NEITHER
THIS CONVERTIBLE NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION (TOGETHER, THE “SECURITIES LAWS”) AND MAY
NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR
ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS
AND UNTIL THE ISSUER THEREOF SHALL HAVE RECEIVED AN OPINION FROM
COUNSEL ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT
VIOLATE ANY APPLICABLE SECURITIES LAWS. TRANSFER OF THIS
CONVERTIBLE NOTE IS ALSO RESTRICTED BY THE CONVERTIBLE NOTES
PURCHASE AGREEMENT REFERRED TO HEREIN.
THE
PAYMENT AND PERFORMANCE OF THIS CONVERTIBLE NOTE IS SUBJECT TO THE
TERMS AND CONDITIONS OF THAT CERTAIN CONVERTIBLE NOTES PURCHASE
AGREEMENT ENTERED INTO AS OF APRIL 10, 2007, BY THE HOLDER AND
ISSUER.
CONVERTIBLE PROMISSORY
NOTE
FOR VALUE RECEIVED , Wits Basin Precious Minerals Inc., a
corporation organized and existing under the laws of the State of
Minnesota (“ Issuer ”), hereby
unconditionally promises to pay to the order of China Gold, LLC, a
Kansas limited liability company, or its successors and assigns
(the “ Holder ”) on or before
_________, ____ (the “ Maturity Date
”), the principal sum of up to
________________________________ ($_______________) (the “
Principal ”), together with accrued and
unpaid interest thereon, as provided herein, from the date set
forth in Section 2 below until fully paid (the “
Indebtedness ”), all without relief from
valuation or appraisement laws. This Convertible Promissory Note
(the “ Note ”) is issued pursuant to
that certain Convertible Notes Purchase Agreement dated of even
date herewith by and between Issuer and Holder (as amended,
modified, or replace from time to time, the “
Convertible Notes Purchase Agreement
”).
1. Payment of Principal and Interest
. Subject to acceleration or earlier
required payment as provided for elsewhere in this Note, the
Convertible Notes Purchase Agreement or any of the other
agreements, documents, and instruments relating to any of the
Indebtedness or any security therefor that are required by the
Convertible Notes Purchase Agreement to be executed and delivered
to or for the benefit of Holder (collectively, together with this
Note and the Convertible Notes Purchase Agreement, the “
Investment Documents ”), the principal
balance of this Note, and any accrued and unpaid interest thereon,
shall be due and payable as follows:
(a) Beginning in the calendar month during which
this Note is issued, Issuer shall make payments of accrued and
unpaid interest, in arrears, on the last calendar day of each month
until such time all amounts due under this Note, including
Principal and accrued and unpaid interest, are paid in full or the
Note is otherwise converted pursuant to the terms hereof. All
payments of Principal and interest on this Note shall be made at
such place as the Holder shall designate to Issuer in writing. In
the event the last calendar day of the month is a non-Business Day,
the payment for such month shall be due on the next Business Day
following such last calendar day of the month. “
Business Day ” means any day other than a
Saturday, Sunday or legal holiday in the State of Kansas;
and
(b) The balance of all unpaid Principal and
interest thereon and all other amounts owed pursuant to this Note
shall be due and payable on the Maturity Date.
Issuer shall make all payments payable in cash
under this Note in lawful money of the United States. All payments
paid by Issuer to Holder under this Note and under the other
Investment Documents shall be applied in the following order of
priority: (a) to amounts, other than principal and interest, due to
Holder pursuant to this Note; (b) to accrued but unpaid interest on
this Note; and (c) to the unpaid principal balance of this Note. If
Issuer makes any payment of principal, interest or other amounts
upon the Indebtedness by check, draft, or other remittance, Holder
shall not be deemed to have received such payment until Holder
actually receives the payment instrument.
2. Calculation of Interest . Interest shall accrue on the outstanding
principal balance at the end of each day on which any amount is
outstanding under this Note at the rate of 8.25% (the “
Interest Rate ”) per annum. Interest shall
be calculated on a basis of the actual number of days elapsed over
a year of 365 days, commencing as of the date hereof.
