Document:

Exhibit 10.2

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  CONVERTIBLE  HAVE BEEN
REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,  SOLD,  TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL  (WHICH  COUNSEL  SHALL BE  SELECTED BY THE  HOLDER),  IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD  PURSUANT  TO RULE 144 OR RULE 144A  UNDER  SAID ACT.  NOTWITHSTANDING  THE
FOREGOING,  THE SECURITIES MAY BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Principal Amount: $32,500.00                        Issue Date: October 24, 2012
Purchase Price:   $32,500.00

                           CONVERTIBLE PROMISSORY NOTE

     FOR  VALUE  RECEIVED,  LIBERTY  COAL  ENERGY  CORP.,  a Nevada  corporation
(hereinafter  called the  "Borrower"),  hereby  promises  to pay to the order of
ASHER  ENTERPRISES,  INC., a Delaware  corporation,  or registered  assigns (the
"Holder") the sum of $32,500.00  together with any interest as set forth herein,
on July 26,  2013 (the  "Maturity  Date"),  and to pay  interest  on the  unpaid
principal balance hereof at the rate of eight percent (8%) (the "Interest Rate")
per annum from the date hereof (the "Issue Date") until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or otherwise.
This Note may not be prepaid in whole or in part except as otherwise  explicitly
set forth herein.  Any amount of principal or interest on this Note which is not
paid when due shall bear  interest at the rate of twenty two  percent  (22%) per
annum from the due date  thereof  until the same is paid  ("Default  Interest").
Interest shall  commence  accruing on the date that the Note is fully funded and
shall be computed on the basis of a 365-day  year and the actual  number of days
elapsed.  All payments due hereunder  (to the extent not  converted  into common
stock,  $0.001 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
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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 the date hereof,  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 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 during the period  beginning  on the date which is one  hundred  eighty
(180) days  following  the date of this Note and ending on the later 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, 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  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. 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
(the "Exchange  Act"),  and Regulations  13D-G  thereunder,  except as otherwise
provided in clause (1) of such proviso,  provided,  further,  however,  that the
limitations  on conversion  may be waived by the Holder upon, at the election of
the  Holder,  not less  than 61 days'  prior  notice  to the  Borrower,  and the
provisions of the conversion  limitation shall continue to apply until such 61st
day (or such later date,  as  determined  by the Holder,  as may be specified in
such notice of waiver).  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 e-mail (or by other means resulting in, or reasonably

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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) at the
Holder's option,  accrued and unpaid interest,  if any, on such principal amount
at the interest rates provided in this Note to the Conversion  Date, plus (3) at
the Holder's option, Default Interest, if any, on the amounts referred to in the
immediately  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.

1.2 Conversion Price.

(a)  Calculation  of Conversion  Price.  The conversion  price (the  "Conversion
Price") shall equal the Variable  Conversion  Price (as defined herein) (subject
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 58% multiplied by the Market Price (as defined herein)  (representing
a discount  rate of 42%).  "Market  Price" means the average of the lowest three
(3) Trading  Prices (as defined  below) for the Common Stock during the ten (10)
Trading  Day  period  ending on the  latest  complete  Trading  Day prior to the
Conversion  Date.  "Trading  Price" means,  for any security as of any date, the
closing bid price on the Over-the-Counter  Bulletin Board, or applicable trading
market (the  "OTCQB") as reported by a reliable  reporting  service  ("Reporting
Service") designated by the Holder (i.e.  Bloomberg) or, if the OTCQB is not the
principal  trading  market  for such  security,  the  closing  bid price of such
security  on the  principal  securities  exchange or trading  market  where such
security  is listed or traded or, if no closing  bid price of such  security  is
available in any of the foregoing manners, the average of the closing bid 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  tradable  for any  period on the  OTCQB,  or on the  principal
securities exchange or other securities market on which the Common Stock is then
being traded.

(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
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

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(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 issued pursuant to the Purchase Agreement. The Borrower is required at
all times to have  authorized  and reserved five times the number of shares that
is actually  issuable upon full  conversion of the Note (based on the Conversion
Price of the Notes in effect  from time to  time)(the  "Reserved  Amount").  The
Reserved  Amount shall be  increased  from time to time in  accordance  with the
Borrower's  obligations pursuant to Section 4(g) 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 the Borrower  does not  maintain the Reserved  Amount it will be
considered an Event of Default under Section 3.2 of the Note.

