Contract
THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE ACT OR THE
LAWS OF THE APPLICABLE STATE OR A “NO ACTION” OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE
STATUTES.
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Date: July
14, 2010
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Amount: $300,000.00
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AMENDED AND RESTATED
15% CONVERTIBLE PROMISSORY NOTE
FOR VALUE
RECEIVED, Desert Hawk Gold Corp., a Nevada corporation (the “Company”), promises to pay to
IBEARHOUSE
LLC or its registered assigns (the “Holder”), the principal sum of
Three Hundred Thousand Dollars ($300,000.00), or such lesser amount as shall
then equal the outstanding principal amount hereof, together with interest equal
to fifteen percent (15%) of the principal amount of this Amended and Restated
15% Convertible Promissory Note (the “Note”) which shall represent
an aggregate of $112,500 in interest payable under this Note (less any interest
paid under the Original Note), which interest shall be due and payable in full
as provided herein regardless of the prepayment or conversion of the principal
amount of this Note. Interest shall be paid in equal monthly payments
of $3,750 on or before the 10th day of
each month and shall be prorated for any partial calendar months. All
unpaid principal, together with the balance of unpaid and accrued interest and
other amounts payable hereunder, if not converted by the provisions of
Section 2 below, shall be due and payable on November 30, 2012 (the “Maturity
Date”). This Note is one of a series of Notes containing
substantially identical terms and conditions (collectively, the “Notes”) issued pursuant to the
Loan Agreement dated November 18, 2009, among the Company and the purchasers of
the Notes, as amended on July 14, 2010 (the “Loan
Agreement”). This Note amends, and restates in its entirety
the original 15% Convertible Promissory Note dated November 30, 2009 (the “Original Note”) previously
delivered by the Company to the Holder. This Note is expressly made
subject to the terms and conditions of the Subordination Agreement dated July
14, 2010, by and between IBEARHOUSE LLC and West C. Street LLC as the
Subordinating Creditors, and DMRJ Group I, LLC as the Senior Creditor, with the
Company’s consent and agreement, a copy of which agreement is attached hereto
and incorporated herein (the “Subordination
Agreement”).
Capitalized
terms not otherwise defined herein shall have the meanings given to them in the
Loan Agreement. The following is a statement of the rights of the
Holder and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:
1. Registration of Note on Company’s
Books. The Company shall register this Note upon records to be
maintained by the Company for that purpose (the “Note Register”), in the name
of the record Holder hereof from time to time. The Company shall
maintain the name and address of the registered Holder on the Note
Register. The Company may deem and treat the registered Holder of
this Note as the absolute owner hereof for the purpose of any payment,
conversion, or other stock issuance and for all other purposes, and the Company
shall not be affected by notice to the contrary.
2.
Conversion. Subject
to and in compliance with the provisions contained herein, the Holder is
entitled, at its option, at any time prior to the close of business on the later
of (i) Maturity Date (as the same may be extended pursuant to Section 6.f.
below) and (ii) in the event that the entire remaining principal amount of this
Note is not repaid in full on the Maturity Date, the date that the entire
remaining principal amount of this Note is repaid, or in case this Note or some
portion hereof shall have been called for prepayment prior to such date, then,
in respect of this Note or such portion hereof, until and including, but not
after, the close of business within 30 days of the date of notice of prepayment,
to convert the principal amount of and any unpaid interest on this Note (or any
portion thereof), into fully paid and nonassessable shares (calculated as to
each conversion to the nearest share) of common stock (the “Conversion Shares”) of the
Company by surrender of this Note, duly endorsed (if so required by the
Company) at its offices, accompanied by written notice to the Company, in the
form set forth below, that the Holder elects to convert this Note or, if less
than the entire principal amount hereof is to be converted, the portion hereof
to be converted. The principal amount of this Note to be converted by
the Holder shall be convertible into the Conversion Shares at the rate of $0.70
per Share. No fractional Conversion Shares shall be issued, and the
Company shall pay therefor in cash the fair value of the fractional Conversion
Share at the time of conversion. If the Company does not intend to
repay this Note on the Maturity Date or expects to default in the payment of the
principal amount of this Note on the Maturity Date, the Company shall provide
the Holder with written notice not less than 5 business days prior to the
Maturity Date. Thereafter, the Company shall provide the Holder with
not less than 30 days notice prior to repayment of any principal amount of this
note in accordance with Section 3 so that the Holder has an opportunity to
covert this Note prior to repayment in accordance with the terms
hereof.
