PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
      MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE
      OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY
      RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
      PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN
      ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
      NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
      AND
      MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
      LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
      THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
      DISPUTE.

     

    4.7 Certain
      Amounts.
      Whenever
      pursuant to this Note the Borrower is required to pay an amount in excess of
      the
      outstanding principal amount (or the portion thereof required to be paid at
      that
      time) plus accrued and unpaid interest plus Default Interest on such interest,
      the Borrower and the Holder agree that the actual damages to the Holder from
      the
      receipt of cash payment on this Note may be difficult to determine and the
      amount to be so paid by the Borrower represents stipulated damages and not
      a
      penalty and is intended to compensate the Holder in part for loss of the
      opportunity to convert this Note and to earn a return from the sale of shares
      of
      Common Stock acquired upon conversion of this Note at a price in excess of
      the
      price paid for such shares pursuant to this Note. The Borrower and the Holder
      hereby agree that such amount of stipulated damages is not plainly
      disproportionate to the possible loss to the Holder from the receipt of a cash
      payment without the opportunity to convert this Note into shares of Common
      Stock.

     

    4.8 Allocations
      of Maximum Share Amount and Reserved Amount.
      The
      Maximum Share Amount and Reserved Amount shall be allocated pro rata among
      the
      Holders of Notes based on the principal amount of such Notes issued to each
      Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
      be
      allocated pro rata among the Holders of Notes based on the principal amount
      of
      such Notes held by each Holder at the time of the increase in the Maximum Share
      Amount or Reserved Amount. In the event a Holder shall sell or otherwise
      transfer any of such Holder’s Notes, each transferee shall be allocated a pro
      rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any
      portion of the Maximum Share Amount or Reserved Amount which remains allocated
      to any person or entity which does not hold any Notes shall be allocated to
      the
      remaining Holders of Notes, pro rata based on the principal amount of such
      Notes
      then held by such Holders.

     

    4.9 Damages
      Shares.
      The
      shares of Common Stock that may be issuable to the Holder pursuant to Sections
      1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights
      Agreement (“Damages
      Shares”)
      shall
      be treated as Common Stock issuable upon conversion of this Note for all
      purposes hereof and shall be subject to all of the limitations and afforded
      all
      of the rights of the other shares of Common Stock issuable hereunder,
      including

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

     

    without
      limitation, the right to be included in the Registration Statement filed
      pursuant to the Registration Rights Agreement. For purposes of calculating
      interest payable on the outstanding principal amount hereof, except as otherwise
      provided herein, amounts convertible into Damages Shares (“Damages
      Amounts”)
      shall
      not bear interest but must be converted prior to the conversion of any
      outstanding principal amount hereof, until the outstanding Damages Amounts
      is
      zero.

     

    4.10 Denominations.
      At the
      request of the Holder, upon surrender of this Note, the Borrower shall promptly
      issue new Notes in the aggregate outstanding principal amount hereof, in the
      form hereof, in such denominations of at least $50,000 as the Holder shall
      request.

     

    4.11 Purchase
      Agreement.
      By its
      acceptance of this Note, each Holder agrees to be bound by the applicable terms
      of the Purchase Agreement.

     

    4.12 Notice
      of Corporate Events.
      Except
      as otherwise provided below, the Holder of this Note shall have no rights as
      a
      Holder of Common Stock unless and only to the extent that it converts this
      Note
      into Common Stock. The Borrower shall provide the Holder with prior notification
      of any meeting of the Borrower’s shareholders (and copies of proxy materials and
      other information sent to shareholders). In the event of any taking by the
      Borrower of a record of its shareholders for the purpose of determining
      shareholders who are entitled to receive payment of any dividend or other
      distribution, any right to subscribe for, purchase or otherwise acquire
      (including by way of merger, consolidation, reclassification or
      recapitalization) any share of any class or any other securities or property,
      or
      to receive any other right, or for the purpose of determining shareholders
      who
      are entitled to vote in connection with any proposed sale, lease or conveyance
      of all or substantially all of the assets of the Borrower or any proposed
      liquidation, dissolution or winding up of the Borrower, the Borrower shall
      mail
      a notice to the Holder, at least twenty (20) days prior to the record date
      specified therein (or thirty (30) days prior to the consummation of the
      transaction or event, whichever is earlier), of the date on which any such
      record is to be taken for the purpose of such dividend, distribution, right
      or
      other event, and a brief statement regarding the amount and character of such
      dividend, distribution, right or other event to the extent known at such time.
      The Borrower shall make a public announcement of any event requiring
      notification to the Holder hereunder substantially simultaneously with the
      notification to the Holder in accordance with the terms of this Section
      4.12.