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,
e-mail or other reasonable  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.

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(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,  PRIMA
FACIE,  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 e-mail (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 (the  "Deadline")  (and,  solely in the case of conversion of
the entire unpaid principal amount hereof, surrender of this Note) in accordance
with the terms hereof and the Purchase Agreement.

(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 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

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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 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 not delivered by 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.  The Borrower  agrees that the right to convert is a valuable right to the
Holder. The damages resulting from a failure, attempt to frustrate, interference
with  such  conversion  right  are  difficult  if  not  impossible  to  qualify.
Accordingly  the  parties  acknowledge  that the  liquidated  damages  provision
contained in this Section 1.4(g) are justified.

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 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

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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 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:

     "NEITHER  THE  ISSUANCE  AND  SALE OF THE  SECURITIES  REPRESENTED  BY THIS
     CERTIFICATE NOR THE SECURITIES INTO WHICH THESE  SECURITIES ARE EXERCISABLE
     HAVE BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED,  OR
     APPLICABLE  STATE  SECURITIES  LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR
     SALE, SOLD,  TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
     REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED,  OR (B) AN OPINION OF COUNSEL  (WHICH COUNSEL SHALL BE SELECTED
     BY THE HOLDER),  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT
     REQUIRED  UNDER SAID ACT OR (II) UNLESS  SOLD  PURSUANT TO RULE 144 OR RULE
     144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING,  THE SECURITIES MAY BE
     PLEDGED  IN  CONNECTION  WITH A BONA FIDE  MARGIN  ACCOUNT OR OTHER LOAN OR
     FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

The legend set forth above shall be removed and the Borrower  shall issue to the
Holder  a new  certificate  therefore  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, which opinion shall be accepted
by the  Company so that the sale or  transfer is effected or (ii) 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. In the event that the Company does not accept the opinion
of counsel  provided by the Buyer with  respect to the  transfer  of  Securities
pursuant to an exemption from registration, such as Rule 144 or Regulation S, at
the Deadline,  it will be considered an Event of Default pursuant to Section 3.2
of the Note.

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

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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  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 affect 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. The provision of this Section 1.6b
shall not apply to the  consolidation  of the Company shares on a 1 share for 15
shares which is planned within 90 days of signing this Note.

(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

                                       8
<PAGE>
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.

(d) Adjustment Due to Dilutive Issuance.  If, at any time from the date the Note
is  signed  until the  Maturity  Date,  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 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  Conversion   Price  will  be  reduced  to  the  amount  of  the
consideration per share received by the Borrower in such Dilutive Issuance.

The  Borrower  shall be deemed to have issued or sold shares of Common  Stock if
the Borrower 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  Conversion
Price then in effect, then the 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
Conversion  Price then in effect,  then the  Conversion  Price shall be equal to
such price per share. For the purposes of the preceding sentence, the "price per

                                       9
<PAGE>
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
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.

(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 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 [INTENTIONALLY DELETED].

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

                                       10
<PAGE>
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.

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note,
at any time during the period beginning on the Issue Date and ending on the date
which is sixty (60) days  following the issue date,  the Borrower shall have the
right,  exercisable on not less than three (3) Trading Days prior written notice
to the Holder of the Note to prepay the outstanding  Note (principal and accrued
interest),  in full,  in  accordance  with  this  Section  1.9.  Any  notice  of
prepayment hereunder (an "Optional Prepayment Notice") shall be delivered to the
Holder of the Note at its  registered  addresses  and shall state:  (1) that the
Borrower  is  exercising  its  right to  prepay  the  Note,  and (2) the date of
prepayment  which shall be not more than three (3) Trading Days from the date of
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 Holder as specified by the
Holder 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
Note,  the  Borrower  shall make payment to the Holder of an amount in cash (the
"Optional  Prepayment Amount") equal to 130%,  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. If the Borrower delivers an Optional  Prepayment Notice and fails
to pay the Optional  Prepayment  Amount due to the Holder of the Note within two
(2) business days  following the Optional  Prepayment  Date,  the Borrower shall
forever forfeit its right to prepay the Note pursuant to this Section 1.9.