3.
Prepayment. Except
as otherwise provided in the Subordination Agreement, this Note is subject to
prepayment, in whole or in part, at any time upon not less than 30 days’ notice
at the election of the Company. Prepayment shall be effected by
paying the amount equal to the outstanding principal amount of this Note, plus
all unpaid interest. During the 30 days following the date of any
notice of prepayment, the Holder shall have the right to convert this Note into
the common stock of the Company, on the terms and conditions provided for in
Section 2 above. Any prepayment of the principal amount of this Note
shall not reduce the total amount of interest due and payable under this
Note. Except as otherwise provided in the Subordination Agreement,
the balance of the full amount of the interest due hereunder, or any portion
thereof, may be prepaid at any time upon not less than 30 days’ notice at the
election of the Company.
4.
Limitations on Right of
Conversion. Following receipt of the written notice of
intention to convert the Note, the Company shall take such steps as it deems
appropriate to permit conversion of the Note as specified in the notice without
registration or qualification under applicable federal and state securities
laws; provided, that
the Holder shall be an “accredited investor” as defined in Regulation D
promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act
of 1933, as amended (the “Securities Act”) and further
provided that in no event shall the Company be required to consent to the
general service of process or to qualify as a foreign corporation in any
jurisdiction where the Holder resides if such jurisdiction is different than
such Holder’s residence when the Note was originally offered and
sold. In order to comply with exemptions from the registration
requirements of the Securities Act and certain state securities statutes, the
Company may require the Holder to make certain representations and execute and
deliver to the Company certain documents as a condition to exercise of
conversion rights hereunder, all in form and substance satisfactory to the
Company as determined in its sole discretion. In the event the
Company reasonably determines that the Note cannot be converted in compliance
with applicable federal and state securities laws in the absence of registration
or qualification under such statutes, the Company shall be under no obligation
to permit conversion of the Note and issue any shares of common stock pursuant
hereto.
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5. Satisfaction and Discharge of
Note. This Note shall cease to be of further effect (except as
to any surviving rights of conversion, transfer, or exchange of the Note herein
expressly provided for) when:
a. The
Company has paid or caused to be paid all sums payable hereunder by the Company,
including all principal amounts and interest payable under the Note;
and
b. All
the conditions precedent herein provided for relating to the satisfaction and
discharge of this Note have been complied with.
6. Events of
Default. “Event of Default,” when used
herein, whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law pursuant to any
judgment, decree, or order of any court or any order, rule, or regulation of any
administration or government body or be caused by the provisions of any
paragraph herein means any one of the following events:
a. Default
in the payment of any interest on this Note when it becomes due and payable, and
continuance of such default for a period of 30 days; or
b. Default
in the payment of the principal amount of this Note when due, whether at the
Maturity Date, upon prepayment, or otherwise; or
c. Default
in the performance or breach of any covenant or warranty of the Company in this
Note (other than a covenant or warranty, the breach or default in performance of
which is elsewhere in this section specifically dealt with), and continuation of
such default or breach for a period of 60 days after there has been given to the
Company by registered or certified mail, by the Holder, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a notice of default hereunder; or
d. The
entry of a decree or order by a court having jurisdiction in the premises
adjudging the Company a bankrupt or insolvent under the Federal Bankruptcy Act
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee (or other similar official) of the Company or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
e. The
institution by the Company of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or a filing by it of a petition or answer or consent
seeking reorganization or relief under the Federal Bankruptcy Act or any other
applicable federal or state law; or the consent by it to the filing of any such
petition or the appointment of a receiver, liquidator, assignee, trustee (or
other similar official) of the Company or of any substantial part of its
property, or the making by it of any assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action.