3. Prepayment . This Note may be prepaid in cash or other
immediately available funds, in whole or in part, by Issuer at any
time and from time to time after the first anniversary of the date
hereof, without premium or penalty, upon thirty (30) days’
advance written notice to Holder. At Holder’s option, any
payments on this Note shall be applied first to pay Holder for all
costs of collection of any kind, including reasonable
attorneys’ fees and expenses, next to the payment of interest
accrued through the date of payment, and thereafter to the payment
of Principal.
4. Waiver . Payment of principal and interest due under
this Note shall be made without presentment or demand. The Issuer
and all others at any time liable directly or indirectly
(including, without limitation, the Issuer, any co-makers,
endorsers, sureties and guarantors, all of which are referred to
herein as “ Parties ”), severally
waive presentment, demand and protest, notice of protest, demand,
and dishonor, and nonpayment of this Note, and all diligence in
collection and agree to pay all costs of collection when incurred,
including reasonable attorneys’ fees, and to perform and
comply with each of the covenants, conditions, provisions, and
agreements of the Issuer contained in every instrument now
evidencing the Indebtedness. No release by Holder of any security
for payment of the Indebtedness or any modification or
restructuring in respect of any lien or security interest held or
at any time obtained or acquired by Holder for payment of such
Indebtedness shall operate to release, discharge, impair or alter
the liability of any Party liable at any time directly or
indirectly for payment of such Indebtedness.
5. Renewal and Modification . Issuer further agrees that the Indebtedness
may be from time to time, extended, renewed, modified, rearranged,
or evidenced by one or more other notes or obligations in
substitution for this Note and upon and for such term or terms
agreed to by Issuer and Holder in writing, and with or without
notice to other Parties. Issuer agrees that upon and after such
extension, renewal, modification, rearrangement, substitution, or
other change in form of the Indebtedness, each of the other Parties
shall remain liable in respect of the Indebtedness so renewed,
extended, modified, rearranged, or otherwise evidenced in the same
capacity and to the same extent as prior thereto. No release or
discharge (in whole or in part) of any Party hereto by Holder shall
in any manner impair, release, discharge, or alter the liability of
any other Party.
6.1 Optional Conversion . From and after the expiration of one hundred
twenty (120) days from the date hereof, at any time while any
portion of the Principal or accrued and unpaid interest under this
Note is outstanding, the Holder shall have the right, at the
Holder’s option, to convert (an “ Optional
Conversion ”) all or any portion of the unpaid
Principal and accrued interest under this Note (the “
Conversion Amount ”) into the number of
shares of Issuer’s common stock (the “ Common
Stock ”) computed by dividing the Conversion Amount
by a conversion price of $1.00 per share (the “
Conversion Price ”). The Conversion Price
shall be subject to adjustment from time to time pursuant to
Section 7 hereof.
6.2 Effect and Procedure of Optional
Conversion . An Optional
Conversion shall occur pursuant to the terms of this Note by
Holder’s delivery to Issuer at its principal office a notice
of Optional Conversion identifying the amount of the Optional
Conversion (a “ Notice of Optional
Conversion ”) (by facsimile or other reasonable
means of communication) prior to 5:00 p.m. local time in
Minneapolis, Minnesota on the Conversion Date. Holder shall not be
required to physically surrender this Note to Issuer unless the
entire unpaid Principal amount of this Note, together with accrued
and unpaid interest, is so converted or otherwise paid in full. The
Holder and Issuer shall maintain records showing the Principal and
accrued and unpaid interest under the Note so converted and the
dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and Issuer, so as not to
require physical surrender of this Note upon each such Optional
Conversion. In the event of any dispute or discrepancy, such
records of Issuer shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if any
portion of this Note is converted as aforesaid, the Holder may not
transfer this Note unless the Holder first physically surrenders
this Note to Issuer, whereupon Issuer 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 and any unpaid and accrued
interest 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
may be less than the amount stated on the face hereof.