Notwithstanding  anything to the contrary  contained  in this Note,  at any time
during the period  beginning on the date which is sixty-one  (61) days following
the issue  date and ending on the date which is one  hundred  twenty  (120) days
following the issue date, the Borrower shall have the right,  exercisable on not
less than three (3) Trading Days prior written  notice to the Holder of the Note
to prepay the  outstanding  Note (principal and accrued  interest),  in full, in
accordance  with this  Section  1.9.  Any  Optional  Prepayment  Notice shall be
delivered to the Holder of the Note at its registered addresses and shall state:
(1) that the Borrower is  exercising  its right to prepay the Note,  and (2) the
date of prepayment  which shall be not more than three (3) Trading Days from the
date of the Optional  Prepayment  Notice.  On the Optional  Prepayment Date, the
Borrower shall make payment of the Second Optional Prepayment Amount (as defined
below) to or upon the order of the Holder as  specified by the Holder 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 Note, the Borrower shall
make payment to the Holder of an amount in cash (the "Second Optional Prepayment

                                       11
<PAGE>
Amount")  equal  to 140%,  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.  If the
Borrower  delivers  an  Optional  Prepayment  Notice and fails to pay the Second
Optional Prepayment Amount due to the Holder of the Note within two (2) business
days following the Optional  Prepayment Date, the Borrower shall forever forfeit
its right to prepay the Note pursuant to this Section 1.9.

Notwithstanding  any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is one hundred  twenty-one (121) days from
the issue date and ending one  hundred  eighty  (180) days  following  the issue
date, the Borrower shall have the right,  exercisable on not less than three (3)
Trading  Days  prior  written  notice to the  Holder  of the Note to prepay  the
outstanding Note (principal and accrued  interest),  in full, in accordance with
this  Section  1.9.  Any  Optional  Prepayment  Notice shall be delivered to the
Holder of the Note at its  registered  addresses  and shall state:  (1) that the
Borrower  is  exercising  its  right to  prepay  the  Note,  and (2) the date of
prepayment  which shall be not more than three (3) Trading Days from the date of
the Optional  Prepayment  Notice. On the Optional  Prepayment Date, the Borrower
shall make payment of the Third Optional Prepayment Amount (as defined below) to
or upon the order of the  Holder as  specified  by the  Holder 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 Note,  the Borrower  shall make
payment  to the  Holder of an amount in cash  (the  "Third  Optional  Prepayment
Amount")  equal  to 150%,  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.  If the
Borrower  delivers  an  Optional  Prepayment  Notice  and fails to pay the Third
Optional Prepayment Amount due to the Holder of the Note within two (2) business
days following the Optional  Prepayment Date, the Borrower shall forever forfeit
its right to prepay the Note pursuant to this Section 1.9.

After the expiration of one hundred eighty (180) following the date of the Note,
the Borrower shall have no right of prepayment.

                          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 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

                                       12
<PAGE>
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,  create,
incur,  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,  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,  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 $100,000.

                         ARTICLE III. EVENTS OF DEFAULT

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

3.1  Failure  to Pay  Principal  or  Interest.  The  Borrower  fails  to pay the
principal hereof or interest thereon when due on this Note, whether at maturity,
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 in writing 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, fails to transfer or cause
its transfer agent to transfer (issue)  (electronically or in certificated form)
any  certificate for shares of Common Stock issued to the Holder upon conversion

                                       13
<PAGE>
of or  otherwise  pursuant to this Note as and when  required by this Note,  the
Borrower directs its transfer agent not to transfer or delays,  impairs,  and/or
hinders its transfer agent in transferring  (or issuing)  (electronically  or in
certificated  form) any  certificate  for shares of Common Stock to be issued to
the Holder upon  conversion  of or  otherwise  pursuant to this Note as and when
required by this Note, or fails to remove (or directs its transfer  agent not to
remove or impairs,  delays, and/or hinders its transfer agent from removing) 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 makes any written  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 written announcement, statement or threat
not to honor its  obligations  shall not be  rescinded in writing) for three (3)
business days after the Holder shall have delivered a Notice of  Conversion.  It
is an obligation  of the Borrower to remain  current in its  obligations  to its
transfer agent. It shall be an event of default of this Note, if a conversion of
this Note is  delayed,  hindered  or  frustrated  due to a  balance  owed by the
Borrower  to its  transfer  agent.  If at the option of the  Holder,  the Holder
advances  any  funds to the  Borrower's  transfer  agent in order to  process  a
conversion,  such  advanced  funds  shall be paid by the  Borrower to the Holder
within forty eight (48) hours of a demand from the Holder.