     

    4.13 Remedies.
      The
      Borrower acknowledges that a breach by it of its obligations hereunder will
      cause irreparable harm to the Holder, by vitiating the intent and purpose of
      the
      transaction contemplated hereby. Accordingly, the Borrower acknowledges that
      the
      remedy at law for a breach of its obligations under this Note will be inadequate
      and agrees, in the event of a breach or threatened breach by the Borrower of
      the
      provisions of this Note, that the Holder shall be entitled, in addition to
      all
      other available remedies at law or in equity, and in addition to the penalties
      assessable herein, to an injunction or injunctions restraining, preventing
      or
      curing any breach of this Note and to enforce specifically the terms and
      provisions thereof, without the necessity of showing economic loss and without
      any bond or other security being required.

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

     

    ARTICLE
      V. CALL
      OPTION

     

    5.1 Call
      Option.
      Notwithstanding anything to the contrary contained in this Article V, so long
      as
(i) no
      Event of Default or Trading Market Prepayment Event shall have occurred and
      be
      continuing, (ii) the
      Borrower has a sufficient number of authorized shares of Common Stock reserved
      for issuance upon full conversion of the Notes, then at any time after the
      Issue
      Date, and (iii) the
      Common Stock is trading at or below $.55 per share, the Borrower shall have
      the
      right, exercisable on not less than three (3) Trading Days prior written notice
      to the Holders of the Notes (which notice may not be sent to the Holders of
      the
      Notes until the Borrower is permitted to prepay the Notes pursuant to this
      Section 5.1), to prepay all of the outstanding Notes in accordance with this
      Section 5.1. Any notice of prepayment hereunder (an “Optional
      Prepayment”)
      shall
      be delivered to the Holders of the Notes at their registered addresses appearing
      on the books and records of the Borrower and shall state (1) that the Borrower
      is exercising its right to prepay all of the Notes issued on the Issue Date
      and
      (2) the date of prepayment (the “Optional
      Prepayment Notice”).
      On
      the date fixed for prepayment (the “Optional
      Prepayment Date”),
      the
      Borrower shall make payment of the Optional Prepayment Amount (as defined below)
      to or upon the order of the Holders as specified by the Holders in writing
      to
      the Borrower at least one (1) business day prior to the Optional Prepayment
      Date. If the Borrower exercises its right to prepay the Notes, the Borrower
      shall make payment to the holders of an amount in cash (the “Optional
      Prepayment Amount”)
      equal
      to either (i) 120% (for prepayments occurring within thirty (30) days of
      the Issue Date), (ii) 130% for prepayments occurring between thirty-one
      (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments
      occurring after the sixtieth (60th)
      day
      following the Issue Date), multiplied by the sum of (w) the then outstanding
      principal amount of this Note plus
      (x) accrued and unpaid interest on the unpaid principal amount of this Note
      to the Optional Prepayment Date plus
      (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and (x)
      plus
      (z) any
      amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
      pursuant to Section 2(c) of the Registration Rights Agreement (the then
      outstanding principal amount of this Note to the date of payment plus
      the
      amounts referred to in clauses (x), (y) and (z) shall collectively be known
      as
      the “Optional
      Prepayment Sum”).
      Notwithstanding notice of an Optional Prepayment, the Holders shall at all
      times
      prior to the Optional Prepayment Date maintain the right to convert all or
      any
      portion of the Notes in accordance with Article I and any portion of Notes
      so
      converted after receipt of an Optional Prepayment Notice and prior to the
      Optional Prepayment Date set forth in such notice and payment of the aggregate
      Optional Prepayment Amount shall be deducted from the principal amount of Notes
      which are otherwise subject to prepayment pursuant to such notice. If the
      Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
      Prepayment Amount due to the Holders of the Notes within two (2) business days
      following the Optional Prepayment Date, the Borrower shall forever forfeit
      its
      right to redeem the Notes pursuant to this Section 5.1.