Upon receipt of any Notice of Optional
Conversion, Issuer shall, within five (5) Business Days, issue and
deliver to such Holder at the address designated by such Holder a
certificate or certificates for the number of shares of Common
Stock the Holder shall be entitled to upon such Optional Conversion
(bearing such legends as are required by applicable state and
federal securities laws in the opinion of counsel to Issuer). The
person or persons entitled to receive the shares of Common Stock
issuable upon such Optional Conversion shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock as of the Conversion Date. Upon Optional Conversion of all or
a portion of this Note, Issuer will be forever released from all of
its obligations and liabilities under this Note with regard to that
portion of the Principal and accrued interest being converted,
including without limitation the obligation to pay such portion of
the Principal and accrued interest.
6.3 Automatic Conversion . All unpaid
Principal and accrued and unpaid interest on this Note shall be
automatically converted (an “ Automatic
Conversion ”), effective immediately prior to the
effective date of Issuer’s proposed merger transaction with
Easyknit Enterprises Holdings Limited (the “
Merger ”), into the number of shares of
Common Stock computed by dividing such outstanding amount by the
then current Conversion Price.
6.4 Effect and Procedure of Automatic
Conversion . Upon Automatic Conversion, Issuer will be forever
released from all of its obligations and liabilities to Holder
under this Note, including without limitation the obligation to pay
the principal amount and accrued interest under the Note. Upon
Holder’s surrender of this Note to Issuer at its principal
office, Issuer shall, at its expense and as soon as practicable
thereafter, issue and deliver to Holder one or more certificates
representing that number of shares of Common Stock to which Holder
is entitled, or, as applicable capital stock of the surviving
company to the Merger pursuant to Section 6.3 hereof (in any
case, bearing such legends as are required by applicable state and
federal securities laws in the opinion of counsel to Issuer). The
Automatic Conversion of this Note shall be deemed to have been made
immediately prior to the effective time of the Merger, and the
person or persons entitled to receive Common Stock upon such
conversion shall be treated for all purposes as the record
holder(s) of such Common Stock as of such date.
6.5 No fractional shares . No
fractional shares shall be issued upon any conversion of this Note.
In lieu of any fractional share of Common Stock to which Holder
would otherwise be entitled, an amount in cash equal to such
fraction multiplied by the fair market value of a share of Common
Stock, such fair market value to be determined as follows (as
applicable): (a) if the Common Stock is traded on an exchange or is
quoted on The NASDAQ National Market, NASDAQ SmallCap Market or the
OTC Bulletin Board, then the average closing or last sale prices,
respectively, reported for the date of conversion; (b) if the
Common Stock is traded in the over-the-counter market, then the
average of the closing bid and asked prices reported on the date of
conversion; or (c) if the Common Stock is not publicly traded and
there has been no Qualifying Sale, then fair market value of such
stock will be determined by Issuer’s board of directors,
acting in good faith utilizing customary business valuation
criteria and methodologies (without discount for lack of
marketability or minority interest).
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Conversion
Price Adjustments .
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7.1 Adjustment for Stock Splits or
Combinations . In the
event of: (a) the payment of dividends on any of Issuer’s
capital stock payable in Common Stock or securities convertible
into or exercisable for Common Stock; (b) the subdivision of
Issuer’s outstanding shares of Common Stock into a greater
number of shares; or (c) the combination of Issuer’s
outstanding shares of Common Stock, by reclassification or
otherwise; then the Conversion Price shall be adjusted
proportionately to reflect the reduction or increase in the value
of each share of Common Stock.
7.2 Notice of Adjustment . Upon any adjustment of the Conversion Price,
Issuer shall give written notice thereof within thirty (30) days,
by first-class mail, postage prepaid, addressed to Holder as shown
on Issuer’s books, which notice shall state the adjusted
Conversion Price and set forth in reasonable detail the method of
calculation and the facts upon which such calculation is
based.
7.3 Effect of Reorganization, Reclassification,
Merger, Etc. If at any
time Issuer: (a) reorganizes its capital stock (other than by the
issuance of shares of Common Stock in subdivision of outstanding
shares of Common Stock, and other than by a share combination, as
provided for in Section 7.1 ); (b) conso
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