3.3 Breach of Covenants.  The Borrower  breaches any material  covenant or other
material term or condition  contained in this Note and any collateral  documents
including but not limited to the Purchase  Agreement  and such breach  continues
for a period of ten (10) days after written  notice thereof to the Borrower from
the Holder.

3.4 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),  shall  be false  or  misleading  in any
material respect when made, as of the date of this Note, 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 or the Purchase Agreement.

3.5 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  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.

3.6 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  $50,000,  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.

3.7   Bankruptcy.   Bankruptcy,   insolvency,   reorganization   or  liquidation
proceedings or other proceedings, voluntary or involuntary, for relief under any

                                       14
<PAGE>
bankruptcy  law or any law for the relief of debtors  shall be  instituted by or
against the Borrower or any subsidiary of the Borrower.

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

3.9 Failure to Comply with the Exchange  Act. The Borrower  shall fail to comply
with the reporting  requirements  of the Exchange Act; and/or the Borrower shall
cease to be subject to the reporting requirements of the Exchange Act.

3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any
substantial portion of its business.

3.11  Cessation  of  Operations.  Any  cessation  of  operations  by Borrower or
Borrower admits it is otherwise  generally unable to pay its debts as such debts
become due, provided,  however, that any disclosure of the Borrower's ability to
continue as a "going concern" shall not be an admission that the Borrower cannot
pay its debts as they become due.

3.12  Maintenance  of Assets.  The failure by Borrower to maintain  any material
intellectual property rights,  personal, real property or other assets which are
necessary to conduct its business (whether now or in the future).

3.13  Financial  Statement   Restatement.   The  restatement  of  any  financial
statements  filed by the  Borrower  with the SEC for any date or period from two
years  prior to the Issue  Date of this  Note and  until  this Note is no longer
outstanding,  if the result of such  restatement  would,  by  comparison  to the
unrestated  financial  statement,  have constituted a material adverse effect on
the rights of the Holder with respect to this Note or the Purchase Agreement.

3.14 Reverse  Splits.  The Borrower  effectuates  a reverse  split of its Common
Stock without  prior  written  notice to the Holder on the date that news of the
split is made public.

3.15  Replacement of Transfer Agent. In the event that the Borrower  proposes to
replace  its  transfer  agent,  the  Borrower  fails  to  provide,  prior to the
effective date of such replacement,  a fully executed Irrevocable Transfer Agent
Instructions in a form as initially delivered pursuant to the Purchase Agreement
(including  but not limited to the provision to  irrevocably  reserve  shares of
Common Stock in the Reserved  Amount) signed by the successor  transfer agent to
Borrower and the Borrower.

                                       15
<PAGE>
3.16 Cross-Default.  Notwithstanding  anything to the contrary contained in this
Note or the other  related or  companion  documents,  a breach or default by the
Borrower of any  covenant  or other term or  condition  contained  in any of the
Other  Agreements,  after the passage of all applicable notice and cure or grace
periods,  shall, at the option of the Holder, be considered a default under this
Note and the Other Agreements,  in which event the Holder shall be entitled (but
in no event  required)  to apply all rights and remedies of the Holder under the
terms of this Note and the Other  Agreements  by reason of a default  under said
Other  Agreement or  hereunder.  "Other  Agreements"  means,  collectively,  all
agreements and instruments between,  among or by: (1) the Borrower,  and, or for
the  benefit  of, (2) the Holder and any  affiliate  of the  Holder,  including,
without  limitation,  promissory  notes;  provided,  however,  the  term  "Other
Agreements"  shall not include the related or companion  documents to this Note.
Each of the loan  transactions  will be  cross-defaulted  with each  other  loan
transaction  and with all other  existing  and future  debt of  Borrower  to the
Holder.