f. Notwithstanding
the provisions of this Section 6, if the Company defaults in the payment of the
principal amount of this Note on the Maturity Date, the Company shall issue to
the Holder 150,000 fully paid and nonassessable shares (the “Penalty Shares”) of the common
stock of the Company (subject to adjustment as provided in Section 8 hereof to
the same extent as the Conversion Shares) and the Maturity Date of this Note
shall be automatically extended for an additional 12 months from the original
Maturity Date. The issuance and delivery of the Penalty Shares to the
Holder shall be deemed to cure any default pursuant to Section 6(b) hereof for
the failure to pay the principal amount of this Note when due at the Maturity
Date. No additional interest shall be payable for the extended term
of this Note pursuant to this provision.
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7. Acceleration of
Maturity. Except as provided herein, and except as otherwise
provided in the Subordination Agreement, if an Event of Default occurs and is
continuing then, in every such case, the Holder may declare the principal of
this Note to be due and payable immediately, by a notice in writing to the
Company of such default, and upon any such declaration, such principal shall
become immediately due and payable. At such time after such
declaration of acceleration has been made, and before a judgment or decree for
payment of money due has been obtained by the Holder, the Holder, by written
notice to the Company, may rescind and annul such declaration and its
consequences, if all Events of Default, other than the nonpayment of the
principal of this Note which has become due solely by such acceleration, has
been cured or waived. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
8. Adjustment in
Conversion. The conversion price and number of shares issuable
upon conversion of this Note may be subject to adjustment from time to time as
follows:
a. If
the Company shall take a record of the holders of its shares of common stock for
the purpose of entitling them to receive a dividend in shares of common stock,
the conversion price in effect immediately prior to such record date shall be
proportionately decreased, such adjustment to become effective immediately after
the opening of business on the day following such record date;
b. If
the Company shall subdivide the outstanding shares of common stock into a
greater number of shares or combine the outstanding shares into a smaller number
of shares, or issue by reclassification any of its shares, the conversion price
in effect immediately prior thereto shall be adjusted so that the Holder of the
Note thereafter surrendered for conversion shall be entitled to receive after
the occurrence of any of the events described the number of Shares to which the
holder would have been entitled had such Note been converted immediately prior
to the occurrence of such event, such adjustment to become effective immediately
after the opening of business on the day following the date upon which such
subdivision or combination or reclassification, as the case may be, becomes
effective;
c. No
fraction of a Share shall be issued upon conversion, but in lieu thereof the
Company, notwithstanding any other provision hereof, may pay therefor in cash at
the fair value of the fractional Share at the time of conversion;
d. Neither
the purchase or other acquisition by the Company of any shares of common stock,
nor the sale of other disposition by the Company of any common shares, shall
affect any adjustment of the conversion price or be taken into account in
computing any subsequent adjustment of the conversion price; and
e. If
at any time:
(1) the
Company proposes to pay any dividend payable in shares of common stock upon its
common stock or make any distribution, including cash or property dividend, out
of earnings or earned surplus, to the holders of its common stock;
(2) the
Company proposes to enter into any plan of capital reorganization or
reclassification of the common stock of the Company; or
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(3) the
Company proposes to merge, consolidate, or encumber or sell all or substantially
all of its assets other than in the ordinary course of business;
then, in
any one or more of said cases, the Company shall cause a notice to be mailed to
the registered Holder at the address of such holder set forth in the
Note Register. Such notice shall be solely for the convenience of
such registered Holder and shall not be a condition precedent to, nor shall any
defect therein or failure in connection therewith affect the validity of, the
action proposed to be taken by the Company. Such notice shall be
mailed, at least 10 days prior to the date on which the books of the Company
shall close, or a record date shall be taken for such common shares dividend,
share split or reclassification, consolidation, merger, or sale of properties
and assets, as the case may be. Such notice shall specify such record
date for the closing of the transfer books.