     

    5.2 Partial
      Call Option.
      Notwithstanding anything to the contrary contained in this Article V, in the
      event that the Average Daily Price of the Common Stock, as reported by the
      Reporting Service, for each day of the month ending on any Determination Date
      is
      below the Initial Market Price, the Borrower may, at its option, prepay a
      portion of the outstanding principal amount of the Notes equal to 104% of the
      principal amount hereof divided by thirty-six (36) plus one month’s interest
      which will stay all conversions for that month. The term “Initial

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

     

    Market
      Price”
      means
      shall mean the volume weighted average price of the Common Stock for the five
      (5) Trading Days immediately preceding the Closing which is $[ ]. 

     

    

     

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF,
      Borrower has caused this Note to be signed in its name by its duly authorized
      officer this 22nd
      day of
      September, 2006.

     

    

    BOOTIE
      BEER CORPORATION

    

    

    

    By:
      ________________________________

    Tania
      Torruella

    Chief
      Executive Officer 

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    NOTICE
      OF CONVERSION

     

    (To
      be
      Executed by the Registered Holder

     

    in
      order
      to Convert the Notes)

     

    The
      undersigned hereby irrevocably elects to convert $__________ principal amount
      of
      the Note (defined below) into shares of common stock, par value $.001 per share
      (“Common
      Stock”),
      of
      Bootie Beer Corporation, a Nevada corporation (the “Borrower”)
      according to the conditions of the convertible Notes of the Borrower dated
      as of
      September 22, 2006 (the “Notes”),
      as of
      the date written below. If securities are to be issued in the name of a person
      other than the undersigned, the undersigned will pay all transfer taxes payable
      with respect thereto and is delivering herewith such certificates. No fee will
      be charged to the Holder for any conversion, except for transfer taxes, if
      any.
      A copy of each Note is attached hereto (or evidence of loss, theft or
      destruction thereof).

     

    The
      Borrower shall electronically transmit the Common Stock issuable pursuant to
      this Notice of Conversion to the account of the undersigned or its nominee
      with
      DTC through its Deposit Withdrawal Agent Commission system (“DWAC
      Transfer”).

     

    Name
      of
      DTC Prime
      Broker:___________________________________________________________________________

    Account
      Number:__________________________________________________________________________________

     

    In
      lieu
      of receiving shares of Common Stock issuable pursuant to this Notice of
      Conversion by way of a DWAC Transfer, the undersigned hereby requests that
      the
      Borrower issue a certificate or certificates for the number of shares of Common
      Stock set forth below (which numbers are based on the Holder’s calculation
      attached hereto) in the name(s) specified immediately below or, if additional
      space is necessary, on an attachment hereto:

     

    Name:__________________________________________________________________________________________

    Address:________________________________________________________________________________________

     

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable to the undersigned upon conversion of the Notes
      shall
      be made pursuant to registration of the securities under the Securities Act
      of
      1933, as amended (the “Act”),
      or
      pursuant to an exemption from registration under the Act.

     

    Date
      of
      Conversion:___________________________

    Applicable
      Conversion Price:____________________

    Number
      of
      Shares of Common Stock to be Issued Pursuant to

    Conversion
      of the Notes:______________

    Signature:___________________________________

    Name:______________________________________

    Address:____________________________________

    The
      Borrower shall issue and deliver shares of Common Stock to an overnight courier
      not later than three business days following receipt of the original Note(s)
      to
      be converted, and shall make payments pursuant to the Notes for the number
      of
      business days such issuance and delivery is late.

     

    
      
         

      

        -22-

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