Upon the  occurrence  and  during  the  continuation  of any  Event  of  Default
specified in Section 3.1 (solely  with  respect to failure to pay the  principal
hereof or interest thereon when due at the Maturity Date), the Note 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 Default Sum
(as defined  herein).  UPON THE  OCCURRENCE AND DURING THE  CONTINUATION  OF ANY
EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE 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: (Y) THE DEFAULT SUM (AS DEFINED
HEREIN);  MULTIPLIED  BY (Z)  TWO  (2).  Upon  the  occurrence  and  during  the
continuation  of any Event of Default  specified  in Sections  3.1 (solely  with
respect to failure to pay the principal  hereof or interest  thereon when due on
this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon
acceleration),  3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12,  3.13,  3.14,  and/or 3. 15
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 the remaining  sections of Articles III (other than failure to pay the
principal  hereof or interest  thereon at the Maturity Date specified in Section
3,1 hereof),  the Note shall become immediately due and payable and the Borrower
shall pay to the Holder, in full satisfaction of its obligations  hereunder,  an
amount  equal  to the  greater  of (i)  150%  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  (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

                                       16
<PAGE>
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 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. All notices,  demands,  requests,  consents,  approvals,  and other
communications  required or permitted  hereunder shall be in writing and, unless
otherwise  specified herein,  shall be (i) personally served,  (ii) deposited in
the mail,  registered or certified,  return receipt requested,  postage prepaid,
(iii) delivered by reputable air courier service with charges  prepaid,  or (iv)
transmitted by hand  delivery,  telegram,  or facsimile,  addressed as set forth
below or to such other address as such party shall have  specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed  effective (a) upon hand delivery or delivery by
facsimile,  with accurate confirmation  generated by the transmitting  facsimile
machine,  at the address or number  designated below (if delivered on a business
day during normal  business  hours where such notice is to be received),  or the
first  business  day  following  such  delivery  (if  delivered  other than on a
business day during normal  business  hours where such notice is to be received)
or (b) on the  second  business  day  following  the date of  mailing by express
courier  service,  fully  prepaid,  addressed  to such  address,  or upon actual
receipt of such  mailing,  whichever  shall first occur.  The addresses for such
communications shall be:

     If to the Borrower, to:

     LIBERTY COAL ENERGY CORP.
     99-18TH Street - Suite 3000
     Denver, CO 80202
     Attn: ROBERT MALASEK, Chief Financial Officer
     facsimile:

                                       17
<PAGE>
     With a copy by fax only to (which copy shall not constitute notice):

     Raines Feldman, LLP
     Jason J Belice
     9720 Wilshire Boulevard, Fith Floor
     Beverly Hills, CA 90212
     Tel. 424-239-2521
     Fax. 424-777-4149

     If to the Holder:

     ASHER ENTERPRISES, INC.
     1 Linden Pl., Suite 207 Great
     Neck, NY. 11021
     Attn: Curt Kramer, President
     facsimile: 516-498-9894

     With a copy by fax only to (which copy shall not constitute notice):

     Naidich Wurman Birnbaum & Maday, LLP
     80 Cuttermill Road, Suite 410 Great
     Neck, NY 11021
     Attn: Bernard S. Feldman, Esq.
     facsimile: 516-466-3555

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 governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflicts
of laws.  Any action  brought by either party against the other  concerning  the
transactions contemplated by this Note shall be brought only in the state courts
of New York or in the federal  courts located in the state and county of Nassau.
The parties to this Note hereby  irrevocably waive any objection to jurisdiction
and venue of any action  instituted  hereunder  and shall not assert any defense

                                       18
<PAGE>
based on lack of jurisdiction  or venue or based upon FORUM NON CONVENIENS.  The
Borrower and Holder waive trial by jury. The prevailing  party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event  that any  provision  of this Note or any  other  agreement  delivered  in
connection  herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed  inoperative to the extent that
it may  conflict  therewith  and shall be deemed  modified to conform  with such
statute  or  rule of  law.  Any  such  provision  which  may  prove  invalid  or
unenforceable  under any law shall not affect the validity or  enforceability of
any other  provision  of any  agreement.  Each party hereby  irrevocably  waives
personal  service of process and  consents to process  being served in any suit,
action or proceeding in connection with this Agreement or any other  Transaction
Document by mailing a copy thereof via registered or certified mail or overnight
delivery  (with evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient  service of process and notice  thereof.  Nothing  contained
herein  shall be deemed to limit in any way any  right to serve  process  in any
other manner permitted by law.