9. Restrictions. The
Holder, by acceptance of this Note, both with respect to the Note and the
Conversion Shares and Penalty Shares (unless issued pursuant to an effective
registration statement under the Securities Act), represents and warrants as
follows:
a. The
Note and the Conversion Shares and Penalty Shares are being acquired for the
holder’s own account to be held for investment purposes only and not with a view
to, or for, resale in connection with any distribution of such Note or the
Conversion Shares or Penalty Shares or any interest therein without registration
or other compliance under the Act, and the Holder hereof has no direct or
indirect participation in any such undertaking or in underwriting such an
undertaking.
b. The
Holder has been advised and understands that the Note and the Conversion Shares
and Penalty Shares have not been registered under the Securities Act and the
Note and/or the Conversion Shares and Penalty Shares must be held and may not be
sold, transferred, or otherwise disposed of for value unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; except as set forth in the Loan Agreement, the
Company is under no obligation to register the Note and/or the Conversion Shares
or Penalty Shares under the Securities Act; in the absence of such registration,
sale of the Note or the Conversion Shares or Penalty Shares may be
impracticable; the Company or the Company’s registrar and transfer agent, if
any, will maintain stock transfer orders against registration of transfer of the
Note and the Conversion Shares and Penalty Shares; and the certificates to be
issued for any Conversion Shares or Penalty Shares will bear on their face a
legend in substantially the following form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF
ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER
COMPLIANCE UNDER THE ACT OR THE LAWS OF THE APPLICABLE STATE OR A “NO ACTION” OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT
THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH
STATE STATUTES.
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c. The
Company may refuse to transfer the Note and/or the Conversion Shares or Penalty
Shares unless the Holder provides an opinion of legal counsel reasonably
satisfactory to the Company or a “no action” or interpretive response from the
SEC to the effect that the transfer is proper; further, unless such letter or
opinion states that the Note and/or the Conversion Shares or Penalty Shares, as
applicable, are free from any restrictions under the Securities Act, the Company
may refuse to transfer the Note and/or the Conversion Shares or Penalty Shares
to any transferee who does not furnish in writing to the Company the same
representations and agree to the same conditions with respect to such Note and
the Conversion Shares and Penalty Shares as set forth herein. The
Company may also refuse to transfer the Note or the Conversion Shares or Penalty
Shares if any circumstances are present reasonably indicating that the
transferee’s representations are not accurate.
10. Registration
of Transfers and Exchange of Notes.
a. Transfer
Register. Subject to compliance with the legend set forth on
the face of this Note, the Company shall register the transfer of any portion of
this Note in the Note Register, upon surrender of this Note with the Form of
Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 11(c) below. Upon any such
registration or transfer, a new Note, in substantially the form of this Note
(any such new Note, a “New
Note”), evidencing the portion of this Note so transferred shall be
issued to the transferee and a New Note evidencing the remaining portion of this
Note not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Note by the transferee thereof
shall be deemed the acceptance of such transferee of all of the rights and
obligations of a Holder hereunder.
b. New Notes. This
Note is exchangeable, upon the surrender hereof by the Holder to the office of
the Company specified in or pursuant to Section 11(c) below for one or more New
Notes, evidencing in the aggregate the right to aggregate principal amount of
the original Note. Any such New Note will be dated the date of such
exchange.