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

4.9 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

                                       19
<PAGE>
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 4.9.

4.10 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.

     IN WITNESS WHEREOF,  Borrower has caused this Note to be signed in its name
by its duly authorized officer this October 24, 2012.

                                      LIBERTY COAL ENERGY CORP.

                                      By: /s/ Robert Malasek
                                          --------------------------------------
                                          Robert Malasek
                                          Chief Financial Officer

                                       20
<PAGE>
                         EXHIBIT A: NOTICE OF CONVERSION

     The undersigned hereby elects to convert $____________  principal amount of
the Note (defined below) into that number of shares of Common Stock to be issued
pursuant to the conversion of the Note ("Common  Stock") as set forth below,  of
LIBERTY COAL ENERGY CORP., a Nevada  corporation (the  "Borrower")  according to
the conditions of the  convertible  note of the Borrower dated as of October 24,
2012 (the "Note"),  as of the date written below.  No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

     [ ]  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:

     [ ]  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:

     ASHER ENTERPRISES, INC.
     1 Linden Pl., Suite 207 Great
     Neck, NY. 11021
     Attention: Certificate Delivery
     (516) 498-9890

     Date of Conversion:
                         ---------------------------
     Applicable Conversion Price: $
                                  ------------------

     Number of Shares of Common Stock to be Issued
      Pursuant to Conversion of the Notes:
                                          ----------
     Amount of Principal Balance Due remaining
      Under the Note after this conversion:
                                           ---------

ASHER ENTERPRISES, INC.

By: /s/ Curt Kramer
    ------------------------------------------
Name:  Curt Kramer
Title: President
Date:
     ---------------------
1 Linden Pl., Suite 207
Great Neck, NY 11021

                                       21exh_101.htm

EXHIBIT 10.1

 

CAPSTONE THERAPEUTICS CORP.

JOINT VENTURE BONUS PLAN

 

1. The Plan and its Purpose.  Capstone Therapeutics Corp., a Delaware corporation, hereby establishes the Capstone Therapeutics Corp. Joint Venture Bonus Plan (the “Plan”) as an incentive to certain key employees and consultants of Capstone Therapeutics Corp.

 

2. Definitions.  As used in this Plan, the following terms shall have the meanings set forth below:

 

(a) “Award” means the right to receive a cash payment under the Plan as provided in Section 4.

 

(b) “Board” means the board of directors of the Company.

 

(c) “Bonus Pool” means 2.5% of the cash or in kind distributions actually received by the Company from the Joint Venture and/or upon the sale of the Joint Venture, after the Company has received return of (i) the Company’s initial six million dollar ($6,000,000) investment in the Joint Venture plus (ii) the amount of any subsequent investment by the Company in the Joint Venture..

 

(d) “Company” means Capstone Therapeutics Corp., or any successor to Capstone Therapeutics Corp.

 

(e) “Joint Venture” means LipimetiX Development LLC.

 

(f) “Participants” means John M. Holliman, III, Randolph C. Steer, M.D., and Les M. Taeger.

 

3. Plan Administration.  The Board shall administer this Plan, and the construction and interpretation by the Board of any provision of this Plan shall be final and conclusive.  The Board shall have full authority as is appropriate for administering the Plan, including the authority to adopt such rules and regulations for the administration of the Plan, as it may deem advisable.  The Board, in the exercise of its power, shall have the authority and discretion to correct any Plan defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it deems necessary or desirable to make the Plan fully effective.

 

4. Awards.

 

(a) Participant.  Each Participant is hereby granted an Award of a percentage of the Bonus Pool.  John M. Holliman, III shall receive 40% of the Bonus Pool, Randolph C. Steer shall receive 40% of the Bonus Pool, and Les M. Taeger shall receive 20% of the Bonus Pool.

 

(b) Award Terms.  Awards shall be subject to the following terms:

 

  

  

  

(i)           Amounts credited to the Bonus Pool for a particular Company fiscal year shall be based on cash or the value of property actually received during the fiscal year and shall be paid out within two and one-half months of the end of such Company fiscal year.