11. Miscellaneous.
a. Registration Rights. The
Conversion Shares and Penalty Shares are granted piggyback registration rights
as set forth in the Loan Agreement.
b. Shareholder
Rights. The Holder shall not, by virtue hereof, be entitled to
any voting or other rights of a shareholder of the Company, either at law or
equity, unless or until this Note is converted as provided
herein. The rights of the Holder are limited to those expressed in
this Note.
c. Notices. All
communications provided for herein shall be in writing and shall be deemed to be
given or made on (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service, or (b) three business days after mailing
if mailed from within the continental United States by registered or certified
mail, return receipt requested, to the party entitled to receive the same, if to
the Company at 0000 X. Xxxxxx Xxxxx Xxxx, #000, Xxxxxxx, XX 00000, Attention:
Xxxxxx X. Xxxxxxxxx, CEO, or if to the Holder, at the address provided in the
Note Register, or at such other address as shall be designated by any party
hereto in written notice to the other party hereto delivered pursuant to this
paragraph.
d. Attorneys’
Fees. Should either party hereto default in any of the
covenants, conditions, or promises contained herein, the defaulting party shall
pay all costs and expenses, including a reasonable attorney’s fee, which may
arise or accrue therefrom, or in pursuing any remedy provided hereunder or by
the statutes of any state.
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e. Governing Law and
Venue. This Note and the rights and duties of the parties
hereto shall be construed and determined in accordance with the laws of the
State of Washington (without giving effect to any choice or conflict of law
provisions), and any and all actions to enforce the provisions of this Note
shall be brought in a court of competent jurisdiction in the County of Spokane,
State of Washington and in no other place.
f. Rights Are
Cumulative. The rights and remedies granted to the parties
hereunder shall be in addition to and cumulative of any other rights or remedies
either may have under any document or documents executed in connection herewith
or available under applicable law. No delay or failure on the part of
a party in the exercise of any power or right shall operate as a waiver thereof
nor as an acquiescence in any default nor shall any single or partial exercise
of any power or right preclude any other or further exercise thereof or the
exercise of any other power or right.
g. Waiver and
Amendment. None of the provisions hereof may be changed,
waived, terminated or discharged orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, termination
or discharge is sought.
h. Negotiability and
Transferability. This Note is negotiable and transferable,
subject to compliance with the provisions of Section 9 hereof.
i. Presentment
Waiver. The Company hereby waives presentment for payment,
protest, and notice of protest and of nonpayment of this Note.
j. Severability. If
any provision of this Note is held invalid or unenforceable by any court of
final jurisdiction, it is the intent of the parties that all other provisions of
this Note be construed to remain fully valid, enforceable, and binding on the
parties.
k. Headings. The
descriptive headings of the various paragraphs or parts of this Note are for
convenience only and shall not affect the meaning or construction of any of the
provisions hereof.
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By
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/s/ Xxxxxx X. Xxxxxxxxx
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Xxxxxx
X. Xxxxxxxxx, Chief Executive
Officer
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0000 X.
Xxxxxx Xxxxx Xxxx, #000
Spokane,
WA 99208
Re: Conversion
of Note
Gentlemen:
The
undersigned owner of this Note hereby irrevocably exercises the option to
convert this Note or the portion hereof designated, and any unpaid interest on
the Note, into shares of common stock of Desert Hawk Gold Corp., in accordance
with the terms of this Note, and directs that the shares issuable and
deliverable upon the conversion, together with any check in payment for
fractional shares, be issued in the name of and delivered to the undersigned
unless a different name has been indicated below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay any transfer taxes payable with respect thereto.
Date:
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(Signature)
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FILL
IN FOR REGISTRATION OF SHARES
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(Printed
Name)
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(Social
Security or other identifying number)
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(Street
Address)
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(City,
State, and ZIP Code)
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Portion
to be converted (if less than
all)
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FORM
OF ASSIGNMENT
(To be
executed upon assignment of Note)
For value
received,
hereby sells, assigns and transfers unto
the attached Note [ %
of the attached Note], together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Desert Hawk Gold Corp. (the
“Company”) attorney to transfer said Note [said percentage of said Note] on the
books of the Company, with full power of substitution in the
premises.
If not
all of the attached Note is to be so transferred, a New Note is to be issued in
the name of the undersigned for the balance of said Note.
The
undersigned hereby agrees that it will not sell, assign, or transfer the right,
title and interest in and to the Note unless applicable federal and state
securities laws have been complied with.
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Dated:
,
20
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Signature
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