 

(ii)           Amounts shall be paid only to the extent a Participant is vested at the time such amount was received by the Company, with the remaining unpaid portion of the Bonus Pool held by the Company until the vesting in Section 5(a)(i),(ii) or (iii) occurs, at which time the Participant would be entitled to receive the remaining  portion of the Bonus Pool, or until the Board, in its reasonable judgment, determines that additional vesting will not occur

 

(iii)           Vested Awards shall remain in effect even after a Participant ceases to be an employee or active consultant.

 

(iv)           In the event a Participant forfeits a part of an award, such forfeiture shall not increase the portion of the Bonus Pool allocated to other Participants.

 

5. Vesting.

 

(a) A Participant’s Award shall be fifty percent (50%) vested upon the date this Plan is adopted.  Subject to Section 5(b), below, the remaining fifty percent (50%) shall be vested upon the earlier of (i) the presentation by the Joint Venture to its members of quantitative/qualitative safety and efficacy results from all protocol-designated endpoints of the AEM-28 Phase 1b/2a clinical trial as contemplated in Section 2.05 of the Amended and Restated Limited Liability Company Agreement of the Joint Venture, dated August 3, 2012; (ii) a sale by the Company of all or part of its interest in the Joint Venture, or (iii) the distribution to the Company by the Joint Venture of greater than $6,000,000, plus the amount of any subsequent investment by the Company in the Joint Venture,.

 

(b) If a Participant’s employment or active consulting relationship with the Company terminates for any reason, the unvested portion of the Award shall be forfeited and such Participant shall not be entitled to any payment with respect to such forfeited portion.

 

6. Limitation on Participant Rights.

 

(a) A Participant shall not be deemed to be a shareholder of the Company  or a member of the Joint Venture for any purpose and the existence of this Plan shall not affect the right or power of the Company to accomplish any action taken by the Company.

 

(b) Nothing contained in this Plan shall be construed to:

 

(i) give a Participant any right to be granted any Award other than as set forth herein;

 

(ii) limit in any way the right of the Company to terminate a Participant’s employment or consulting relationship with the Company at any time;

 

(iii) be evidence of any agreement or understanding, express or implied, that the Company will employ a Participant as an employee or consultant in any particular position or at any particular rate of remuneration; or

 

  

- 2 -

  

(iv) be evidence that the Participant is anything other than a general unsecured creditor of the Company with respect to any amounts owed hereunder or that the Participant has an interest in any specific assets of the Company.

 

7. Miscellaneous.

 

(a) Governing Law.  This Plan shall be construed in accordance with and governed by the laws of the State of Arizona.

 

(b) Limitation on Liability and Indemnification.  Except as otherwise provided by law, neither the Company, nor the Board, nor any officer or employee of the Company involved in the administration of the Plan shall be liable to any Participant or other person for any error of judgment, action or failure to act hereunder or for any good faith exercise of discretion, excepting only liability for gross negligence or willful misconduct.  The Company shall hold harmless and defend any director and any individual in the employment of the Company against any claim, action or liability asserted against him in connection with any action or failure to act regarding the Plan, except as and to the extent that any such liability may be based upon the individual’s own gross negligence or willful misconduct.  This indemnification shall not duplicate but may supplement any coverage available under any applicable insurance.

 

(c) Assignment.  The right of any Participant to payment under this Plan shall not be assigned, transferred, pledged or encumbered (other than by will or the laws of descent and distribution).

 

(d) Effect on Other Plans.  Unless otherwise required by law, no Award and no amounts paid to any Participant pursuant to this Plan shall constitute compensation, salary or wages for the purpose of computing benefits under any qualified or nonqualified retirement plan or welfare benefit plan or other fringe benefit plan or program which may be maintained by the Company for the benefit of such Participant, unless expressly provided otherwise by such plan or program.

 

(e) No Trust Created.  Nothing contained in this Plan, and no action taken pursuant to the provisions of this Plan, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant or any other person.  To the extent that any Participant acquires any right to receive payment from the Company under this Plan, such right shall be no greater than the right of any other unsecured general creditor of the Company and shall not constitute a right directly against any reserve established or maintained by the Company.

 

IN WITNESS WHEREOF, this Plan is adopted as of August 9, 2012.

 

 

 

	 	 
CAPSTONE THERAPEUTICS CORP.

	 	 	 
	 	By:	/s/  Fredric J. Feldman, Ph.D.
	 	 	 
	 	Attest:	/s/  Elwood D. Howse

 

 

 

 - 3 -

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